The US Commodity Futures Trading Commission has given a green light to the first US regulated platform for hemp derivatives by granting full swap execution facility status to the Seed Commodity Exchange.
Seed SEF, a subsidiary of Seed CX, intends to offer two separate swap contracts referencing hemp seed and whole plant hemp extract. Additional derivatives along the hemp processing chain may be added subject to demand and futures are also being considered, requiring the exchange to register as a designated contract market.
The exchange, which secured investment from a range of backers and technology support from GMEX earlier this year, is seeking to capitalise on the 2014 federal farm bill that legalised hemp cultivation for research purposes.
“For the past year, we have been working closely with farmers and processors around the country to identify the risks that we can address with forwards and options,” said Edward Woodford, CEO of Seed SEF
“Because of recent changes in federal law and regulation, industrial hemp presents unique opportunities and risk management challenges in manufacturing, food and health applications that Seed SEF’s products will address.”
Contracts are set to begin trading later this year and Woodford projects the market could facilitate as many as 40,000 daily contracts, based on an average “derivatives multipler” from other agricultural markets.
The latest approval, which takes the number of registered SEFs to 23, is a significant step for a commodity with huge cash crop potential but a troubled reputation due to its close genetic relationship with marijuana.
Both are varieties of the Cannabis Sativa plant and are Schedule One substances under the Controlled Substance Act. Industrial hemp, a component of oils, cloth and plastics, must have less than 0.3% content of the psychoactive chemical THC. A bill to remove the commodity from the Controlled Substance Act is currently in process.
Cultivation is increasing as farmers diversify away from lower yielding crops. Kentucky’s Industrial Hemp Research Program, a five-year pilot run by the state’s agriculture department, is in its third year of testing hemp’s potential as a cash crop amid declining tobacco revenues. The scheme has attracted 166 licensed farmers this year and approved 4,500 acres for hemp cultivation.
According to the US Department of Agriculture, at current wholesale prices around US$50 a pound, hemp cultivation generates revenue of US$850 per acre, compared to less than US$500 for soybeans.