Why 47 Posts in 47 Days?

During the past 47 days, I wrote these 47 blogs because I believe the hop industry is at an important crossroad. Decisions made now will determine the direction of the hop industry for the balance of this decade and much of the next. The actions of growers and merchants now have never held more consequence and should not be made lightly. They should proceed only after careful analysis of the market and with access to information.

There is obviously a lack of transparency and openness within the hop industry. The hop market is opaque and inefficient. The secrecy and fear of speaking one’s mind is obvious by the lack of comments on these blogs. Thousands have read them each day. I have received hundreds of emails with nice messages of support. There is clearly a shortage of market information. Everybody from the brewer and the grower to the banker is hungry for that information. I may not be able to change the way secrecy permeates the industry so long as the stakes are incredibly high. I don’t expect to. Money doesn’t trust anybody.

My goal with these 47 blogs over the past 47 days has been simply to increase awareness about the times in which we find ourselves by speaking out. We are living through unique and unprecedented times. Today we see sustained increases (albeit at a slowing rate) in the popularity and demand for hops. Customers seem to be sincerely interested in paying a sustainable price, rather than just giving it lip service. The situation requires a fresh perspective and bold new thinking or the industry risks a return to the ways of the past.

No longer is the market an all or nothing game. Growers and merchants don’t need to binge on every opportunity that arises out of fear that the future may bring a vicious down cycle. Binging has been the reason for the down cycles of the past. If another down cycle occurs in the years to come it will be due to a lack of self-restraint. Growers and merchants can afford to say no to bad deals. It is possible to reach a higher plain without jeopardizing everything everybody has worked so hard to achieve.

The hop industry has always reacted to market conditions. Everybody throws their dice simultaneously each spring and nobody knows where they land until harvest. Some of that risk is inherent in agriculture. Part of it though is due to the lack of organization and trust among people who have everything in common. As a result, a feast and famine cycle causes some to find fortune while others dreams are broken. There are great farmers that are out of business today. Success or failure is not a sign of intelligence or goodness. As the dollars grow, the primitive animal spirit keeps growers and merchants fiercely independent. Each player seems convinced they know better than their neighbor. With their determination and stubbornness, the uncertainty grows ever larger.

 

“It is not the strongest or the most intelligent who will survive

but those who can best manage change.     –  Charles Darwin

 

The more things change the more they stay the same. The promise of fortune keeps everybody coming back for more. If growers think they must go full speed ahead in pursuit of the brass ring, the future may resemble the past. That need not be the case.

We’ve reached the end of this challenge, but this is only the beginning. The most interesting times lie ahead. I’d like to thank everybody who read any of the blogs so far. I am honored and humbled that so many of you have tuned in. If a few of you have found them useful, then I consider the effort a success. Going forward (after a short break) I’ll be writing 2-3 blogs every week. The goal for the future will be to continue to increase the dialogue, and to reduce the opacity that embodies the hop market. Subscribe if you want to continue to get an inside view of the hop industry’s most interesting days as they unfold.

Cluster Hops – Spotlight

Cluster is THE O.G. American hop variety. It is a public variety, not proprietary. People didn’t own hop varieties back when this variety came along like they do today. Cluster dates back to the late 19th and early 20th century (and probably even before that) when all beer was craft and local because there wasn’t any alternative. Some speculate the variety traveled over with Dutch or English settlers from Europe yadda yadda yadda … We care more about the future of the Cluster variety than its past. If you want a detailed history of any hop variety, you can probably find it on the Interwebs.


We want to focus on what to expect when you use Cluster hops. Depending on when you use them in the brewing process, it offers flavors ranging from black currant to pineapple melon and citrus. In short, Cluster can provide a combination of earthiness and fruitiness while it brings a clean bitterness to the table.

OK … Let’s address the dark side of Clusters, cattiness. If you’ve never ever heard the term before, it’s not referring to that nice warm kitty purring on your lap as you sit by the fire. It means a cat pee flavor or smell. Yes, you read that right! Some claim that they can smell or taste a litter box / cat pee aroma from Cluster hops. Some people claim the same about other varieties too. Others say they have never experienced cattiness. Cluster is present in plenty of beers that don’t exhibit cattiness. You shouldn’t write off the variety on that rumor alone. Double Mountain Brewery in Hood River, Oregon, successfully brewed their Clusterf#ck single hop IPA with … guess which variety. Here’s a link to  their experience.

If that wasn’t enough, here’s a great blog post from Beervana from a few years ago that mentions some Cluster history. It also offers very colorful and favorable review of the Cluster variety in the Clusterf#ck IPA mentioned above.  

Today, new varieties are all the rage. Legacy varieties aren’t sexy in today’s market. Today everybody wants something new, just for its newness alone. For that reason, Cluster, which once dominated American hop variety, is now counterculture. Allow your creative juices to flow. Challenge yourself as a brewer. Don’t follow the herd. Give Clusters a try. You might be surprised what you’ll find there … Or, you can go ahead and brew another Citra® IPA like everybody else and their dog.

Starting tomorrow, February 16, 2017, for a limited time, we are featuring Cluster in our #throwbackthursday sale on our web site store. Save on this American Legacy Variety while supplies last. 

Contract Repudiation? – Letter to a Brewer

One of our salespeople recently received several emails from an upset brewer in which he seemed to be discussing the repudiation of his contract with us.  It was not entirely clear however. We offered several options for the brewer to change the terms of their contract in an attempt to make them more amenable, but all were shot down. We decided since our salesperson was not able to make any progress, that perhaps our lawyer would. So, we sent the brewer the following letter:

 

February 13, 2017

 

Dear John,

I would like to thank you for your business. I am writing you today regarding your recent communication with one of the members of our sales staff. I have read through your emails and understand that you are not happy with the contract you signed. From my interpretation of your emails, it seems that you do not plan to honor the terms of your agreement in full.

It seems there may be some confusion on your part as to the purpose of our contract. Our contract exists to dictate how our companies will work together. Unless we mutually agree to changes in writing, those are the terms. In your emails, you appear to dictate what you are willing and not willing to do and you unilaterally intend to change the terms of our agreement. That, I am afraid, is not how this works. We are very willing to discuss reasonable adjustments that are mutually agreeable for both parties. However, the changes you have requested are unreasonable, completely one-sided, and therefore unacceptable.

I would like to ask you to clarify for me if it is your intention to repudiate your contract. If you choose to do so, please be aware that we will not relinquish any rights we have under this contract to any remedies to which we are entitled. The remedies, and our willingness to pursue them, are clearly presented in your contract. I am hopeful that our companies can find a compromise on this issue so we may continue to work together in the future.

Kindest Regards,

Steven

In-house counsel, 47Hops

 

Following that letter, not surprisingly, the brewer’s attitude seemed to change a little bit. Honestly, we want nothing more than to find an agreeable solution for both parties. It is not in our interest to bring any brewer to his or her knees. Hopefully the brewers don’t want that for us either. During the challenging times that lie ahead, we must all remember that we need each other. We should strive to work toward goals that are mutually beneficial so we can all survive long into the future.  

Money doesn’t trust anybody

I sold an old truck to the wife of our farm manager. He and I had a great relationship, and I gave him a great deal on my dad’s old truck. The truck was in great shape. His wife gave me an envelope with the money. Right away, without thinking, I put it in my pocket. She insisted that I count it. I told her that I trusted them. To that, she responded,

Money doesn’t trust anybody … count it.

She was right. Whenever there is money involved, personal feelings should go out the window. It’s business! It is your responsibility to make sure the deal is done correctly. 

Why am I mentioning this now? There are a lot of hop contracts today. They exist to guide how companies should work together. There are renegotiations happening too. There are some things that may happen during the course of those renegotiations that neither side will like. It’s not personal. It’s just business. Sometimes that sucks when things don’t go your way. I’ve learned the importance of divorcing yourself from your emotions when it comes to business. I used to get offended or hold a grudge from some transactions. In the long run though, it’s not worth it. The only person whose life you affect by doing that is your own.

Some brewers in the industry today are new to running a business. They get butt hurt when they feel like they don’t get what they want. This message is for you. 

Hop Contracts – Did you read before signing?

At CBC 2016 a brewer visited the 47Hops booth. We talked for a while. By the end of the conversation, he wanted to sign a contract. I gave him the contract and terms and conditions to read. He was about to sign them without reading them. It was the 2nd day of the 3-day show. I told him that I’d make sure the hops didn’t go anywhere and suggested he take the contract and the terms and conditions back to his hotel, read them. I assured him we could talk about it the next day if he had any questions. Then he could sign the contract.

The next day arrived and so did the brewer. He was a little hungover, but had the hop contract and terms and conditions in hand. I asked him if he had the chance to read it. He responded, “Naaa … I didn’t. I don’t like reading those things. We like to do business with people we can trust.” I couldn’t believe what I was hearing. We sat down and went over the contract, terms and conditions together. I highlighted varieties, quantities, prices, payment dates, penalties for not paying, how long hops could be stored for free and storage costs once they did kick in. The rest was legal stuff about venue and jurisdiction. It seemed he was paying attention and then signed the contract.

Most of us click the AGREE box on the ULAs for apps and for our cell phone operating systems. Today, people are accustomed to not reading contracts. There’s a great South Park on that called HUMANCENTiPAD. I have to admit, regarding the iOS on my iPhone I don’t read the ULA before agreeing to it. I figure if I want to use that phone that’s the price I have to pay. If it says in there they can track my location, then that’s the price of that technology.

It seems some brewers take the same approach with hop contracts. So many brewers are surprised later … when they have too many hops and discover they cannot just walk away from them. Finally, they read the details of the contracts they signed. That feeling of surprise can turn anger and some get very emotional. That doesn’t help.

Please read your hop contracts. You should read every contract you sign, unless you’re just willing to accept whatever costs there may be to working with a company. Education is never free. I suppose this is one of those expensive business lessons new brewers need to discover not only how to brew better beer, but run a better brewery in the process.

We’re in this for the money

It sounds so noble to say you’re not doing something for the money. Some brewers are passionate about brewing beer. They say they just want to make good beer. Some hop growers love farming. They say all they want to do is farm. At the end of the day, everybody cares about the money. If they didn’t, it would be called charity. How much of your time have you ever volunteered in your life?

At 47Hops we are doing this for the money. Unless you’re independently wealthy, you are too. The growers from whom we buy the hops expect to receive money so they can continue to produce hops from one year to the next. Try not paying somebody and see how quickly they react. The people who work any merchant company or brewery expect to get paid on a regular basis. Even if somebody doesn’t have a family, chances are they enjoy eating on a pretty regular basis. When it comes down to it, money is the reason we do all this work so let’s not be ashamed to say that.

The money in the hop industry comes only from one source, from the breweries. It’s not great that there’s only one source, but that’s the hand we have been dealt. For that reason, it’s important for brewers to pay their bills on time and respect the system. If they can’t they should make arrangements to schedule those payments so everybody knows what to expect. It throws a wrench in the system when they don’t or when they try to walk away from contracts.

Hopefully, along the way, we all derive some pleasure from what we do too. Let’s be honest though … enjoying what you do for work is really secondary to eating. If you can’t afford to eat, you’re not doing the right thing with your time.

 

American Hop Farmer Strategy “If there’s a bad crop …”

The strategy most often discussed at American hop conventions about a dozen years ago was how “Maybe next year things will be better” or how “if there’s a bad crop in Germany everything will be fine” (no offense ever intended to the German growers of course). Weak prices and a dire outlook for the future introduced plenty of humility to the hop industry. It used to be that without a fire in a kiln or a warehouse, there wasn’t enough money on the farm to pay for new equipment. I remember jokes like, “I tell my guys if the kiln catches fire to drive all the hop trucks right up next to it.” Back then, normal prices often didn’t even cover the cash cost of production. There were few people under the age of 40 in the industry. The industry was growing old and dying. 

In today’s world, everything has changed. Strong pricing the past few years has helped finance a renovation of much of the industry’s equipment. All that new investment brought along with it huge increases in capacity. It brought home a younger generation. In some cases, the pride and arrogance is off the charts. Some of them seem to think they invented hops or something. Much of the humility is gone except for those who lived through the bad times. You can tell they’re happy at the turn of fortune. It’s clear that memories of how bad things can be are just under the surface. I imagine they view the opportunities in the industry with some skepticism … and rightly so.

What hasn’t changed with all the ups and downs over the years is the American hop industry’s penchant for gluttony and the seeming inability to find a happy place. Maybe that’s just an American thing? Other countries’ hop industries seem to be relatively content when they’re making good money. When Doug Donelan of the New Zealand Hops Limited stated their strategy at an IHGC that New Zealand, that growers were content with their current levels of production, it shocked the rest of the participants. It was as if with such blasphemous statements he had just cursed the baby Jesus and the Virgin Mary in one go. Others scoffed at what they perceived to be a naïve position. They claimed those Kiwis were missing out on an opportunity of a lifetime.

I have to admit my Americanness made me wonder why they wouldn’t go for the brass ring. They seemed to have gotten it all right though. When is enough enough? Contentment?? American hop growers cannot seem to find the level at which they are content until they are looking at it in the rear view mirror. So long as there is an opportunity for growth, American hop growers will chase it. The money in today’s industry has emboldened them on that quest.

The more things change the more they stay the same. Since the last harvest I started to hear, “If there’s a bad crop everything will be just fine” again. That sounds oddly familiar. Everything is just wonderful in the industry today … isn’t it? A strategy based on somebody else’s misfortune does not sound like a good one. I believe there are cracks that lie just beneath the surface. If we scrape too much away, I imagine we will discover that what seemed like cracks in the ice are enormous crevasses.

Despite the recent upward trend, the hop market remains a fragile thing. If the industry had a strategy to responsibly manage production, as the New Zealand growers have done so well, perhaps there would be less cause for concern. Even those organizations in the U.S. that do resemble New Zealand Hops Limited aren’t showing any restraint. Unfortunately, there seems to be no plan, no strategy, no leader, no controls, no warnings and no consideration for the consequences of over supplying the market. So, we all continue forward on this roller coaster ride at full speed not knowing where the tracks may lead.

Sales … Avoid the Douchebaggery

Yesterday morning I received a special offer from an ad sales agent to advertise in a brewing industry magazine. The email, written by a guy we will call John, wasn’t rude. For some reason though, his request bothered me. It was so very one-sided. He really wanted to know what I could do for him. He phrased it as if he was doing me a favor by telling me which ad I could place in their next edition.

I don’t get too excited by opportunities in print magazines claiming to reach millions of beer lovers every month. A couple years back, I calculated that if you placed a full-page ad in all the industry magazines each month, it would cost hundreds of thousands of dollars over the course of a year. It’s not worth even a fraction of that in my opinion. You cannot track if the expense yield results unless you have a coupon offer or promo code in it. Unfortunately, I’ve tried that before too. Maybe that works for peas and carrots at the grocery store, but it doesn’t seem to work with hops.

Back to our ad salesman … He didn’t care about my time or what might be in my best interest. Well, to be fair, I should say that if he did care, he didn’t communicate that very well to his target. He acted as if we were old friends and he was just checking back in with me (we’re not friends and this was a cold email). He cared about selling ad space for the magazine, not about me.

Actually, the email arrived at just the right time for another reason. We had a sales meeting yesterday afternoon and I was thinking about what I would say to the group. The email from John helped. I emphasized to our team that nobody really wants to buy anything from a company. People want to buy something from a person who cares about them and who will try to solve their problems. Being personable might not result in a sale every time, but treating people like people, not accounts, is the right thing to do and that they should keep that in mind. That, in my opinion, is what sales should be about, taking care of people. If that’s not possible, please let me buy what I need online. I’d rather not interact with douchebag salespeople if I don’t have to.

 

Globalization and the other guy

The level of globalization in the hop industry is unprecedented. I refer not only to the volumes of hops traveling to breweries around the globe. Increased popularity of hops created more dependency on one another than ever before. The ties binding brewers to merchants and growers are unfathomable. Some relationships are more fragile than others. The difference today is the delicacy of the finances of some key brewers, growers and merchants. There is more debt in both industries than ever before. Participants have fewer options on the table than they had in the past.

So many breweries over contracted for hops in recent years. As a result, some merchants are in the same position. We just recently received an email from a large brewer asking if there was “any possibility for forgiveness” on their contracts. The majority of situations need an equitable solution or the entire system can break. The hop industry has been rather black or white in the past. Some people arrogantly say, “bring it on” if that’s what the market brings. Nobody really wants that. If you’re a brewer and you need to get out of hop contracts this year, expect to extend your contract well into future years. You might have to buy out your contract. Maybe extending your contract for greater volumes into the future will make it right by the other guy. You must pay in the future for the inconvenience you are causing the supply chain today.

As unfortunate as this sounds, there is no room for absolute forgiveness in the hop business. If a merchant or a grower lets a brewer walk away from a contract without paying anything, it is because it’s easy for them to do so. Maybe that means they have better opportunities for those hops somewhere else. That’s sad, but that’s the way it’s done today.

Similarly, if a merchant wants to buy out a contract from a grower, the grower should calculate a fair price to enable that to happen. The grower too must think about the health of the merchant both now and in the future if they value that relationship and if they are not prepared for the consequences. If they try to hold on to an unnecessary contract, they encourage the dumping of those hops onto the market. Hops sell when the price is low enough. Ultimately, sending the market low prematurely through artificially low prices harms the grower much more in the long run than it harms the merchant. Under that scenario, in the short run, the merchant loses money. Merchants, however, add value and can profit in both strong and weak markets.

Thoughtfulness and consideration about the other guy’s situation is largely absent from the picture. We should all focus, in part, on that today. That doesn’t mean anybody must forgive anybody for anything. By that, I simply mean looking for fair and equitable solutions wherever they can be found. There are plenty of ways to find solutions. You must first be willing to look. Forcing a customer to fulfill a contract they don’t need may make your books look good. It slows the movement of hops, distorts the relationship between supply and demand and may have other more dire long-term consequences.

My banker posed an interesting question to me recently regarding one of our brewery customers. He asked, “How quickly could you resell that volume of hops if that brewery goes bankrupt?” It wasn’t pretty. I analyzed the situation and thought seriously about the consequences, but not just about that particular brewer. With our current level of globalization, every decision affects us all. Regardless of whether it’s a merchant, a grower or a brewer, we all have an interest in the success of our business partners, customers and suppliers. We should not have such a myopic view of the industry, or the world, that we ignore the health of the people around us. In today’s world of globalization, we are all related.

Does anybody have a better mousetrap?

In the search for their unique selling point, a better mousetrap if you will, hop growers and merchants all think they’re a little bit smarter and do things a little bit better than their competitors. That’s probably just the nature of business.

The majority of the people in the boat are surviving and that’s all they really want to do. That becomes difficult when nobody will act together because they quite literally hate one another.

Right now, for example, there’s enough hop acreage to cover the increased needs of brewers for 2017. Nevertheless, I hear reasoning like, “Why should I idle acreage if he’s going to plant?” and “My contracts are with better brewers than that other guy.” And “Our expansion is already in motion”.

In America today, everybody thinks they are special. If everybody is special, then by the meaning of the word, nobody is really special. The hop industry, high on the attention of the past few years, thinks it cannot repeat the mistakes of the past. If they continue to plant hops that are not necessary, we can, and most likely will, see Cascades for $2.00 per pound again. Thankfully, we are not at that point today. Everything is possible.

Hop growers and merchants never sing kumbaya together around campfires … ever. Sure, there are friendships in the industry. There are alliances. There are silos of groups that have banded together. They think they have built a better mousetrap with their collective intelligence. That’s an illusion. Even within those groups, everybody is only out for him or herself.

         It would be great for everybody in the industry to remember that they are the mice and they are all at the mercy of the market. They are not the mousetrap builders no matter how much they convince themselves otherwise.