What you don’t know about hop contracts

Last week a customer with some hop contracts asked us to lower his prices. He is happy with the quality and he said his volumes are OK. He was disappointed because he can find some of those varieties on the spot market today for less. It is common for prices to differ from year to year. Unfortunately, we cannot rewrite contracts every time prices on the spot market change. We have corresponding contracts with farmers for those hops. Farmers expect to be paid. 

Would any brewer be OK if the company with which they contracted hops wanted to increase prices for their contracted hops because spot market were suddenly higher? Obviously, that’s such a ridiculous question no merchant or farmer would expect a brewer to consider it. That’s not how contracts work. In that situation, we would expect any brewer to say, “No way! … I have a contract for those hops at this price and that’s what I expect to pay!” The respect for contracts should be just as strong when the market moves against you as when it moves in your favor. Hop contracts are about so much more than just price and quantity. The trust inherent in contracts is the foundation upon which the hop industry is built.

Let’s imagine a world without hop contracts for a minute. It would work, but it would be different from the world we know today. A 100% spot hop market would be chaotic and inefficient. First of all, hops would only be grown in Washington and Idaho State. Those are the only places in the world where a farmer can plant hops and get a decent yield the first year. After all, who would plant hops that take three years to produce a crop without a contract? Three years is the norm everywhere in the world except for Idaho and Washington State. Goodbye centuries of European hop tradition. Regardless of where they’re located, how would a hop farmer know what to plant without a contract or what it would sell for when it is produced? It would be anybody’s best guess.

A completely spot hop market would fluctuate wildly from year to year. There would be more hoarding when prices increase and more dumping when surplus hops are produced. In short, there would be more gambling. Very likely, brewers would clamor for a more efficient system. Without contracts, brewers would pay for their hops in full in the spring before the crop is produced to assure the farmer the crop is sold. Without money in advance for hops, why should the farmer grow them? Without contracts, to guarantee stable beer production, brewers would also likely purchase more hops than they need. After all, who knows if they’ll be there next year. 

In a completely spot market, farmers would produce the varieties that return the most money every year. Maybe farmers would even take a year or two off if brewers weren’t paying enough in a given year. There would be very little stability from one year to the next. Every year would be a new adventure. You see … farmers only know which varieties to plant from the contracts they receive. The contract length reveals the importance of that variety to future production. Price, on the spot market or in a contract is the only indication whether the market for a variety is over or under supplied. The contract is important for all those things, but hop contracts provide even more value than that.

American farmers typically receive financing for their farms. Banks don’t finance farms and merchants for fun. They want to make money. To fulfill hop contracts with craft brewers, the American hop industry today is hundreds of millions of dollars in debt. Brewers must now make good on those contracts or they risk destroying the hop industry. Banks need to see contracts that show what the crop will be worth and how much they can expect to receive. Contracts represent the earning potential, which gives the bank the confidence to lend money to farmers and merchants. The payment terms of the contracts create expectations for cash flow. Financing would be the responsibility of the brewer in an entirely spot market.

If brewers contract for their needs properly, they ensure their ability to produce beer. They reduce their risk. Brewers are easily distracted when prices on the spot market are low and forget about the value of the security they have guaranteed with their hop contracts. The security of supply has value. Brewers pay nothing for it under the current system because signing hop contracts costs nothing until it comes time to purchase the hops. It’s like an insurance policy. We all carry insurance to protect against the chance of bad things affecting our businesses. Contracts provide the same security.

There’s nothing like a shortage of hops to reinforce the value of hop contracts. In a shortage, those who have contracts get their hops at the contracted prices. Those without contracts, if they get hops at all, will pay top dollar. Hops can get very expensive during the frenzy of a shortage. Most craft brewers in the business today haven’t had the pleasure of experiencing a hop shortage … yet. That time may come sooner than they expect. The system of contracting hops is far from perfect, but it’s more efficient than any other system that exists. Does anybody really want a system in which price trumps everything else? Brewers should be careful what they wish for …

Brewer question: hop pellets vs. bales

Question:  Doug & Crew; Can you comment on the shift in the industry from whole hops to pellets? In the old days, I have been brewing for 20+ years, all that was available was whole leaf hops. In the last couple of years the industry seems to have completely embraced pellet hops to the point where I have to seek out online sources of whole leaf hops. It’s a hassle dealing with pellets at the homebrew level and yet, it’s the only thing that’s available now at my local home brew shop. Is it just the stability and commercial use of hops tha is driving this shift? Your insights are always appreciated.

 

Dear Steve,

Thanks for your question.  There are still some commercial brewers who use baled hops, but you’re right, with each passing year the trend toward using pellets and other processed hop products grows. That is definitely a trend, but it is not necessarily driven by brewers looking for the best quality experience with their hops.

With 47Hops, for example, we sell hops in bales to some brewers. The volumes are small, but they’re out there. We need to know about the order before harvest is finished in September for us to be able to offer that product. Once we begin pelleting in October, we like to pellet everything we can. We prefer not to leave bales sitting around in the warehouse in the hopes that somebody will come along looking for bales to buy. That’s risky. Hops degrade quickly and they would soon be worthless. Strictly from a business standpoint, that doesn’t make sense. You can’t use old hop bales for much once they have no brewing value. 

There are plenty of reasons why the industry has shifted to using pellets. They are not all what you might imagine though. Shifting to pellets simplifies storage and shipping due to reduced volume and an easier form factor relative to bales. That’s particularly important when you consider that hops are grown primarily in the Pacific Northwest of the US and in Bavaria, Germany, but they travel all over the world. 

Pellets also make brewing a less technical process in that people can more easily just follow a recipe. Not all brewers today have 20+ years of experience. Many don’t understand, or care to understand, all the nuisances associated with using raw hops. I was recently talking with a very talented brewer friend of mine who mentioned that he prefers to use pellets and whole cone hops rather than oils or extracts because the complexity and fullness of the flavors are much greater and richer the closer you get to the raw product. There are hundreds of oils interacting with one another in raw hops and you may not even know which is acting with which to give you that special something you’re looking for. The more processing that takes place, at least with today’s processing methods, the fewer of those oils remain. In some cases, that might be the desired outcome, but it’s more likely a negative, but accepted, side effect of a process that offers many other benefits.

The most common reason stated for using pellets is that they preserve the characteristics of the hop due to the ability to package them in inert gasses. You don’t need to pellet hops to get that effect though. You could pack raw hops in Mylar foils with inert gasses and have a similar result. We have done that for customers. Again, if we find out about the order at the right time of year, we can do that sort of stuff.  It just takes a little planning ahead. Raw hops packaged in boxes and foils takes up quite a bit of space, but it can be easily palletized and moved around the warehouse and shipped.

I’m not trying to make the case for pellets … or bales. Honestly, as a hop merchant, we just respond to the demands of our customers. In fact, every hop grower and merchant would probably prefer that all brewers use raw hops. Having a more perishable product would make the hop industry less prone to over supply problems that can linger for years. Everybody will tell you that raw hops are less efficiently utilized in the brewing process. I suppose that depends on what you’re using to measure efficiency. The Apple industry has made the red delicious apple variety much more efficient over the years. They stay red longer and can ship across the country without spoiling, but while they are red, but they are not very delicious! In my opinion, you’re better off eating the box they come in. The flavor you can get from some heirloom varieties is much better! Of course, that’s a subjective opinion and not the metric the industry is trying to optimize for in apples. Hop varieties and products have also been optimized for a process, but what or who is driving that process and is that in line with your goals?

Considering the fact that raw hops would make the hop industry much less volatile, it’s ironic that hop merchants have been the ones responsible for all the innovation in the industry. Of course, they’ve done all that to get the attention of the big brewers over the years. Due to fierce competition with one another, they are constantly inventing more and more ways to process hops better or more differently than their competition. 

At the end of the day, the customer dictates what the market offers. If everybody wants 20 pound boxes of raw hops packaged in Mylar foils in inert gas, and they are willing to pay the costs associated with packaging the hops that way, that’s exactly what we and everybody else will provide. As the customer, you need to make your demands known. If your usual homebrew shop or merchant won’t give you what you want, look somewhere else. Just because it’s not out there now doesn’t mean it can’t be. Anything is possible! Maybe you’ll start the trend of using raw hops in beer again.

Regards,

Doug

 

I want to provide as much value as possible to our readers. So … If you have a question and would like it answered, please send it to 47Hops by any one of the millions of ways you can reach us. It will make its way to me pretty quickly. If I can answer it right away, I will. If I can’t, even better. I’ll dig around for the answer and let you know when I find it. If you like these posts and haven’t subscribed to the blog yet … SUBSCRIBE!  

Why homebrewers pay more for hops

A comment regarding homebrew shops from a friend on Facebook inspired this blog. I thought rather than answering his question in Facebook it would be worthwhile to share the answer with everybody since it applies not just to homebrew shops, but to everybody who buys hops. Enjoy!
 
…. specifically for home brewers. 3.00/ounce for some varieties in the homebrew shops. What is the shops’ wholesale price from the supplier. How many times do the hops get sold before they reach the end user? I’m working on connections to local growers in upstate ny to source hops, and be free of an inflated market price for hops. Supply and demand.
 

Good question. You are paying for several conveniences that apparently you don’t fully value or appreciate. If you are buying a 3 ounce package of hops, it seems you don’t want to buy any more than you absolutely need at the moment. You are paying extra for packaging and labor to put hops in 3 ounce packages. That’s just one thing that increases the price of the hops as they make their way from the farm to you. You probably have a freezer at home where you could store a pound or two of hops at a time. Are you not willing to use that as your own personal cold storage in order to save a little money?  If you buy in larger volumes, you’ll get a cheaper price. That’s the Costco business model.

Secondly, you’re going to a home-brew shop. The owner of that shop invested their time and money to collect a little bit of everything just for you so you can buy everything in one place … in person at a storefront. That involves rent and somebody’s salary to run the shop. When you go there, you probably like to ask questions from time to time to take advantage of the owner’s experience. That’s a convenience you’re paying for in that price  that it seems you don’t appreciate. That’s also another way price is increased on its way from the farmer to you. 

Yes, that homebrew shop probably bought those hops from at least one hop dealer so there’s an additional layer, or possibly two, of the supply chain adding to the price. Have you ever been to the grocery store? It’s the same situation there. Did you know the grocery store adds 100% margin to most of the goods it sells? I wouldn’t be surprised if your homebrew shop has to do the same. Do you feel the need to contact a carrot grower to buy your carrots or a cattle rancher to buy your steak? That sounds a little ridiculous, doesn’t it? That extra margin doesn’t mean the store is making a mint. There are just a lot of expenses involved in that business model.

If you want to buy at cheaper prices online, you can check out the store on the 47Hops web site.  We sell one pound resealable packages that you can stick in your freezer. If you can figure out a way to make that work, you’ll cut your hop bill way down … but you won’t get that same experience as at your homebrew shop. If enough people do that, the homebrew shops go away forever. That might not be a good thing, but that might be the way of the future. We’re definitely not going to hold your hand or have all your brewing supplies, but the price of your hops will be lower.

You shouldn’t make the mistake of judging everything by price alone without factoring in the value of all the other things you’re getting along the way. Nevertheless, brewers large and small do this all the time. I haven’t even mentioned cold storage, processing, financing and shipping, all things that add to the value of the hops you’re buying. There are a lot of people who have families to feed who touch that little convenient package of hops before it gets to your local homebrew shop.

Sure, growers sell hops for less than you can buy them in a homebrew store. Do you want to, or are you even able to, buy 13 or 130 or 200 pounds of raw hops at a time and pay for them in September? Do you have a freezer big enough at home to handle that?  Do you even use raw hops? If so, what are you doing buying 3 ounces at a time in the first place? Most growers don’t sell pellets. They don’t have storage facilities and they won’t package into 3 ounce packages. Very few growers are set up or are inclined to deal with somebody wanting a retail style product like what you are getting at the homebrew shop. All in all, you’re already getting a pretty good deal at that homebrew shop, but no … It’s NOT the cheapest price.

If you all you are looking for is cheap prices and nothing else matters, there are probably some really nasty old hops floating around out there. I imagine you can probably buy them for less than a $1.00 per pound if you’re lucky. Good luck making good beer with them though.  You should be careful driving your decisions based on price alone … you might actually get what you pay for. 

Sulfur Aroma in Hops – A Brewer Question

We often receive questions from brewers. We do our best to help them right away if we can. Sometimes, brewers can ask challenging questions and we need to reach out to knowledgeable friends who might know the answer. For this question, I consulted a very wise friend who has been in the industry a long time. He knows all kinds of useful random stuff and doesn’t seem to mind helping from time to time. I’ve paraphrased what he had to say about the sulfur aroma question:

 

Question:

Hi! We use your Azacca® in our NEIPA and they smell amazing. But we have gotten a lot of sulfuric aroma in our beers after switching. Then I read somewhere that some hops can indeed impart a sulfuric bite if they are treated with some pesticide [sic]? The problem is increased if you have late additions where that aroma can’t boil off. Any suggestions?

 

Answer:

We have not seen sulfur as a varietal attribute of any specific hop used in dry hopping. Thiols in hops can be perceived as sulfur like as they are very close to the hop terpenes associated with Black Current and/or Tropical aromas. We should also consider the aromas created when dry hopping in the presence of active yeast and that sulfur causing compounds can be malt related.

Another thing to consider is that some folks use C02 to pressurize and or circulate when dry hopping. Too much C02 can have a “scrubbing” effect that makes any underling sulfur notes (contributed by the water/beer soluble fractions) appear to be amplified when actually it is removing (i.e., scrubbing) the non-sulfur components. I would also point out that it may be Dimethyl Sulfide (DMS).

Since it’s a NEIPA, we might also assume that you might be using 5%-20% oats in the mash…. if so, are you allowing for the appropriate beta-glucanase rest?

Regarding the application of elemental sulfur on hop plants. There is a sulfur-based spray for powdery mildew. Hop merchants in the United States require that it not be applied after June 1, well before bloom in the Pacific Northwest. The long time between application and harvest requirement is not because of potential “sulfur” notes in brewing. Rather, it is due to the fact that sulfur is a catalyst killer in the production of some down steam products and the merchants don’t like that.