Who sets hop prices – Part 2

Welcome back! So now you know how hop prices can change and what makes them change. What can you do to keep the cycle from affecting you? Here are some practical tips that will help you save money. They can also keep the cycle from recurring to the extreme that it happened in the past.

It seems some new brewers don’t understand the history of contracting. For years, this was the normal buying strategy was something like this:

When the craft beer revolution happened everybody started contracting at 100% of anticipated growth for 5 years into the future. Bankers and growers required that stability to lend hundreds of millions of dollars to the hop industry. It’s hard to know what you’re going to do 5 years in the future. Of course, when the market slowed the imbalance between supply and demand caused everybody to shudder to a stop. The zero cost of signing a contract mistakenly led brewers to believe that it was easy to hop in and out of contracts. While contracts are too easy to sign, they are difficult to unravel.

How do brewers growers and merchants move forward now in a way that will keep the market from getting out of control, in either direction. Here are some ProTips to consider.

 

ProTip #1: Always be in the market for hops, even if you think things will be better tomorrow. That doesn’t mean buy hops until they are coming out of your nose. Quite the contrary … It means regulating your buying habits so you never have to buy all your hops at once. Plan to buy some every quarter, or even as often as every month. You’ll get a mix of some high prices and some low prices. The mix will beat the market in the long run. If you always base your future purchases on your current needs, you won’t end up with a surplus. If you buy 20% for each of the next 5 years annually and further spread that 20% throughout the course of the year, you’ll pay far less than the guy who has no hops when the shortage happens and has to buy at peak pricing during a shortage.

ProTip #2: Timing the market is impossible so don’t try. After that first ProTip, you’re probably thinking, “yes, but I’ll be paying more than if I buy when the market is cheap”. That’s true, but very few (if any) people are lucky enough to buy all their hops when the market is at its cheapest. If you try to be that person, the odds are not in your favor and you will not likely succeed.

ProTip #3: Don’t be afraid to buy old hops. You’ve been taught that fresh is always better. I don’t mean you should buy those cheesy old hops that Lambic brewers love … unless you’re brewing a Lambic. What I mean is that you can buy 1-2 year old hops so long as they have been kept in cold storage at a constant temperature. If they have, the only difference you’ll likely notice is a slightly reduced alpha value. If the hops have not been stored properly, don’t consider taking this route.

ProTip #4: Don’t ever be dependent on one hop variety. In this age of variety specific shortages, none of your beers should rely upon just one variety. Diversity is strength. If you can’t get one variety, you can easily substitute something for it and nobody will ever feel the difference.

ProTip #5: Know your hop vintage. What?!? Hops don’t have a vintage … do they? Typically, nobody thinks of it that way, but there can be big differences between crop years. Depending on the weather, an old crop can be better than a fresh crop. Most recently, that happened with German Magnum and Herkules from the 2014 crop. They were much better than those from the 2015 crop due to the weather in 2015. You might not want to waste the time to know all about each crop year, but you should know enough to ask the person selling you your hops. They know.

ProTip #6: Remember that hops are a sensitive agricultural product. You NEVER know what the weather can do to the crop tomorrow.

 

If you follow the ProTips in this article,YOU will be the one who sets your hop prices. If brewers leave the market en masse now because they perceive an oversupply that may or may exist, their actions will send the market down an old familiar path.

In the end … We are all just actors.