A new electronic trading platform for emerging commodities is setting the stage for Hemp to enter the trade market. Seed CX is a swap execution facility regulated by the U.S. Commodity Futures Trading Commission. Affiliates met with industry leaders in Chicago early this week to discuss the future of hemp.
Atalo Holdings is a hemp research and development company in the Seed CX advisory group. CEO Bill Hilliard says while hemp production levels are too low to invest in an exchange at the moment, they are increasing.
“We expect hemp to become a regular crop in the farmers rotation. Farmers that are growing crops for a living are typically very used to these commodities markets and how to use those to mitigate their risk in that crop production on an annual basis.” Hilliard said.
Several experienced commodity traders attended the meeting that have expressed an interest in participating in this market according to Hilliard. “Right now there is a lot of interest in the exchange but frankly there is not enough American production so far,” he said.
Hilliard believes production could see enough liquidity in the next two years. “It's wonderful that these individuals have taken the initiative to create a market that ultimately will be very beneficial for hemp farmers in the United States,” said Hilliard.
Atalo represents 58 farmers in Kentucky that are both permitted by the Kentucky Department of Agriculture and are actively engaged in raising hemp in some variety under the provisions of the industrial hemp pilot projects.
University of Kentucky Chair of Agriculture Economics Leigh Maynard has followed Seed CX to see just how they will deliver risk management in an emerging market like hemp. “ I’m not an expert on hemp, but my impression is that prices are currently being set contractually in one-on-one negotiations between buyers like Atalo and individual farmers,” said Maynard.
Seed CX wants to serve both hedgers and speculators, “but the scarcity of market information will likely make it difficult to attract large numbers of speculators, who have a multitude of more liquid, transparent markets in which to trade derivatives,” he said.
Most contracts are currently between pilot project farmers and buyers like Atalo which make up the potential hedging audience, so if they already contract with each other for a given price Maynard said “they no longer face any price risk and have no need of hedging.”
Maynard worries that farmers could eventually swamp the market with hemp, depressing prices to unprofitable levels.
“I have not heard anyone say they fear a shortage of hemp that will drive prices up and out of reach for hemp processors and food manufacturers. This suggests that buyers have little incentive to hedge using hemp derivatives, but it takes both sides to consummate a trade in derivatives,” said Maynard.
But having expressed his skepticism about the short-term prospects of hemp derivatives, “Seed CX has a first-mover advantage in developing risk management products for hemp, and large-scale demand for hemp may develop in the future,” Maynard said.
Still, much of hemp’s future depends on legislative and industry events “that no one can accurately predict,” said Maynard.
