Local Brewing in the Empire State. It’s all about Plan Bee.

Sitting in his New York City apartment several years ago, Evan Watson was at a crossroads. He had moved to Harlem as a 21-year old in 2007 before promptly landing a record contract, and was home brewing in his spare time, playing around with a kit his then-girlfriend bought him.

“I was enamored with music,” says the Indiana-native, “but I like to have irons in different fires.” The musician, whose vocals recall a grittier Tom Waits (if that is possible), recorded his debut album and appeared on season 7 of NBC’s ‘The Voice’, but music had already begun to take a back seat to his home brewing endeavors.  Check out one of his live performances.

At the time, Watson was brewing as often as three times a week, still in that tiny Harlem apartment. He started working at Captain Lawrence Brewery, in Elmsford, NY, completing various odds and ends, including brewing.

“Music had become tedious,” he admits. “There was no daily gratification, and I wanted to touch something every day that I was working on and get some kind of reward from that.”

He married Emily, who purchased that inspirational brewing kit, and the couple moved to Fishkill, NY at the end of 2012 with the dream of founding a self-sustaining brewery. “I was working at a brewery that was amazing at crafting beer but was sourcing ingredients from around the world,” says Watson. “I wanted to create a modern American brewery, one that encapsulated its region and the terroir.”

Plan Bee Brewery opened in early 2013, operating on an acre of land and a shack to house Watson’s one-barrel brewing system. In just over two years, Plan Bee has emerged as one of the leaders in New York State’s farm brewery movement.

Planbeepic

The state has always been known for its wineries, drawing locals and tourists alike to the Finger Lakes or Long Island, but as the craft brewery boon consumed New York – there are now more than 200 brewing statewide, and there has been a 60 percent jump in openings this past year – governor Andrew Cuomo passed a law in January 2013 that incentivized and strengthened craft beer’s growth: farm breweries could operate and sell beer and cider by the glass provided that 20 percent of their hops and other ingredients were grown or produced within New York (those percentages bump to 60 percent by 2018 and then 90 percent in 2024).

Plan Bee grows its own hops, cultivates wild yeast, and plants the herbs used in several of its brews – from the Savage sour to the Hops and Honey ale and the Chamomile, brewed with chamomile and honey, Watson’s approach stresses hyper-locality, a brewery that grows just about every ingredient needed in the beer-making process.

Planbeegarden

“Beer is even more agriculturally-based than wine, and since we have used 100 percent NY products from the beginning, we’ve been at the front seat,” says Watson. “We are trying to do an old world style of brewing and undoing all of this scientific progression, brewing with a unique taste tied to a region.”

What sets Plan Bee apart from the State’s roughly two -dozen other farm breweries is their wild yeast. “It is funny to reinvent the wheel in terms of yeast, but it allows us to have a very local and specific flavor,” says Watson.

Thanks to the abundance of orchards dotting Fishkill and the surrounding areas, Watson wanted to discover a yeast strain that would provide a true taste of the region. After cultivating yeasts from peaches and strawberries, which Watson admits were distractingly funky, he settled on a yeast strain coming from wild Muscatine grapes. “It has a bright, champagne-y quality to it,” says Watson. Along with honey culled from Plan Bee’s two hives, Watson is able to essentially bottle the region.

Since Plan Bee’s founding in 2013, demand has quickly ramped up – people travel hours for the brewery’s distinct bottles, and the brewery’s waiting list is a few hundred deep. It quickly became clear to Watson that a one-acre farm would not be enough. “This space was just enough to experiment,” he says, “I call this our petri dish phase.”

The next step, though, has already been cemented – Watson and his wife recently closed on a 25 acre farm in nearby Poughkeepsie, enabling the brewery to expand its brewing operations to ten barrels and the potential to grow wheat, barley, and more hops. Plan Bee grows four hop varieties now, including Centennial and Chinook. Watson plans to plant more hops. Which hops exactly will depend on what he feels will grow best in the region.

“What we are doing isn’t an easy business model,” he says. “We want people to come buy the beer and then experience the farm. To walk through the field of grain, see the bees buzzing and the barley being malted instead of standing in a warehouse with cement floors and drinking a beer while staring at a big stainless tank.” Watson continues, “There is even a barn from the 1800s so we can do a true farmhouse brewery.”

Why Cascades Will Be Short in 2015

Last week the USDA released the U.S. acreage strung for harvest statistics.  What do they show?  They show a huge migration toward proprietary varieties, some of which, as I have discussed in previous blogs, are locked down and controlled by only a few people.  That’s a trend that should concern every brewer if they don’t like the idea of three guys deciding how much hops they can source.  One thing that is suspiciously absent, however, in 2015 is a significant increase in Cascade acreage.  There were less than 200 new Cascade acres in the Pacific Northwest.  While that may sound like a lot if you’re starting a farm, there were over 6,600 acres in the U.S., so that represents a very small percentage, less than 3% to be exact!

Based on average yields, that means there will be +/- 275,000 pounds more Cascades in 2015 than there were in 2014. That sounds like a lot of hops. For any normal brewer, that would be enough … surely there can’t be a problem. Let’s dive into that number a bit deeper, because it’s nowhere near enough.

In 2014, Cascade production was 12.6 million pounds. Everybody knows the craft market is growing at roughly 18%. That would mean roughly an additional 2.2 Million pounds of Cascade should be necessary this year. That sounds a little optimistic though and that’s a really big number. In the interests of trying to get that number down a bit, and since some people might want to try other varieties, let’s say we need only an additional 10% Cascade volume. That means an additional 1.26 million pounds necessary. If all goes well, we’re short by about 1 million pounds. That sounds pretty bad. It actually gets much worse than that.

Last year, one large brewer was sitting on several hundred thousand pounds of 2013 Cascades. They didn’t need them for whatever reason and decided to sell them back into the market to several dealers at $2.50 per pound. They did this during harvest … coincidentally just as prices were starting to escalate due to a production deficit. I know the details because along the way we were also offered the chance to buy these hops. We declined.

When the 2013 Cascades came on the market, prices were rising quickly. Prices had increased about $3.00 per pound at the grower level in a period of about as many weeks. At the time, it seemed Cascade had the momentum to continue to $10.00 per pound to the grower as Centennials were doing at the same time in response to the deficit in that variety.

 47Hops Cascade Article

That’s right, there was a deficit of Cascades in 2014. Prices did not reflect that because of the hops that reentered the market. Let’s say, just to keep things simple that the deficit was roughly the same as the amount of 2013 hops that reentered the market, 300,000 pounds. Let’s try to estimate the actual 2015 Cascade demand … We have to start with what the actual 2014 Cascade crop demand. We should assume we started from a deficit position based on the way prices were skyrocketing. Let’s assume that to be the case. If we assume that the deficit was approximately 300,000 pounds, since that was enough to send prices back down, the actual 2014 demand was somewhere around 12.9 million pounds of Cascade. That would make our actual 2015 demand (if calculated at only a 10% increase) at 14.2 million pounds. If we calculate the growth of Cascade demand at 18%, the demand increases to 15.2 million pounds in 2015. The reasons to assume growth of greater than 10% are many. That is one of the flagship varieties of many beers. It’s also one of the gateway hop varieties for people trying American hops around the world.

Based on average yields, the 2015 Cascade crop should be approximately 13 million pounds. That is if 2015 produces an average yield. This year has been difficult already with powdery mildew pressure and early bloom challenging the Cascade and many other varieties, including one or two of those proprietary varieties nobody can ever get their hands on.

So, why are there not enough Cascades? It’s not rocket science. Growers react to price signals. When that brewer flooded the market with old Cascades last year, it instantly filled the market. It sent prices back down to where they had been prior to the time when the deficit became obvious. The brewery was most likely just trying to take care of a problem they were having with excess inventory and saw an opportunity to do that, nothing sinister or conspiratorial there. It is doubtful the brewery considered or understood the full consequences of their actions. In the absence of fact, conspiracies and rumors will fly though. Some say that brewer was influenced by the owners of the elusive proprietary varieties to sell those hops into the market, the mafia-like families to which we have referred in a previous blog. The theory is that those guys would benefit financially from the resulting royalties on the additional production. That would make sense because it would drive growers more toward their varieties instead of Open Source varieties, but it’s pure speculation. Some growers also speculate that that brewer, who usually does not like to pay market prices for their hops and who growers believe they can use their size as a threat to insure low prices, may have been trying to keep prices for Cascade reasonable. Whether either those theories are true or not is impossible to say of course. That’s what makes conspiracies so much fun. What we know is that the effect of their actions was that Cascade prices plummeted in 2014, at the very time growers were making planting decisions for 2015. That effectively steered growers away from Cascades and toward proprietary varieties that were commanding a higher return per acre at the time. The market really is that simple and open to manipulation from outside forces, intentional or otherwise.

We have seen all this before. It was only 2007 and 2008 when acreage switched from just about every conceivable variety to the CTZ variety due to the higher prices being paid for it at that time. The result was that other varieties, if brewers wanted to keep them in the ground, had to deliver to the grower as much or more than the price that could be had for the alpha hops. As a result there were brewers had to pay $20-25/pound for Willamettes and Cascades. The same thing is happening now.

The limit of production capacity about which I have been writing for the past year or two has arrived. It manifests itself in variety-specific shortages that will change from year to year as the limited amount of acreage chases demand. The varieties that return the highest yields to the grower will prevail. We anticipate double-digit prices for most varieties this fall. Only CTZ and a few other alpha varieties will stay below the $10 mark. A smart strategy for a brewer during this time is to secure supply and be less concerned about price. Of course, that sounds like something a dealer might say … dirty dealers. The truth is though that locking in at today’s prices will seem like a brilliant strategy 12-18 months from now and it could save you thousands, or tens of thousands of dollars, just as it has already for those who locked in a couple years ago and who can sit back and watch this all unfold.

“Don’t tell anybody, but I just got $10.00 a pound”

I tried to buy some hops the other day.  To my surprise, the grower said no to a price that should have been OK based on the price per acre everybody says they want.  At first I thought he was being a little unreasonable and even greedy.  After the phone call, I realized the price per pound he wanted, which was higher than the going rate, was based, not on the market or demand, but on his inefficiency as a grower.  That sounds harsh, I know.  It’s really nothing against him personally.  He’s a good guy.  The thing is that there’s a lot of marginal land being used for hops now and there are some “alternate” growing areas trying to produce varieties not originally intended for those areas, which results in some pretty poor yields.  I realized the market has the potential to spiral upward quickly … and for no good reason.  Let me explain.

First of all, you have to understand how tight growers in the Pacific Northwest are. I’m not just referring to the fact that after 100 years of being in the same industry most of them are related in some way to one another … True Fact! What I mean is that hop growers get together and talk a lot … I mean they REALLY talk A LOT … literally every day! They talk over coffee about problems they’re having. They talk over lunch about what opportunities are coming along or ideas they’re having. They even occasionally get together at the end of the day for a beer to talk about how the day went. When they pass each other as they’re driving around checking out their fields, they’ll stop for a bit … and talk. They talk about who sold what to whom and at what price. They talk about the latest gossip. They all know if a big craft brewer sells back some old inventory into the market and at what price. They talk about the market and where they think it’s going. With all this talking, you’d think they were BFFs! The thing is that deep down very few of them trust one another completely. That’s probably a function of the history they all have together. To sum it up … There’s a lot of psychological warfare happening every day in the hop industry. Crazy huh?

Here’s an example: Jack might say to Bob, “Ya know Bob, I get 10 bales per acre on my Alamos” (Alamos being a fake hop variety I made up for this example, although it would be a pretty cool frickin’ name for a variety). There’s really no way Jack is getting 10 bales per acre on Alamos. The industry average is 7 bales, but acreage yields are not really documented in the U.S. like they are in Europe since no subsidies are tied to them so, at the end of the day, nobody can really disprove what anybody claims. So, Bob may believe Jack. Even if Bob doesn’t believe Jack, Jack just planted a seed. Farmers are good at planting seeds. So, basically Jack “massages” the numbers for Bob, who certainly gets a lower yield than Jack’s massaged number, so Jack gains a little stature in what is a very testosterone-laden game. Even if Bob doesn’t believe Jack, that number will bother him … like a splinter in his mind. The reason I bring all this up is to emphasize that there are two things for sure in the hop industry 1) there are no secrets in the hop industry, and 2) information, right or wrong, travels fast.

All of this is important because, like I’ve mentioned before, growers these days are thinking in dollars they receive per acre in addition to prices per pound of hops. You can read more about that in my one of my previous blogs.

Growers also compare their own yields to their neighbor’s. Perhaps it’s normal to want to keep up with the Jones’ as they say and measure your relative success by your neighbor’s performance. It’s the equivalent of seeing who has a bigger penis. That may sound crass, I know. Don’t get me wrong … they don’t all fall prey to the temptation. Some are genuinely good people who care and want to improve their businesses. It seems they genuinely want to be the best they can be. That’s inspiring. For better or worse though, there’s a lot of penis measuring still going on. Even some of the female growers do it … go figure.

Anyway … that false yield number flies around with every sip of coffee and every bite of lunch. The thing is … at the end of the day … growers aren’t equal. Jack might actually get 7 bales per acreage on his Alamos, but Bob can only get 5 bales per acre because his ground isn’t as good or maybe he strung his hops late because he couldn’t get a crew out in time.

At the same time, another bit of information that also flies around is the price per pound of hops when they’re sold. Jack might tell Bob, “I got $8.00 per pound for those Alamos.” That’s where things get screwy. Why, you ask? Because Bob still has in his head from somewhere a number that “everybody” is getting per acre. The thing is that Bob may need $10.00 per pound to reach that same number per acre because his yields are below average. Bob wants the going rate for hops too though, so he says he won’t sell them unless he gets his price.

Let’s say Bob gets his $10.00 per pound from somebody who is desperate at the moment and needs some Alamos. You can be sure that $10.00/pound number is going to get out there because it’s higher than anybody else’s price yet. That kind of information spreads like wildfire. That $10.00 per pound price will quickly become the new price for Alamos. After a few coffees and a few lunches, everybody in the industry knows about Bob’s $10.00 Alamos. Soon Jack is having coffee with his neighbor and may drop into the conversation, “Don’t tell anybody, but I just got $10.00 a pound for my Alamos from Scheißter and Son”.

Don’t forget about that seed Jack planed earlier. Everybody thinks Jack is getting 10 bales to the acre on those Alamos which means in their minds he’s making even more than he actually is per acre. That new dollar return per acre gets around and everybody does their calculations and soon the dollar price per pound grows again. That’s how prices are get jacked up (yes, the pun is intended).

The speed at which that all happens depends on how tight the market is. During the crisis of 2007-08 all of that could happen in a day or two. Today, prices seem to be increasing every few months and growers are scrambling to put in acreage as quickly as possible. That leads to things being done less efficiently than possible. That’s not the fault of the grower per se. They’re doing the best they can, considering the ever-increasing demands of the market. Nevertheless, as the 2015 crop approaches, growers and brewers are starting to realize that the 2016 crop will be short. The tension and energy in the market is increasing. It’s palpable. You sense that growers know they’re in the driver’s seat. They have an attitude they didn’t have a couple years ago. They’re not afraid to say no to opportunities that would have been considered good not too long ago because they believe demand will continue to increase and hops will only be worth more tomorrow. As one grower friend told me recently, “Things are getting stupid out there”. He was talking about all the expansion and how unlikely some of it will really provide a decent return on investment in the future for various reasons.

There are legitimate reasons why hop prices need to go up in the next few years. Some growers know what their costs are and they’re preparing for the investment. I’ve gone over those in another one of my previous blogs.

yellow-brick-road

I’ve been an advocate for that so the growers can buy and finance the equipment they need to get to the next level of production. The next phase of expansion will be expensive.  The problem is that some growers don’t know what that will entail or how they’ll get the return on the investment. They’re just enjoying a ride on the gravy train. It’s hard to watch as prices skyrocket at an ever-increasing rate, but that’s likely to continue for the foreseeable future. Of course, all good things must come to an end, but if there’s an end it doesn’t seem to be in sight yet. If prices continue to increase to cover the cost of hasty less efficient expansion, those looking from the outside will begin to think the hop yards are paved with gold.