I’m not Saying it’s a Hop Shortage … But it’s a Hop Shortage!

Have you heard about the 2015 European hop shortage?  I’d be surprised if you had unless you follow our blog regularly and read our blog back in July when we warned this was coming.  Unless you’re in the hop industry … even if you’re a brewer … nobody around you is talking about the fact that European hop varieties will likely be at least 30% down this year. To put that into real numbers, that’s over 25 million pounds of hops that won’t be there. How does that affect the rest of the world’s hop market? That’s the million-dollar question … literally.
 
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Harvest isn’t quite over yet, so it’s a little early to say exactly how bad the carnage will get. It’s not just Europe.  The U.S. has had it’s share of difficulties too. In the most extreme cases, some early aroma varieties are down 50%.  That’s not to say the entire crop will be that bad, but there are mixed results depending upon the location and variety. There are varieties that will have normal yields this year. Overall, the U.S. will appear on the surface to have an average crop, but that apparently calming statistic conceals the underlying truth, which is there are shortages of some varieties and surpluses of others.
 
“Don’t cross a river that’s four feet deep on average.”
Nassim Taleb, The Black Swan
 
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Merchants are scrambling to buy available hops before a potential panic begins … better safe than sorry as they say. Of course, nobody is sure whether there will actually be a panic, but the winds seem to be blowing in that direction. Unfortunately, there are many breweries that still have not realized they should contract forward for hops to protect themselves from exactly this situation. We try to convince them of this, but it sounds like a self-serving message and is often discounted by people who think they know the market better. The panic, if there will be one, will begin when they all come into the market thinking everything is normal only to find out the hop world has gone all topsy turvy since they last checked in. If you know one of those people, do them a favor and forward them a link to this blog so they won’t be surprised by what happens in the future. 

Prior to harvest, most aroma varieties planted worldwide were sold at 95% or more of their 5-year average yields leaving very little room for error.  Most American alpha hops have been removed in favor of aroma hops leaving that market in a deficit even before the season began  … and therein lies the problem. German merchants have encouraged German growers to produce alpha hops because they’ll do it for a lower price than American growers. Alpha acid is a commodity, which usually sells to the lowest bidder. With few other options available, German growers have flocked toward alpha hopsin recent years. Ironically, European growers who traditionally specialize in fine aroma hops are producing alpha hops at a time when aroma hops have never been more popular, further tightening the aroma market. Are you starting to see the problem? If you squeeze one end of a balloon, the other side expands. If demand for European or alpha varieties can’t be satisfied, it will increase demand for American and other varieties, which were all sold before the season began.

Spoiler Alert: 2016 will NOT be better than 2015.
 
Many brewers haven’t heard about all of this yet because there’s no avenue for information other than the hop merchants and it seems most merchants believe it’s not in anybody’s interest to announce hop shortages until they’ve got their house in order. This is what we Americans would call “Inside Baseball”. I can understand why merchants are being so tight lipped, since any remaining spot hops will certainly become more expensive as a result. It’s all part of the game. Merchants would prefer to continue scrambling to get hops everywhere they can cheaply before a potential tsunami hits. This is also when people start to get nasty. At least one U.S. merchant has reportedly threatened to sue several growers if they don’t deliver in full on their contracts. I guess they don’t know the old saying, “You catch more flies with honey than you do with vinegar!”
 
If you’re reading this and think it sounds like there won’t be any hops in 2015, that’s not entirely true. We don’t want to lead you in the wrong direction. There will be hops, of course. Substitutions will be the name of the game. This shortage will create demand where demand did not previously exist. With the current shortage the markets for aroma and alpha hops are now dramatically over sold.  

There are three things that will happen that will further exaggerate the effects of this shortage:

 
1)          Hoarding: Growers, merchants and even brewers start to hold back inventory from the market in order to get a higher price for their spot hops later. Some morally challenged individuals will short their contracts so as to have hops to play with on the open market. That’s not nice, but the hop industry is not full of choir boys. Slovenian, Polish and Czech growers have the worst reputations for this in the industry. The reality is that it happens everywhere. Prices increase in response to hoarding.
 
2)           The Ripple Effect: Shortages in one variety cause demand for different varieties that would otherwise be in balance sending their prices upward. Cascade demand increasing in response to a Centennial shortage is a good example of this. Centennial prices increase until the market can’t bear anymore and then substitutions become more attractive. We’ve heard of growers already selling Centennials for $17/pound to one merchant and $15/pound to another. We’ll see how far that goes until it spills over and affects the Cascade price, which seems inevitable. When it comes to an alpha shortage, no variety is immune since all hops contain alpha acid. Expect to see that again in the near future too. 
 
3)          Favoritism:  Everybody likes to help a friend. We know for a fact that some merchants prioritize their customers into A, B and C groups. That’s pretty self-explanatory … You want to be on the “A” list if you want to receive all your hops. Other guys distribute the pain equally across the board. There’s no right or wrong way really. If you’re on the short end of the stick, though, you probably think otherwise.
 

 

 

 

 

 

If you think this all sounds like a bunch of textbook supply chain mumbo jumbo, all you have to do is look at the “shortage” of 2007-2008.  There were plenty of hops still out there. There was no shortage of hops in 2007. You just had to know where to find them. That wasn’t easy. We’re heading for a very similar situation with the 2015 and 2016 crops. I know I probably sound like some scheister hop merchant when I suggest that contracting can help you get around these problems, but it is really that easy. That, combined with plenty of communication with your hop supplier so you’re on the “A” list is the best way to know that your hops will be there when you need them.

Beer Geeks Host & Brewer Hops into a New Role

Michael “Mufasa” Ferguson, one of the most recognizable figures in American craft brewing, joins 47Hops as Vice President Marketing and Public Relations. Michael is one of the country’s most respected and sought-after expert craft beer ambassadors, speaking at beer events nationwide, teaching at seminars, and hosting his own Emmy nominated show, Beer Geeks (beergeeks.tv). To that long list of distinguished accomplishments, he will now be able to add Hop Merchant. Regarding the announcement, 47Hops President Douglas MacKinnon said. “This is a fun next step for 47Hops. As the most fun and edgy hop merchant, we decided to take things a completely different direction. We’re all about giving our customers the best service and the highest quality hops. Not only does 47Hops know hops inside and out, but with the addition of Michael Ferguson to the team, 47Hops brings decades of craft brewing experience to the table. The move will help us better speak the brewers’ language and will enable us to rock the hop and craft beer worlds in fun new ways we can’t wait to unveil.”

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Back craft beer was cool, Ferguson began brewing under Dan Gordon at the Gordon Biersch Brewing Company. After a stint at Station Casinos, in 2004, fate guided Ferguson to become Director of Brewery Operations for BJ’s restaurants Inc., where he has been for over a decade. Michael jokes that the move to senior management was largely inspired by the fact that grain sacks seem to get heavier with each passing birthday. During the course of his career, he has literally worked with hundreds of brewers, from Fritz Maytag, pioneer of the craft movement, to his most recent collaboration brew with Mitch Steele at Stone Brewery. He brings his passion to 47Hops and his decades of experience will be a priceless addition to the 47Hops team and will open a world of possibilities!

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Regarding this new opportunity, Ferguson says, “Craft beer has been my life for over 25 years and, during that time, I have never stopped learning. This next step in my career’s evolution was an easy one for me, but will be no less challenging. 47Hops is a family-run business that enjoys shaking up the hop world and prides itself on superlative customer service. They are the people-persons of the hop world and have a highly motivated and energetic staff focused on delivering quality in every aspect of what they do … of what we do … for the craft beer industry.”  Michael continues, “I will bring my experience and knowledge of brewing to the team and help refine our services and our message to the needs of our customers, with a hands-on understanding of what it takes to get the job done!”

To reach out to Michael at 47Hops, you can write him at mufasa [at] 47hops.com.

Heineken buys Lagunitas – Good or Bad?

The news of the sale of 50% of Lagunitas to Heineken spread like wildfire today through the hop industry as it did, I’m sure, through the craft beer industry and the rest of the world. The discussion du jour among hop growers today was if this is a good thing and how will it affect the hop industry.  Will Heineken corrupt Lagunitas and their crazy passion for hops or will Lagunitas now roar ahead with a burst of fresh capital to take advantage of the expansion opportunities they have?

For what it’s worth, IMHO, the sale of 50% of Lagunitas is a good thing.  Lagunitas gains access to Heineken’s worldwide distribution infrastructure starting with the Mexico and Canada markets.  Heineken gains access to the craft beer market in a big way, which provides access not only to huge profits and market share, but a view into a different culture. Nearly everybody in the United States already appreciates how great craft beer is compared to “less flavorful” macro beers. This move, which begins with expansion into Mexico and Canada, offers the rest of the world an opportunity to discover the greatness of craft beer without having to wait years or even decades for a domestic craft beer industry to develop in their home country. If you love craft beer and hops, you should love this!  It will undoubtedly spurn on scores of local craft brewers around the world to get off their hineys and get busy brewing. When they do, they’ll be inspired by Lagunitas-type beers. That’s not a bad thing. It’s a huge step for the craft revolution and a great, albeit scary, thought for hop growers who now must entertain thoughts of a world craft beer industry growing at similar rates to that of the U.S., something they’re having a hard time handling already.  Can they handle the excess demand?

There has been a lot of hate today on the Interwebs about Corporate Beer and how it Sucks.  Don’t forget, Heineken is still family owned. It seems they plan to stay that way for the near future. There was a time when being successful in your family business was a good thing. You can’t be happy for Lagunitas’ success and at the same time shame Heineken.  Sure Heineken is a huge company, but they became huge by brewing beer people liked at the time. It seems to me they’re just trying to continue that tradition by working with Lagunitas. Heineken buying into Lagunitas is one of the world’s largest macro brewers acknowledging for the world to see that times are a-changin’ and that craft is the wave of the future. That’s like Coke admitting that Pepsi is better.  It’s like Vladimir Putin in a skirt.  These things just don’t happen ever day, but today it happened!  Heineken just wants to ride the wave too.

It’s great that people want to support their local craft brewer. They definitely should!  That’s how hundreds and even thousands of aspiring craft brewers will get their start. Supporting local is a great idea no matter what the product!  Let’s not forget though that Lagunitas is a brewery worth $1 billion and has already spread way beyond Petaluma, California.  Heineken has a market cap of $17.5 billion at the time of this writing. It’s enormous and can be found everywhere from James Bond movies to sports matches all over the world. Despite the endless sponsorship of sports events all around the world, is Heineken, holder of the monicker of “evil corporate brewery” in this scenario so much different than Lagunitas?

Maybe Heineken is guilty of being smart about business. Seeing a trend and jumping on board the craft beer wave the best way they can, which, since they have very deep pockets, is to buy one of the largest craft breweries in the country is not a bad idea.  The guys at Heineken aren’t likely to take the new toy they just bought and muck it all up by changing things. “Aanval is de best verdediging.”  That’s Dutch for “The best defense is a good offense.”  Big brewers know their time is passing and they much adapt or become relics of the past. This is how adaptation looks. My guess is Lagunitas will stay just the way everybody likes it for a long time … unless tastes change and people demand something different.