Industrial Hemp Fiber and Grain Processing in Hardin County, Kentucky: A USDA Business & Industry Model Study

Model study: an illustrative feasibility analysis built on public data for Hardin County, Kentucky; not a client engagement.

Project summary

Costs, structure, coverage and returns in this table are model results or model assumptions.

The credit question

The question is not whether hemp has uses. It is whether this plant will receive enough stalk and grain at a cost it can afford, and sell its outputs to buyers bound to pay, for long enough to retire a 22-year loan. Four things must be shown.

First, that feedstock can be created. Kentucky growers reported 103.5 acres of hemp for fiber and 139.4 acres for grain to the Farm Service Agency for the 2025 crop, and 225.3 and 80.1 acres in the 2026 file [3][4]. The modeled plant needs 4,500 contracted acres. Supply is not a share of an existing market. It is a new one the plant must build.

Second, that the outputs have contracted buyers. Part 5001 asks the lender's analysis to cover the "strength and duration of purchase agreements" and "off-take agreements" [1]. In this model about 69% of stabilized revenue comes from one product, hemp hearts. The hearts offtake is the credit.

Third, that the plant survives the ramp. Grain is harvested once a year, and a plant opening with 40% of its acreage loses money in Year 1. Someone other than the lender must fund that gap.

Fourth, that the regulatory change helps rather than harms. Congress rewrote the federal hemp definition in November 2025, created a category called industrial hemp [5], and in September 2026 limited most of the change until December 11, 2026 [6]. A fiber and grain plant sits inside the protected category, but its growers still face plant-level THC testing [7].

Location and county economy

Population and growth

Hardin County had 110,702 residents in the 2020 census [8] and an estimated 113,482 on July 1, 2025 [9]. That is growth of 2.5% in five years (computed), including 838 people in the year to July 2025 [9]. The county seat has grown faster. The Census Bureau estimates Elizabethtown at 35,448 in 2025, up from an estimates base of 31,388 in 2020, while Radcliff slipped from 23,023 to 22,576 and the balance of the county outside its cities fell from 47,794 to 46,603 [10]. Growth is concentrating along the I-65 and US 31W corridor around Elizabethtown.

A growing county seat supplies the 30 or so workers the plant needs. It also means the land near Elizabethtown is more commuter town than farm hinterland; the plant's growers will mostly farm outside Hardin County.

Households and income

The 2025 American Community Survey counts 48,417 households in Hardin County [11]. Median household income was $72,239, with a margin of error of $5,844, against $66,447 for Kentucky and $84,780 for the United States [12]. Per capita income was $40,604, compared with $37,754 statewide and $47,171 nationally [13]. About 10.1% of residents for whom poverty status is determined lived below the poverty line (computed from [14]).

Income matters here for wages, not demand: the products sell into national ingredient and materials markets.

Employment and major sectors

Of 48,135 employed civilian residents, 16.5% worked in manufacturing, 22.0% in education and health care, and 12.4% in public administration (computed from [15]). The public administration share and 5,253 residents in the armed forces [16] reflect Fort Knox. Only 248 residents, 0.5%, worked in agriculture, forestry, fishing and hunting (computed from [15]).

County Business Patterns counts 36,716 private-sector jobs at 2,253 establishments in Hardin County in 2023, with annual payroll of $1.706 billion [17]. Manufacturing employed 6,425 people at 69 establishments, 17.5% of private employment, with average payroll of $61,718 per employee against $46,455 for all private jobs (computed from [17]). Health care employed 6,988, retail 6,236 and accommodation and food services 4,955 [17].

Labor supply and the reduced-fee test

Fort Knox and a manufacturing base that employs one in six working residents give the county a deep pool of industrial labor. This model study does not rely on monthly county unemployment data. It carries full staffing at market wages rather than assuming slack.

Part 5001 lets the agency charge a reduced guarantee fee, subject to annual limits, where the project meets one of several criteria, including location in a county with an unemployment rate of 125% or more of the current national rate, or a locally owned and managed business that produces a natural resource value-added product [1]. A lender should test both for an actual owner and month of application. The model does not assume the reduced fee.

Commuting and logistics

Hardin County workers averaged a 27.2-minute commute in 2025, against 27.4 minutes nationally and 24.5 in Kentucky (computed from [18]). For an inbound-feedstock plant the location question is truck access, and the I-65 and Western Kentucky Parkway junction near Elizabethtown gives it in several directions.

Industrial power is a cost advantage: Kentucky's industrial customers paid an average of 7.37 cents per kWh in August 2026, against 9.64 cents nationally [19].

Market analysis

The federal framework, then and now

The 2018 Farm Bill defined hemp as Cannabis sativa L. with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis [20], without distinguishing fiber and grain from flower.

Public Law 119-37, approved November 12, 2025, rewrote that definition effective 365 days after enactment [5]. Under the new text, hemp is measured by total tetrahydrocannabinols including tetrahydrocannabinolic acid, still at 0.3 percent on a dry weight basis. The definition expressly includes industrial hemp and excludes, among other things, final hemp-derived cannabinoid products with more than 0.4 milligrams combined total per container of total tetrahydrocannabinols and similar cannabinoids [5]. Industrial hemp is defined as hemp grown for the use of the stalk and fiber or other non-cannabinoid stalk products, or for the whole grain, oil, cake, nut, hull or other non-cannabinoid seed products, among other listed uses [5].

Public Law 119-103, enacted September 2, 2026, provides that until December 11, 2026 the section 781 amendments apply only to products described in two of the new exclusions, those covering cannabinoids not capable of being naturally produced by the plant [6]. A lender should confirm the law in force at closing.

Three consequences matter to the credit.

1. Hearts, hulls, bast and hurd are seed and stalk products inside the "industrial hemp" category. The tighter limits target cannabinoid products, not them.
2. Field risk remains. USDA's hemp production rule at 7 CFR part 990 requires a sampling agent to collect samples no more than 30 days before the anticipated harvest, and provides for disposal or remediation of non-compliant plants [7]. The rule text still defines the acceptable level by total delta-9 tetrahydrocannabinol with the measurement of uncertainty [7], while the amended statute names total tetrahydrocannabinols including the acid [5]. How USDA reconciles the two after December 11, 2026 is an open question for the lender's counsel.
3. Acres may shift toward fiber and grain. Kentucky's FSA hemp acreage fell 63.6%, from 4,750.5 in the 2025 file to 1,728.2 in the 2026 file, while fiber rose from 103.5 to 225.3 acres (computed from [3][4]). That is too small to support a plant of this size.

Kentucky hemp acreage and licensed growers

Kentucky's licensing history is a boom and bust. The Kentucky Department of Agriculture (KDA) oversaw 978 licensed growers and 210 processors in 2019, when growers reported growing 26,500 acres [21]. For 2020 KDA licensed 960 growers to grow up to 32,000 acres [21]. For 2022 it licensed 240 growers for up to 5,530 acres, of whom about 70 planted just over 1,300 acres [22]. For 2023 it licensed 170 growers for up to 4,050 acres; about 60 planted just over 1,500 acres, and 71 processors and handlers were licensed [23]. KDA license counts for 2024 to 2026 are not used here.

Processor activity fell further. Licensed processors and handlers reported $193.9 million of gross product sales in 2019 and $207.3 million of capital investment [21]. For 2022 they reported $43.5 million of sales and $23.6 million of capital investment [23]. That is a 78% fall in sales and an 89% fall in investment in three years (computed). KDA's releases are not fully consistent: the 2022 release attributes $43.5 million of sales to 2021 [22], while the 2023 release gives $43.4 million for 2021 and $43.5 million for 2022 [23].

NASS's survey shows a recovery that is almost entirely floral. Kentucky planted 1,400 acres in 2022 [24], and 1,310 in 2023, 2,700 in 2024 and 4,800 in 2025 [25]. Of 4,700 harvested acres in 2025, 4,400 were floral [25]. Kentucky fiber acreage harvested was 180 acres in 2022 [24], and 56 in 2023, 350 in 2024 and 170 in 2025 [25]. NASS publishes grain hemp by region, and Kentucky sits in Region 6, whose grain figures are withheld to avoid disclosing individual operations [25].

Kentucky farmers can grow hemp at scale; they reported 26,500 acres in 2019 [21]. Acreage follows the most profitable use, so a fiber and grain plant must make its contract the best use of the acre, every year, against corn, soybeans and tobacco.

Feedstock supply and haul radius

This model study assumes a 75-road-mile procurement radius, because bales are bulky and grain must move at harvest. The FSA county files show what is planted inside it. Distances below are straight lines from Hardin County's internal point to each county's internal point [26]; road distances are longer.

Sources: FSA crop acreage files for 2025 and 2026, planted and failed acres, Kentucky rows [3][4]; county internal points from the Census Gazetteer [26]; distance bands computed. Seed and transplant acres are omitted. Band figures are rounded, so they may not add exactly to the totals.

Inside 75 straight-line miles, Kentucky had about 80.1 grain acres and 104.6 fiber acres in the 2026 file, and nearly all the grain acres were in Nelson County (computed from [4][26]). Hardin County reported 55 acres of hemp for 2025, all for cannabidiol, and none in the 2026 file [3][4]. The plant's 4,500 contracted acres would be 14.7 times Kentucky's combined 2026 fiber and grain acreage, and close to the whole state's 2025 hemp acreage of all types (computed). Southern Indiana lies inside the radius, but Indiana acreage was not extracted for this model study.

The model therefore uses dual-purpose contracts: each acre supplies grain to the dehulling line and residual stalk to the decortication line, and the grower's main income is grain. The cost is fiber quality. Stalk left after a grain harvest is coarser, so bast is priced as technical fiber for nonwovens and composites, not textiles.

End markets and price evidence

Public price data are thin. USDA's Economic Research Service noted in 2020 that, as of late 2019, there was still no publicly reported hemp price information [27]. NASS now publishes farm-gate prices; it does not give wholesale prices for hearts, bast or hurd.

• Hearts sell to food makers who require food-safety certification and THC residue testing (assumption). Margins are largest here, and buyer concentration is the risk.
• Bast goes to nonwovens, insulation and composites. A U.S. plant must sell cleaner or more local fiber to earn the modeled $0.45/lb.
• Hurd is 70% or more of the stalk, and KDA lists fiber uses ranging from polymer composites to animal bedding [28]. Bedding is local and freight-sensitive, so volume risk sits here: 4,190 tons a year must move.

Processing yields

KDA's grower orientation for the 2026 season states that hemp stems are 15% to 20% bast, 70% or more hurd and 5% to 10% waste, that average seed or grain yields are 800 to 1,000 lb per acre, and that Kentucky growers self-reported average yields of 400 lb per acre of grain and 1,113 lb per acre of fiber in 2020 [28]. NASS reports a 2025 national grain yield of 966 lb per acre but a median of 410, and a fiber yield of 3,104 lb per acre with a median of 2,200 [25]. The gap between means and medians matters: a typical grower produces far less than the average.

The model uses 800 lb of grain and 1.33 tons of residual stalk per acre, with the recoveries below; the stalk split sits inside KDA's ranges [28]. Hearts recovery must be replaced by a vendor guarantee and trials.

All figures in this table are modeled.

Price volatility

NASS data show three kinds of volatility a lender must price.

• Year-to-year price swings. The national grain price rose 48% from 2024 to 2025 [25]. The Kentucky fiber price more than doubled from 2022 to 2023 and fell 42% the next year (computed from [24][25]).
• Dispersion within a year. The 2025 national grain price averaged $1.14 against a median of $0.65; fiber averaged $0.21 against $0.14 [25].
• Unsold output. Nationally, 2.3 million lb of 2025 fiber production was harvested but not sold, 3.4% of the crop; in Kentucky it was 147,000 of 1,156,000 lb, 12.7% (computed from [25]). NASS lists poor quality, market conditions and marketing restrictions among the reasons [25].

Contracting is not yet the norm, and its share swings. In 2025, 71% of U.S. utilized grain production was under contract, up from 12% in 2024; the fiber share was 45%, down from 65% [25]. A plant that contracts all of its acreage would be unusual.

Demand method and forecast

For a processor, demand runs two ways: securing acres upstream and selling output downstream. The upstream constraint binds first.

• Acreage ramp. 1,800 acres in Year 1 (40%), 3,150 in Year 2 (70%) and 4,500 from Year 3. Even Year 1 is about six times Kentucky's combined fiber and grain acreage in the 2026 file (computed from [4]).
• Grower economics. At $0.70/lb of grain and $70 a ton of stalk, an acre earns the grower $653 gross in Year 1 (model result). Whether that beats corn or soybeans after hemp's testing and licensing costs is a question for crop budgets the lender should require. If not, the acres will not come.
• Downstream capture. The model sells every pound at contract prices, which is credible only if offtakes cover most volume before closing. It is a closing condition, not a forecast.

Site and technical

Site requirements

The modeled site is 20 acres near Elizabethtown with three-phase power, gas or propane for drying, public utilities and I-65 access. Bales arrive over a few autumn weeks, so the budget carries 36,000 sf of covered storage; the rest are stored on farms and called in, with storage paid in the stalk price.

B&I rural eligibility

For B&I, a rural area is any area of a state not in a city or town of more than 50,000 inhabitants and not in the urbanized area contiguous and adjacent to such a city or town, using the latest decennial census [1]. Elizabethtown's 2025 estimate of 35,448, and its 2020 estimates base of 31,388, are well below 50,000 [10]. The 2020 Elizabethtown-Radcliff urban area had 76,441 people [29], but the test turns on a city or town of more than 50,000, and neither Elizabethtown nor Radcliff is that large [10]. Hardin County was 66.5% urban by population in 2020 but 91.2% rural by land area [8]. The application should include a parcel printout from USDA's official eligibility map.

Zoning and permits

• Local land use. Hardin County and Elizabethtown zoning for agricultural processing, outdoor bale storage and dust-generating operations must be confirmed for an actual parcel.
• State licenses. KDA's fee schedule lists $500 a year each for handler, fiber processor and grain processor licenses, and a processor working with more than one harvestable component pays an annual fee for each component; growers pay $400 per growing address [30].
• Food safety. The hearts room must meet FDA food facility requirements; $85,000 a year is budgeted for testing and certification (assumption).
• Combustible dust and fire. Decortication makes fine organic dust and bales are a fire load; $400,000 is budgeted for controls (assumption). Applicable codes must be confirmed with the fire marshal and insurer.
• Federal environmental review. B&I guarantees must comply with 7 CFR part 1970 [1].

Technology and technical merit

Decortication is commercially available, but performance varies with stalk condition. Part 5001 requires integrated processing equipment and systems to use commercially available technology and to demonstrate technical merit, which it defines as the completion of two operating cycles at the designed production level [1]. Whether USDA will treat a decortication and dehulling plant as integrated processing equipment is a question for the state office. The prudent assumption is yes: vendor guarantees, an independent engineer and a trial on Kentucky stalk.

Construction approach and schedule

A pre-engineered steel shell houses vendor-installed lines and a food-grade room. The schedule follows the crop calendar: a missed harvest costs a year.

Timings are model assumptions.

Development budget and sources and uses

All costs are model-study assumptions. They should be replaced by vendor quotes, a contractor's guaranteed maximum price and an appraisal before any reliance.

The guarantee fee is the total loan amount times the percentage of guarantee times the fee rate [1], at the FY2026 B&I rate of 3.0% and 80% guarantee [2]. The ramp reserve is equity-funded so the lender is not lending against losses. Because about $2.5 million of grain is bought each autumn and sold over twelve months, the model adds a seasonal line outside the guarantee, with interest on an average balance of 25% of feedstock cost.

All amounts are modeled. For a new business, B&I requires 20% balance sheet equity or a 25% investment in eligible project cost, 25% where the loan note guarantee is issued before construction is complete, or 10% where sales contracts cover debt service for the loan term; the agency may raise the requirement for new businesses producing new products to sell into new and emerging markets [1]. Here cash flow, not the rule, sets equity.

Revenue build and operating expenses

Year 1 prices are hearts $5.00/lb, hulls $0.04/lb, bast $900 a ton ($0.45/lb), hurd $320 a ton and fines $30 a ton. Feedstock costs are grain $0.70/lb, close to the 2025 national median of $0.65 [25], and residual stalk $70 a ton delivered. Product prices and feedstock costs escalate 2% a year, labor 3% and other operating costs 2.5%. All are assumptions; the hearts and stalk prices carry the most weight.

All figures in this table are modeled. Hearts are 68.8% of Year 4 revenue and bast and hurd 30.0%. The fiber line keeps the grower contract attractive, but it does not carry the loan.

Operating expense structure

Labor is about 30 full-time equivalents at stabilization: fixed payroll of $1,150,000 in Year 1 dollars plus $60 per ton of stalk and $0.08 per lb of grain.

All figures in this table are modeled. Feedstock (38.2%) and labor (24.0%) absorb 62.2% of revenue. A 5% move in the hearts price changes EBITDA by about $281,000, or 17%. The retention fee is 0.55% a year [2] of the guaranteed share of the outstanding balance. It is modeled on the balance at the start of each year; the FY2026 notice computes it on the outstanding principal balance as of December 31, multiplied by the percentage of guarantee [2].

10-year pro forma

All figures are modeled. Ten-year revenue is $77.4 million and NOI $11.1 million. NOI is flat after Year 3 because labor escalates faster than revenue. The ramp reserve covers the two-year deficit of $2,023,528. Figures are pre-tax for a pass-through owner.

Debt structure

Why $8.0 million. With Tranche A at $9.0 million (total loan 50.9% of cost), Year 4 coverage is 1.11x; at $11.0 million (59.2%) it is 0.96x. A guarantee changes who bears the loss, not the cash flow. These are model results.

Why 80%. B&I loans under $5 million carried an 85% guarantee in FY2026 [2], a reason to test a smaller first phase.

Why fixed. A variable rate can be adjusted no more often than quarterly [1]; in the model each 200 basis points costs about 0.15x. A swap is possible, but the guarantee covers only principal and interest [1].

Fee year. The guarantee fee rate is the one published for the fiscal year in which the loan is obligated [1]. A Federal Register API search on November 11, 2026 found no FY2027 notice; the newest is the FY2026 notice of March 9, 2026 [33]. This loan would be obligated in FY2027 or later, so FY2026 rates serve as a proxy.

DSCR and break-even

Part 5001 defines the debt service coverage ratio as EBITDA less reasonably expected replacement capital expenditures, divided by annual principal and interest [1].

All figures in this table are modeled. Stabilized coverage looks adequate; the break-evens show how thin it is.

All figures in this table are modeled. Each break-even sits inside NASS's reported ranges. The 2025 median grain yield of 410 lb [25] is below the 667 lb break-even, and the 2025 dried-grain average of $1.06/lb [25] is above the $0.80 break-even cost. A plant that buys at the national average, or whose growers produce the median, does not cover its debt.

Returns

Returns are pre-tax over 10 years, with cost at Year 0 and exit at Year 11 NOI of $1,433,273 capitalized at 11.0% (assumption), less 3% selling costs.

All figures in this table are modeled. Exit value is $6.9 million below cost. A lender's appraisal will show a similar gap, because part 5001 requires any business or going-concern value to be deducted from the reconciled market value before discounting [1], and the collateral is specialized. The deeper problem is the owner: $12 million earning 0.7% will not be topped up in a bad crop year.

What would have to be true. Holding everything else constant, the Year 1 hearts price would need to be $5.49/lb (+9.8%) for an 8% unlevered IRR, $5.72/lb (+14.4%) for 10%, and $6.03/lb (+20.6%) for a 15% levered IRR (model results). Whether a buyer will contract at those prices for years cannot be answered from public data.

Sensitivity and stress tests

The first grid varies the interest rate on both tranches against stabilized acreage (Year 3 onward). It reports Year 4 DSCR.

All figures in this table are modeled. Volume dominates rate: 200 basis points cost about 0.15x, a 10% acreage shortfall 0.37x.

The second grid varies the two prices that set the hearts margin: the Year 1 hearts selling price and the grain purchase price.

All figures in this table are modeled. The plant lives on the spread. Each $0.10/lb of grain cost moves coverage by about 0.38x and each $0.25/lb of hearts price by about 0.27x. Linking the grower price to the hearts price would stabilize it.

All results in this table are modeled. Only the rate stress stays above 1.0x. The crop shortfall uses NASS's median yield [25]: feedstock spending falls, but fixed labor, insurance and debt service do not.

Program compliance

Risks and mitigants

Why lenders treat new hemp processors as high risk

Kentucky's record is the reason. Processor sales reported to KDA fell from $193.9 million in 2019 to $43.5 million in 2022, and capital investment from $207.3 million to $23.6 million [21][23]. USDA's Economic Research Service warned in 2020 that if supply outpaced demand and prices fell rapidly, many producers and processors could face startup and input costs that might force them to exit the industry [27]. KDA's 2026 grower orientation still describes markets for both hemp grain and hemp fiber as limited [28]. And none of the 19 processors and handlers on KDA's 2026 list, which includes only license holders who chose to be listed, is located in Hardin County [34].

The lesson: grower contracts are worth the processor's ability to pay, buyer contracts the buyer's credit and term, and the collateral much less than cost once the plant stops.

Assumptions

Figures in this table are not sourced facts. Each must be replaced by a document before any reliance.

Model determination

The modeled plant is not financeable as structured. Its 1.39x to 1.40x stabilized coverage on an $8.0 million loan rests on 4,500 acres that do not exist (the state's 2026 FSA file shows 305.4 fiber and grain acres [4]), a hearts price with a 7.2% cushion, and grain bought at the national median rather than the average. Every commercial stress drops coverage below 1.0x, and a 0.7% levered return gives the owner no reason to inject cash in a bad year.

The federal changes help the asset class by protecting fiber and grain as industrial hemp [5]. If growers move acres from CBD toward grain and fiber, the feedstock problem eases, but 2026 shows only a beginning [4].

A lender could reconsider a restructured project that meets these conditions:

1. Phase the plant. Build the grain cleaning and dehulling line first, with a loan under $5 million to qualify for the 85% guarantee in the FY2026 schedule [2], and add decortication once two operating cycles show grain throughput and recovery.
2. Contracted acreage before closing. Signed grower contracts of at least three years covering 100% of Year 1 acreage and 80% of stabilized acreage, with replacement-acre clauses for THC-noncompliant or failed fields.
3. Offtake as the credit core. Take-or-pay hearts offtakes of at least five years for at least 70% of stabilized volume, from buyers the agency accepts as creditworthy. With sales contracts covering debt service for the loan term, the new-business equity minimum would fall to 10% [1], but the cash flow, not the rule, should set equity.
4. Margin protection. Grain price formulas indexed to the hearts contract price, so the spread, not either price, is fixed.
5. Reserves. The ramp reserve funded in cash at closing, plus a debt service reserve equal to one year of payments after Year 2.
6. Technical proof. Vendor throughput and purity guarantees, an independent engineer's report, and a trial run on Kentucky dual-purpose stalk.
7. Regulatory opinion. A legal opinion that the plant's products are industrial hemp under the amended definition, and a covenant against cannabinoid products.
8. Owner fit. An owner with a strategic reason to hold the plant, such as a food company securing domestic supply or a grower cooperative, because the stand-alone equity return does not justify the investment.

Met, these conditions turn the question from whether hemp markets will develop into whether named counterparties will perform, which a B&I lender can analyze.