2015 State of the Hop Industry

Get 2015 State of the Hop Industry Now FREE

The 2015 crop year will be the last year of a normal hop market before things get out of control. Just like a duck, the current hop market may seem calm on the surface. Underneath the surface, there’s a lot of activity. The trend of changing varieties and new plantings continues at a feverish pace in hop yards around the world. 47Hops expects an additional 6,000 acres of hops in the U.S. (3,500+/- acres in Washington alone). All of that new acreage is toward aroma varieties and away from alpha hops, which will be the cause for some additional stress in the future, but we’re not focused on that today. Is the additional 2015 acreage a troubling sign? Yes it is … but not for the reasons you might expect! What’s troubling is that Washington growers are ONLY planting an extra 3,500 acres. Before we dive deeper into that, let’s take a look at Germany.

Paddling-Duck

47Hops expects approximately 650 hectares (~1600 acres) of new hops in Germany. Significant acreage conversion continues to aroma varieties led not only by the 3 new popular Open Source varieties, Mandarina Bavaria, Hüll Melon and Hallertau Blanc, but also by old trusted names like Perle, Tradition and Hersbrucker. The trend away from the Magnum variety to the more efficient alpha producer, Herkules, continues fueled by an exchange rate making Germany a cheaper source for alpha, which at the end of the day is just a commodity. Remember, outside of Washington and Idaho none of the new acres planted this year will be available for the 2015 crop. Our sources estimate that there is only another 500-1000 hectares (1,235 – 2,470 acres) of picking capacity remaining in Germany after 2015. Further investment in infrastructure is highly unlikely in Germany due to: 1) Extremely high land costs, 2) Alternative crop opportunities due to the goal Munich has set to be powered by 100% renewable energy by 2025, and, 3) Skepticism about the market and the low return on investment available for new hops due to the lack of economies of scale. Furthermore, due to the burgeoning hop industry in states outside the Pacific Northwest of the U.S., exports of used German Wolf picking machine exports may soon surpass BMW. Ok, tiny exaggeration there. Not really. Seriously though, we have one friend alone who has sold over 40 machines to the US! While that may open doors for small American hop farmers, it closes the doors to low-cost small-scale expansion for the German hop industry. We estimate Germany will reach Peak Hop capacity next year.

In the past, Washington State’s ability to plant a crop in the spring and harvest in the fall has been a curse and a blessing. In 2008, Washington growers planted 8,000 acres in a very enthusiastic response to the high market prices at the time. Idle acreage and picking capacity were everywhere at the time! Everybody wanted a piece of the action! By 2009, you couldn’t give hops away. These cycles have happened in the hop industry as long as there has been a hop industry. Fast-forward to 2015 … Demand for more hops is high. Prices are strong. Are growers showing restraint because of the lessons learned in 08/09? No, that’s not it. Everybody wants a piece of the action … again. Yet, all Washington growers could do in 2015 was to expand by 3,500 acres helped along by +/- 1,200 acres in Idaho. With an average crop, that 47 hundred acres could produce 6.5M pounds of hops in 2015. That’s a lot of hops, but we estimate demand for hops to increase by 8-9M pounds this year based on roughly 22M barrels at approximately 2 pounds of hops per barrel and 18% growth and the trend toward dry hopping. Growers worldwide are pushing every bit of picking capacity and kiln space to do this. American hop farms are at capacity. Without a bumper crop and even with last year’s baby crops maturing, the hop industry will just keep pace with demand. Remember what the hop market has been like for the past 12 months with variety shortages? Expect more of that. The varieties that are short may change, but the shortages will be very real.

sorry-we-are-full-try-again-sign-design-600x434

Slowing growers’ expansion is money … surprise! Growers can’t finance the expansions quickly enough with the current market prices. In exchange for lower prices from growers, some merchants have stepped in to finance growers where banks would not. We have heard of ten growers receiving “alternate” financing. While that is keeping the market relatively calm and prices reasonable for 2015, it’s a troubling sign for future growth. While merchant financing solves one problem, it introduces even more risk into an already risky industry. These are temporary solutions to an ongoing problem. The American hop industry has never been more at risk than it is today.

Some new farms are going in, yes, but you can count them on one hand. Brewery partnerships are discussed more openly, but only a few have developed. If the craft industry continues to grow at 18-20% for another year, another 6,000 – 8,000 acres will be necessary in 2016. No grower knows today how that will happen. Ask one. Land is there if the price is right. That price is approaching $12,000 per acre. Picking capacity is the bottleneck. Dauenhauer Manufacturing, which produces picking machines in the US, is at capacity for a couple years. Prices in today’s market, many of which are $12,000 – $14,000 per acre return to the grower, finance some additional picking capacity, but don’t pay for new farms. Remember … one new farm costs about $20M+ and only produces about $1M pounds of hops per year. Some growers say that prices will need to reach $20,000 – $25,000 per acre before they support new farms.

So, what does all this mean? It means the hop industry reach will PEAK HOP production in 12 months. Does that mean there won’t be any more hops in 2016? Of course not! It just means the low-hanging fruit will be gone. Very soon, as they say, shit’s gonna get real. Merchants will step up to the plate to finance growers where they can. To keep the market calm, brewers must also step up to the plate to help finance the hop industry in ways other than just by purchasing hops. Without more of a vertically integrated partnership between grower, merchant and brewer, prices will skyrocket if demand continues to grow In that world, big brewers will likely be favored over small brewers more than they are today. Well-financed breweries will edge out competitors.

If you’re a budding young wannabe hop grower in Podunk, Arkansas, don’t start to think it’s time to plant the back 40 into hops based on what you read here. Brewers big and small will likely switch to using alpha acid and isomerized products to combat the shortages coming from Peak Hop. Creative strategies don’t have to be for only the breweries with deep pockets. Small brewers who develop relationships with their hop suppliers and use their craftiness first will be the ones to make it through the coming peak relatively unscathed. When shit gets real in the hop industry, business becomes very cutthroat. When prices are going through the roof is when close relationships will matter most. Long-term contracts and a relationship with a supplier you can trust to take care of you are as valuable as the hops themselves.

Beer Geeks Sneak Peeks at CBC15

Do you know the show Beer Geeks, hosted by Michael Ferguson?  We liked the show a lot, so much, in fact, that we arranged with the producers to do a special hop episode … a hopisode back when they were planning season 2.  OK … Why am I mentioning this now?  The new episode with 47Hops won’t be on TV still for a few more months.  At the 47Hops booth, this week at CBC, you’ll be able to get a sneak peek.  We’ll be playing a 10-minute clip of still unseen footage.  Stop by our booth so you can enjoy watching as we tour Michael through the valley and introduce him to some friends we at 47Hops work with every day.
Every episode is special, but this one is different as it is the only time the crew has visited the largest hop farms on the planet and followed the hops through to the brewery. You’ll get to see hop producing, American style. After visiting the hop fields and the brewery, of course, we topped it off by pairing the beers with amazing food at the end of the show.  I hope you’ll enjoy as I take Michael to visit some friends of 47Hops around the Yakima valley for a look at how hops are harvested and where they’re processed.  After processing, we visit a good friend and customer of 47Hops, Mark Hood over at Sound Brewery, to make some amazing beer with those same hops.
The show was a lot of fun to shoot!  Michael makes it look easy on camera.  It’s actually a lot of hard work.  It all seems so effortless and simple when you’re watching.  Michael, and the producers of the show go to great lengths to get the necessary shots no matter how many takes are required.  They’re passionate about their work and it shows in the quality show they produce.  If you enjoy the usual format of the show, you’ll definitely enjoy getting a glimpse inside the hop and brewing world to see some of the hard work that goes into making the beers we all love. 


You’ll have to wait a few more months to catch the whole episode on Ora TV, http://www.ora.tv/beergeeks, but you can get a sneak peak starting on the 15th.  We look forward to seeing you there. 

We’ll be at booth #923 at CBC.  Stop by and check it out

Something Big for the Craft Brewers Conference

We’ve been heads down the past few weeks working on preparations for the Craft Brewers Conference.  Only 10 days left until the show begins!!  47Hops had a last minute opportunity to give back to the industry and sponsor the CBC Closing Reception on Friday afternoon, so we hope you’ll stick around for that too.

CBC-2015

If you have a chance to explore Brew Expo America, the trade show attached to the CBC, like over 10,000 people, 47Hops is Booth 923. We’re right on the main aisle so it’ll be hard to miss us. Just to let you know … We have something sensational in store for the show. These are just two of the 5 boxes we’ll be bringing it in. It’ll be fun. No, it’s not a giant hop cone … although we did consider that. Seriously!

IMG_0244

Like the good hop merchant we are, we’ll have some exciting Open Source Varieties on display at the show for people to sample. We’ll also be giving out the 2015 State of the Hop Industry report prepared by yours truly. There are some things in it that will rock the boat … again. You won’t want to miss it.

With the growing popularity of craft beer, it’s an exciting time to be involved in the hop industry. We’re looking forward to have the opportunity to participate in the CBC, visit with a lot of our customers, and meet new people. This is only a short post today to update you on our CBC progress. Time to get back to it. Hope to see you at the show!

The Monsanto of Hops

There are some varieties you want, but you haven’t been able get them … Sound familiar?  Maybe that’ll change this year. I wouldn’t hold my breath if I were you. So, what have brewers done about it? Have they made less beer than they needed?  Short answer: NO.  It’s not the end of the world. Brewers can live without the handful of varieties causing the frustration just fine. It turns out there are over 100 other interesting varieties out there that can be used in different ways.  That’s not to mention Heirloom varieties, which are making a comeback and promise to be a bonanza.  Just like on the TV show Bonanza, there will be a happy ending at the end of the episode. The answer … There are some Open Source public and proprietary varieties out there that are accessible to everybody.  Brewers don’t have to be held hostage to somebody else’s business strategy.

Shortages of some proprietary varieties the past few years have given proprietary varieties a bad name, but they’re not all the same. The hype has helped to further polarize the industry … not that there was ever a time when the hop industry gathered around a campfire to hold hands and sing kumbayah. You might think somebody with a successful hop variety would do everything possible to help potential customers buy them, that they might enable it to get out to the masses and rise to the top. So, why are there shortages? Why hasn’t the supply of these short proprietary varieties responded to demand? Let’s take a look.

There’s a lot of posturing, politics and inside baseball in the hop industry. Things are very different than they appear from the outside. Despite the appearances of multiple companies selling the varieties and despite the propaganda that dozens of growers are growing these varieties, there are Some Big Growers controlling every last decision related to some of the most sought after proprietary varieties. To put it more bluntly, everything flows through one company you’ve probably never heard of. All the growing decisions, all the buying decisions, all the pricing decisions, all the sales outlets … it all ultimately come back to one company. I like to imagine they’re sitting in a plush room filled with cigar smoke, but that’s probably a bit too stereotypical. To say they’re the Monsanto of the hop world is no exaggeration, but you’d probably never know that because of all the smoke and mirrors … unless you’re an insider. Brilliant strategy for the Gambino, the Giordano and the Trafficante families who control that company and what we’ll call the hop syndicate!  Badda Bing!  Badda Boom!

monopoly-man

Open Source Hops are, on the other hand, available to anybody who wants to grow them and can be sold at the market price for whatever the going rate. You don’t have to get the blessing of the Godfather behind the scenes to grow your hops or make your beer. Public varieties are freely available, and, thanks to some rational business people in the industry, there are also Open Source proprietary varieties that are available to growers who pay royalties on the production. No shortages there! Hmmm. The Open Source proprietary variety owners decided from the get go not to restrict their access or try to greedily hoard all the sales through their own companies. Instead they make them available to growers and merchants who would like them. The royalties they are paid from the production, which is closely monitored, pays for all their investment and hard work. That seems like something a company might consider if it cared about supplying its customers with the products they need. It seems like something somebody would do if they want to support a free and open market.

Those don’t seem to be the goals of the families in the hop syndicate. From the outside, it appears they’re either purposely restricting the supply or seriously misreading the market. There’s a lot of speculation on the Interwebs that the shortages are intentional to jack up the price, a-la De Beers in the diamond world. Since there are multiple hop merchants involved, that would be anti-trust, which would be risky at best … but that’s not for me to decide. We’re not privy to their conversations. Ultimately, we can’t know their motives and should give them the benefit of the doubt.

Monopoly

It seems the hop syndicate’s strategy works well for you if you’re the owner of Big Ass Brewing Co.  They like those guys, and yes, they do pick and choose the growers and brewers that get to play with their toys. I don’t think even Monsanto is that power hungry. They just want to make ungodly amounts of money. In the current game, if you’re the owner of Local Guy Brewing Co. in Podunk, Nebraska, chances are you’ll never see those cool kid hop varieties, but maybe that’s not all bad. We’ll explore why in a bit.

Despite how sinister their actions look from the outside, I believe the truth behind the shortages is more likely because the hop syndicate has built up an impressive infrastructure around it. I can only imagine that information lags as it flows through complicated A and B pools, intricate cooperative buying schemes and different companies slowly making its way back to the mother ship. It seems the hop syndicate may have fallen prey to its own secrecy. Their micromanagement provides control that any OCD person can respect.

Unlike Monsanto, whose goals seem to be to profit every time somebody in the world eats, the goals of the hop syndicate seems to be total control of the hop market. Of course, the shortages and their resulting high prices, feed plenty of creative conspiracy theories. I’d cover up the little camera on your computer with a sticker … just in case.

To add insult to injury, in addition to strictly controlling production, pricing and sales outlets for these cool varieties, it seems the families have started a smear campaign of Open Source varieties too. They’re busy guys. That’s not cool though. One way insecure people lift themselves up is by putting others down. That’s probably why they’re downplaying great Open Source Varieties like Cascade, Centennial and Chinook. They’re certainly aware that their cooperative buying schemes run by their companies that interact with customers more closely resembles a Ponzi scheme than anything. We just had a brewer yesterday refer to one of them as “The Devil” … I kid you not. They asked us to help them so they never had to go back to the dark side for hops. They hadn’t even read this article yet. So … If you hear somebody bad mouthing one of these tried and true Open Source Hops, don’t believe the hype. Those varieties have thrived over the years for a good reason.

11513424364_f48b8cb877_b

Thing is … when a brewer can’t get one of those cool new flavors of the month, do they say to themselves, “Oh golly. I guess I just won’t produce any more beer for my customers”? Of course not!  They move on.  Craft brewing is a science, but it’s also an art.  Great artists find creative ways to solve problems.  If a painter doesn’t have yellow paint, he can mix a little red and green to get what he needs.  Craft brewers are the same. Don’t forget, there have been a lot of masterpieces created with Cascades, Centennials and Chinooks. Even the Monsanto of hops is powerless to stop the craftiness of the craft brewer. They’ll move on to Open Source Hops, use them in a unique and creative way and produce some awesome beers.

Long live the craftiness of craft brewers!

Shortages in 2014 Lead to Massive Hop Acreage Increases in 2015

We just returned from the Hop Growers of America Convention in San Diego, California.  Of course, San Diego was amazing! Props to HGA!! During the convention, HGA released its annual Statistical Report. Here are some thoughts regarding some of the information you can find there … and some comments on the information you won’t.

Hop Reception at Stone Brewery

Although U.S. growers planted an additional 3,600 acres (+10.26%) of hops in 2014, the yields were down 4.79%. Growers figure that an unseasonably hot July in the Pacific Northwest resulted in lighter cones and yields in some varieties that were down as much as 40%.  Of course, that means those acres will offer more “normal” yields in the coming year … assuming all goes well.

In 2015, There’s no margin for error for hop growers. Hop acreage increased by 10% in 2014, but the craft beer industry grew by 20%. As we mentioned, 2014 yields were down. You don’t have to be a rocket scientist to figure out that those numbers don’t match up. Growers worldwide simply can’t plant hops fast enough to keep up with demand with the craft market the way it is and allowing for variability due to Mother Nature.

Does this remind anybody else of Scotty telling Captain Kirk, “I’m giving her all she’s got Captain.  If I push it any harder, the whole thing’ll blow.”  Somehow the Enterprise always made it through, but it was never an easy trip.

Some Highlights From the Report:

–The Pacific Northwest (Idaho, Oregon, Washington) harvested 98 percent of all commercially grown hops in the United States.

–The 38,011 acres planted in 2014 was the most since 2009 (39,726 acres).

–Although alpha hop acreage continues to come out at a record pace, CTZ continues to be the king of the U.S. hop varieties, making up 23 percent of the hops planted. Cascade, however, is the king of aroma hops though at 16.6 percent.

–Proprietary varieties, if taken all together, comprise a greater acreage than Cascade.

–Today, Germany is the world’s alpha producer, owning 44 percent of the market. The U.S. is second at 39 percent. It was less than a decade ago when those roles were reversed.

–The top countries from which the U.S. imported hops: Germany, United Kingdom and Australia.

What’s NOT Included in the Report:

–There are at least an additional 5,000 acres (+13%) being planted in the United States 2015, but that doesn’t mean production will increase by 13%.  Baby aroma yields can be 25-30% lower than a mature hop field.

— 5-year contracts are becoming the norm.  The Brewers Association reported at the convention that the average length of the contract is over 3 years.

–The majority of the 2015 hop crop has already been contracted by merchants for their brewery customers.

–Growers are already trying to figure out their 2016 expansion plans.

–With an estimated additional 1,800 acres from Germany (assuming it is all destined for the U.S. craft market) and an additional 5,000 acres from the United States (both estimates at this point), and the increased yields from varieties that did poorly in 2014, will there be enough hops, on paper at least, to match the 18-20% growth of craft beer sales in the U.S.?  We will likely see more variety specific shortages in 2015.  Let’s not forget though that those additional German acres won’t come into full production until 2017.  Oops!

At the end of the day, agriculture is never a guaranteed bet, even though it may be more stable now than ever in history.  Growers are constantly at the mercy of Mother Nature. A freak hailstorm in June and we could be in a short situation overnight.  It’s better to cover your needs if the option is available.

To view the complete 2014 Statistical Report from HGA click HERE.

Leveraged Hop Farms & Short Supply Lead to Higher Hop Prices in 2015

“Not one grower in this valley feels threatened by all the little hop farms popping up around the country”.  That’s a quote from a Yakima area hop grower I met with at Starbucks last week. He mentioned the last blog post and wanted to share that with me. I don’t want to beat a dead horse, but that is what the big guys think of all the new little hop farms sprouting up around the U.S. Sorry if that seems harsh. Chalk it up to tough love. The big guys are happy there is a growing industry around the country and that they are doing well, but they don’t really pay too much attention what’s happening there. It honestly just doesn’t affect their business directly.  Mainly they’re pretty busy these days trying to keep up with the demand for aroma hops.

I enjoy meeting with that grower friend of mine, when we can both find the time to get together. He reads the blog from time to time, but mainly he is busy managing the expansion of a few hundred acres of hops for the 2015 crop. To put that in perspective, he’s planting the equivalent of about half of the total U.S. hop acreage outside of the Pacific Northwest (PNW). That’s one guy! That’s a few million dollars worth of expansion! What’s even more amazing, is there are plenty of farms doing even more than that right now.

The hop industry is doing all it can to keep up with the growth of craft beer, but it’s being stretched to the limit. The consensus at the moment is that there will be another 5,000 acres in the PNW in 2015. German growers are expected to plant an additional 500-1000 hectares (1,235 – 2,470 acres) in 2015. That sounds like a lot, but that’s probably about the right amount to keep the hop industry from falling too far behind the craft industry. All of this assumes we get an average crop.

If we assume it costs about $9,000 to put in new trellis in the U.S., the number most growers will tell you, that 5,000 acres represents $45 million in investment, which is happening right now. That doesn’t even count a few new picking machines that are going in this year at over $1 million each. There’s also a lot of “cheaper” expansion on farms of kilns, recleaners and dribble belts, which only total a few hundred thousand dollars per farm. We can safely estimate another $25-50 million there. We’re up to $100 million in investment for 2015 alone … just in case you’d like to keep track. Figure in another $9,000 per acre to grow those new acres this year and you come up with another $45 million before anybody gets paid. Add it all together and now we’re talking about some real money. That’s just the expansion! Looks like we’re getting closer to that $1 billion investment figure I mentioned in “Why Your Hops May Cost $1 Billion more by 2020!” a while back.

Prediction: In 2020, we’ll look back and my $1 billion

investment figure will be an underestimate.

All of this is only a drop in the bucket of what will be necessary if craft grows to 20% of U.S. beer consumption by 2020. That’s just borrowed money you say? Of course it is. Hop growers don’t have that kind of money just lying around. Bankers want to see a plan for a relatively quick return on those capital investments too. They want to see creative solutions to this expansion so it’s not all on their shoulders. The current market is developing much more slowly than a normal hop cycle, but the bankers believe it will still be cyclical nonetheless. If the bankers are right, in the best case, it may take 10-15 years before we see the downside of this hop cycle. Another very likely possibility, is that we’re at the beginning of a generational and cultural shift in taste preferences that could last for decades to come. Knock on wood, spit three times over your left shoulder or rub your lucky rabbit’s foot now please in the hopes that it does actually take that long. Someday, when the cycle eventually does turn, all this new investment must be paid off. The farms with huge debts at that time won’t have a chair when the music stops. That’s why, if you’re wondering, the prices of hops are climbing faster than hops on a warm June day.

Most brewers get what’s happening, but some still don’t understand how it should affect their buying practices. We still get a lot of inquiries for hops. Sometimes, the brewers take their time getting back to us regarding a contract. We had one brewer with whom we were discussing contracts for 2014 and beyond back in August. They dropped off the radar and started not responding to our emails. In hindsight, it seems they just got busy. Things are busy on the hop grower and merchant side of things too. We figured they had purchased the hops they needed somewhere else … until last week when we received an email marked urgent with lots of exclamation points from them again. They apologized for disappearing and emphasized how important it is for them now to get over 4,000 pounds of Centennial right away. Anybody who knows what’s happening in the hop market this year knows that Centennials are in very short supply due to a poor crop. You’d be surprised how often this happens. Fortunately, we saved a few for CBC and should be able to help our busy friend. It may not be a Christmas miracle, but that sort of thing won’t be so common for people who procrastinate.

I’m not trying to bag on the brewers. I understand you guys are busy and probably under staffed too making life even more chaotic. I know all too well what that means. Don’t lose sight of your hop needs in the chaos of growth. There are so many brewers calling every day. If you wait too long to make a decision even a few weeks or a month, those hops will likely not be available when you call back. As things get tighter in the market, the length of validity for offers on hops will turn from weeks to days.

Variety shortages are popping up every year now in different varieties from year to year because growers can only expand their farms so fast. Which varieties growers plant depends on how many squeaky wheels are calling for a certain variety and at what price. You need to be one of those squeaky wheels if you want to get hops for your brewery. It’s best not to hesitate. If you know what you need, contract it forward now. It’s getting to the point as we predicted in our article “Greedy Growers and Dirty Dealers!” that the prices for all varieties are being driven by the value of the most expensive variety and that price is increasing due to the scarcity of existing picking capacity and the expenses involved with expansion.

meter
Growers may be able to put in thousands of acres for 2015. Will they be able to do that again, and again … and again until 2020? That’s what it will take for hop supply to keep pace with craft demand. Think Europe is going to help out? Think again! After 2016, Europe’s hop production capacity is maxed out. It’s all on the shoulders of American growers, large and small.

5 Reasons NOT to Become a Hop Farmer in 2015

We’ve all read the stories about the impending hop shortage thanks to the craft beer boom. Before you get the idea of becoming a Hop Farmer in 2015, here are five reasons NOT to get into the hop-growing business.

IMG_6123

  1. 5. I can make a ton of money growing hops! Sure, hop prices are higher now than they have been for a while. That has everybody thinking they can get rich quick. That doesn’t mean that it will be profitable though. Small scale may be cheap, but quality is inconsistent, expenses can get out of control (if they’re tracked at all) and customers are picky. To start at scale requires a huge upfront capital investment. There is money in hops, but it’s not easy money.

Just like gold in California. In 1849, it was sitting around all over and you just had to pick it up. Today, you have to dig deep to find it. There may be some little nuggets lying around you can pick up easily, but don’t mistake that for a gold mine.

  1. It’ll be a really cool marketing strategy for our new brewery! Are you a brewer, or a farmer? Focus on your strengths. Growing a serious volume of hops near your brewery is a great way to waste a lot of money, time and effort on something that, in the end, is only going to be a cool novelty. There are larger brewers who have done it, but it hasn’t become a sustainable part of their hop supply.
  1. I’ve got a lot of brewers in my area! That’s pretty much the case all around the country these days. Chances are, they’re all used to a high level of quality. Some of them may be willing to pay a premium for local or fresh hops. If that’s the case, and if they don’t care as much about quality, lucky you! Unless you can guarantee quality that matches the big boys out in Yakima, Wash., or in the Hallertau and be willing to take the loss if you can’t, maybe you shouldn’t jump into the biz.
  1. Nobody else is growing hops in my area! Maybe that’s for a reason. Hops will grow most anywhere, but they only thrive in certain areas under certain conditions. If you don’t live in one of those areas, you’ll have a lot more challenges than the average hop farmer, which means a lot more expenses … which means a longer way to go to break even. That said, if you can market to the niche local and fresh hop crowd, you may be able to keep your head above water while the high prices last for a few years. Don’t expect that to last forever though. Change is the only constant in the hop industry.

1. I had a hop plant in my garden that did really well last summer. Congratulations! You bought a rope and now you want to be a cowboy. It doesn’t work like that. Doing a one-off is a totally different ball game than doing something at a commercial scale. You have no idea how much work goes into producing quality hops at scale. Oh, you have a bunch of friends who said they’ll help you hand pick the hops at harvest? They won’t be your friends for long after that. Producing quality hops at scale consistently requires a sizeable investment, a lot of time, energy and labor … and even then you may only break even after 5 years.

Writer’s note: The list comes from real questions we’ve received. During my years as Director of Hop Growers of America and still to this day as a hop merchant, I get questions all the time from people who think they want to grow hops, but who don’t know the first thing about it. They’re lured in by the money and what they think will be a lot of fun. I should probably go now.  In the past couple days, I’ve received two emails from guys who think they want to become hop farmers and I should probably get back with them. Oh wait … I just did.

An American Approach for European Hop Growers

In my previous blog, I wrote about Europeans taking a conservative approach to the hops market and why they should be more aggressive in planting hops.  The coming years will be turbulent with regards to hop supply and demand, which can mean crazy, fluctuating, unpredictable prices. The problem, however, will not be equally distributed across the industry. We’ve put together some strategies to help both brewer and grower navigate the difficult times ahead.

 

For the Grower: A strategy to maximize profit from the current market while insuring stability on the farm.

  1. Act now to plant new aroma varieties on 5-year or even 7-year contracts.  Contract 80% of your estimated production.  Save 20% to play with on the spot market and to cover bad crop years.
  2. Price new varieties in the short-term at a price that will compensate for potential risks you believe may happen in the long term. If you don’t believe there are any risks and craft beer is here to stay, prices that return your farm 10% profit are probably fine if you are content with your current acreage. If you believe craft is a fad, not a trend, price your hops higher so the income pays for changing varieties twice and provides a healthy profit in the meantime. Perhaps instead of 6 Euros per kilogram, that means 10 or even 15 Euros per kilogram.  The number will be different for every farm. Find out what the market will bear and ask for it. It’s better to shoot for the moon and miss than shoot for $H!T and hit.
  3. Be aggressive in the market. If you don’t like your current options, seek out merchants that will pay the prices you need.  They are out there!

 

With these strategies, even if demand for these new hop varieties disappears after five years, which seems unlikely at the moment, the grower will make enough money to compensate himself for the risk.

 

For the Brewers:  A strategy to insure your hop supply, European or otherwise, during the turbulent times to come.

  1. Contract your base. Your base is what you know you need. Top up each year.  Don’t buy assuming 50% growth for the next 5 years. Be realistic. If you buy on the spot market today, you’ll regret it tomorrow.
  2. Get the longest contract you feel comfortable signing for the varieties and quantities you know you will need, 5-7 years out would be best.  A longer contract can sometimes mean a lower price.  Hops grown anywhere but Washington, will probably require a contract to begin 1-2 years in the future due to natural growing cycles.
  3. Pay a fair and sustainable price. Because of the demand for all the inputs, the cost of producing hops is genuinely increasing every year. If a farm is growing, it needs profit for the hops it’s growing and also enough money to continue to grow. That may seem like a lot of money compared to just a few years ago. Remember, you can’t just turn up the hopometer to produce more hops.

These strategies will help you secure most of your hop needs without putting you too far out on a limb.  Sure, you’ll have to think about contracting more hops every year, but hops are kind of important. Shouldn’t you buy your hops from a merchant who also wants you to be aware what’s going on in the market? 

TruckCrossing

Relevance in the Future

Of course, nobody knows what will come in the future. I am looking into getting a crystal ball right now though. Nobody would have predicted two years ago that we would be on the brink of another war in Europe currently playing out in the Ukraine. That still seems ridiculous. They need to chillax over a good beer together. The only thing constant is change.

Here’s something to think about … What if we are at the beginning of a trend that does not slow down for 40 years? Sound impossible? It’s unprecedented in the hop industry! You only have to look at the California wine industry or coffee consumption across the United States though to see examples of other beverages that have sustained upward trends for decades. If European growers sit this one out, it creates more opportunity for American growers, who are naturally more inclined to take advantage of just such an opportunity. Of course, there will always be hops in Germany and in the U.S. What is really at stake today is the future landscape of the hop industry and the relevance of the players within it.

Early adopters of the strategies above and those informed about the market will benefit. We will continue to be a source for quality hops, but also, we’ll continue to be the ONLY source for relevant information on the hop market in the future.  Share this blog with a brewer or hop lover today. Knowledge is power.  

Long live the hop revolution!

European Hop Growers Skeptical of Craft Trend

When I was the director of Hop Growers of America, I took a delegation of American hop growers on a tour through the Hallertau region of Germany. We visited one farmer who was building a new house for his son on their property. He proudly took us through the half-completed brick building. The walls were more than a foot thick. One of the American growers commented on this in amazement.

With a very satisfied look on his face, the German hops grower said, “Do you see these walls? When Germans build a house, they build it to last 300 years. When you build houses in America, you build them to last 30. That is one difference between our two countries.” Even though 10 years have passed, I will never forget the look on his face and those words. He was right – Germans do things differently than we do in the US.

Earlier this month we were in Europe at the Brau. I asked several producers of hops from different countries what it would take for more hops to go into production. The answers varied, of course, but there was one common thread to all of the conversations– once existing infrastructure reaches capacity, European growers are very reluctant to invest in new acreage and infrastructure regardless of hop prices. Barring a sustained crazy-high price caused by an industry-wide shortage, for all intents and purposes, we’re stuck with what we have in Europe.

It seems once the European hop basket is full, we won’t be getting a bigger basket unless something changes in the psyche of European growers. If the people with whom I spoke with were correct, you can disregard what you know about supply and demand.

There are already select shortages of certain varieties. It hasn’t caused any significant changes in production. Why is everybody so afraid to go with the craft trend? The answer I often hear from European growers and merchants is, “What if in a couple years the demand for craft beer is no longer there?” I had that debate again this trip with a good friend who thinks I’m the most optimistic man in the hop industry. Once again, the debate ended with him saying, “I hope you’re right. Nobody hopes you’re right more than me.” He still doesn’t believe though. You can feel it. He doesn’t agree that we’re at the beginning of a trend that will last a long time. That’s an über-conservative approach, but in the past hops has been a very risky business. His skepticism makes sense when you consider the volatile past of the hop industry.

spiritual

It was only three years ago when the Czechs were sitting on about 600 metric tons of unsold inventory after a mega brewer canceled some contracts after harvest. Something was rotten in the state of Denmark! Luckily for the Czechs, the Chinese market opened up and saved the day. Americans have the reputation for having an appetite for risk, for moving too quickly and for changing direction. Culturally, that’s about as different as you can get from Germans, who proudly boast the number of centuries their business have been in operation on their storefronts. Maybe in part because of the past and in part because of the American-ness of the trend, some Europeans are a bit skeptical of the longevity of the craft market.

Even when we visited the future site of Stone Brewery in Berlin earlier this month, the property manager there told us at first they were a bit nervous about their new tenants because they’re American. In that case, Stone’s commitment to the project as evidenced by the investment they’ll be pouring into the facility eased some nerves.

German hop growers are running a marathon. The merchants absorb the highs and try to keep away from the lows. The growers are insulated from the market by tradition and by pools, which severely limit their ability to react quickly. These strategies, combined with the naturally slow reaction time to plant and remove acreage relative to Washington hop growers, has not always served German growers well. The majority of German growers miss the high prices of short markets. Still, they are content. The growers don’t get rich, but they’re able to stay in business. Maybe it’s their lot in life. Grower numbers today in Germany are half of what they were 20 years ago, but, nevertheless, they feel safe. That’s worth something, isn’t it?

Contrast that today with the number of American growers who seem comfortable with the risk and who are trying every way possible to keep up with the craft demand for hops. The surge of new hop farms across the United States is unprecedented. They’re sprinting to get where they need to be, to keep up with the market. It’s a race that also requires endurance, but there is more to the game than just endurance.

There will be Consequences:
The global trend (and it is a trend) towards American craft beer changes the game. It may still be a long race, but it’s not the same marathon. Fear of potential losses eliminates potential gains too, which makes the status-quo approach a weaker strategy in the long-term relative to the competition if they are moving quickly.

Each year more new varieties enter the market. Those that wait to supply today’s market with their special varieties lose market share they could secure for the long term. If more brewers want Variety X and there is no more Variety X available, brewers will take Variety Y because it’s there — assuming it’s not a dog. The grower who has Variety X may cite some excuse as to why he didn’t produce more, but ultimately he is giving an opportunity to his competition.

Hops are beautiful and there is a lot of romance in the hop industry, but it’s still a business. Business is about money. That doesn’t mean greed though. It takes a lot of money to buy the things necessary to produce quality hops. The farm that gets the better price today survives the one that doesn’t regardless of what language they’re speaking.

The American craft revolution is an opportunity for hop growers worldwide. Some growers may think they’ll outsmart history in the long run by playing it safe today. There were probably a lot of buggy whip makers who thought that too when the car came along. Every decision has consequences.