The Hop Shortage is Officially Over

You know you live in Beervana when the status of the local hop crop is front-page news. (As it should be.) In today's Oregonian, John Foyston reports on the status of the hop industry. Good news for beer drinkers, maybe not so good news for growers. Following the great hop shortage of 2007, hop growers put in a remarkable 10,000 new acres--a one-third increase over those low years. Now at 41,000 acres, it looks like the growers have over-reacted:

The hops shortage of 2007 is over, buried in a glut of unsold hops.... "The only time I've heard of hops left hanging was back when powdery mildew hit so hard that some yards weren't worth picking," says John Annen of Annen Brothers Farms and chairman of the Oregon Hop Commission. "But never industrywide -- these are perfectly good hops unpicked because there's no warehouse space and no spot market for uncontracted hops."

I hope this doesn't lead to an oscillating cycle of boom and bust, with hop growers ripping out too many acres and returning us to future hop shortages. Of course, even with over-supply, Foyston reports that no one expects beer prices to come down. Hops were only one of several difficulties that hit brewers recently, and that means high prices for the foreseeable future.

As to the crisis of the hop growers: maybe we homebrewers can pick up the slack. I'm in for a couple pounds. Anything to save those precious hops from a mulchy future.


Update: The Don't-Call-Me-A-Beeronomist offers an economist's take on the hop glut. He also gives an economist's take on the evanescent nature of fresh hops, though why you care what an economist thinks about that is another matter. (His econ stuff is solid.)

Business Up, Profits Down

A nice article by the Eugene Register-Guard about the squeeze local brewers are finding on their profit margins, thanks to hop prices:

Eugene-based Ninkasi is one of the companies feeling the pinch. The brewery, which is restructuring its warehouse in preparation for a new brew master, needs to expand to remain successful, Floyd said, even in the face of rising costs.

Ninkasi has responded to the increase in hops prices with some short-term price increases of its own, and by reworking some of its formulas to deal with the realities of fewer available hops and higher prices. “We have subtly changed some recipes,” Floyd said.

With only a brewing operation, Floyd said he’s not able to compensate for the rising hops prices through other revenue sources, the way a restaurant can.

“We did raise our prices but our prices were not as high as other brewers to begin with,” Floyd said. “We were actually able to sell additional units because our prices are lower.”

Despite selling more kegs, Ninkasi’s profit margins are still being squeezed.

By the way, in that first paragraph I quoted, it mentions Ninkasi looking for a new brewmaster. Anyone know anything about that? Odd.

Hop Talk

John Foyston has posted an article (not exactly clear who wrote it) about the movement to plant new acres of hops in response to the hop shortage--and concomitant rise in prices.

Washington, Oregon and Idaho grew hops on 30,911 acres last year, according to industry figures.

Growers are feverishly reconditioning yards and adding new land at an unheard-of pace. Growers are receiving multiple-year contracts with prices front-loaded to help them shoulder the estimated $6,000-per-acre cost to plant yards and also upgrade equipment....

Northwest hop acreage, which expanded by about 2,000 acres last year as the lack of supply became apparent, could grow by another 5,000 acres this year.

Ralph Olson, general manager of grower-owned HopUnion of Yakima, a buyer who deals primarily with smaller craft brewers, thinks the figure may be closer to 8,000 acres by the time all is said and done. That would be a jump of nearly 25 percent in acreage in one year.

"The expansion is being driven by demand," Olson said. "Part of it stems from this being an international market. You have a lot of Eastern Europeans who have the Euro, a strong currency now. They are short and have a huge demand for hops from anywhere. They will pay whatever.

Foyston also sent out an email about the article, and two brewers responded. Since they weren't commenting for attribution, I'll leave the names off, but the content is interesting. Brewer A began with some sober caveats to the news:

I want to remind folks that hops take two years to produce substantial amounts of hops. Also, there were many low alpha crops pulled to plant higher alpha hops, which means next year could be even shorter in supply. Those new hops won't produce this year. I am not trying to destroy hope, and there should at least be a little more out there, but I am being asked to contract hops forward until 2012, which is totally nuts. I should not have to commit to pricing that far in advance.

One last thing to consider is that world beer production is on the rise. The Chinese have made huge growth in their new economic situation and people are drinking beer. Problem is they need hops too. The good news is that in the future there will be more hops, just maybe not this summer.

Point taken. But then Brewer B decided to kindle hope a little more. Said he:

Yakima grown hops produce a small crop the first year.

So take from it what you will.

I do want to add one more piece, though. To elaborate on Brewer A's comment, the total acreage of hops doesn't tell the whole story. The industrial brewers don't add hops for flavor, but to balance the (albeit paltry) malt--at levels below detection. Their interest is in the highest-alpha hops available (that is, the most bitter), because these require the smallest amount to do the trick.

Craft brewers, on the other hand, rely on hops to flavor the beer. As you well know, the difference between varieties is broad, and craft brewers rely mainly on middle- to high-middle hop varieties.

The next thing we need to learn is which hop varieties the growers are planting. Because, if they've ripped out all the Cascades and are replacing them with ultra-high alpha hops, we could all be worse off. So, tentative signs that things are improving, but we should regard them with caution.

Beer Prices: It Could Be Worse

Ouch:

An average pint in Britain has topped £3 following a 4p rise in the budget – making it the same price as a line of cocaine, according to official government figures. In London the average price of a pint – at £4.06 – is dearer than a hit of heroin.

Three pounds is currently $5.95. The London price is outrageous by Beervana standards--$8.05! The article continues, comparing the price of beer to other illegal drugs. Single pills of Ecstacy are going for £2.91, and a shot of heroin is £3.50.

The Campaign for Real Ale said: 'The latest tax increase will drive people away from community pubs, which help discourage the problem, to drink cheap supermarket alcohol at home, in streets and in parks.'

So, bad as beer prices may get here, it could be worse. (File under "misery loves company?")

Hop Supply Driving Barley Prices ... Down?

Okay, this is counterintuitive. Economist Patrick Emerson (and my friend) forwards an argument that the steep price of hops may actually be keeping the price of malt barley from rising. It is a lesson in market interdependence and (perhaps) unanticipated consequences.

Apparently barley can be sold as malting barley and feed barley and usually malting barley (which is a bit more selective) fetches a much higher price than feed barley. But these days the prices are as close together as he can remember. What gives? One reason is that barley malters are constrained somewhat by the supply of hops, if there are no hops there is little demand for malted barley. Thus the price of malting barley has not risen as fast. On the other side, as corn has displaced a lot of wheat and barley, feed barley prices have risen in response (also, apparently you can write longer forward contracts on malt than you can on feed barley because they are traded in different commodity markets).

So the point is that the hops shortage might actually be helping to keep the barley price from rising as much as it otherwise would because the two are such strong complements in the production of beer.

He posts and update that malt and feed barley prices are starting to diverge again, but are still close by historical measures. A silver lining, perhaps, for hard-hit brewers.

Good Hop News

In a post about the ongoing difficulties with hops over on Appellation Beer, there appeared a ray of sunlight in the comments. Jay Brooks of Brookston Beer Bulletin reported this:

At the annual hop conference in late January, it was announced that between 5-7,000 new acres will be planted in the Pacific NW this year, around 6,000 in and around Yakima, and the rest split between Oregon and Idaho. That’s the good news, obviously

He notes that it's almost all high-alpha (the kind the macros use), but that's not bad. An extra 6,000 acres is a good thing no matter how you slice it. Now, we just have to wait 'til 2010 for it to hit the market...

Hop Prices Continue Skyward

You know things are bad when an article about the price of hops (and likely rise in beer prices) becomes front-page stuff. (You also know you're in Beervana--where stories about beer prices can help move papers.) So it was in today's Sunday Oregonian, where our trusty beer scribe John Foyston laid out the bad news:

Malted barley and hops are the two most expensive ingredients in Northwest craft beers, and they're becoming more expensive: Oregon- and Washington-grown hops that sold for $2 a pound last year now fetch as much as $18 a pound on the spot market -- if they can be had at all -- and barley is up about 75 percent....

Call it a quadruple whammy: Hops and barley acreage has been declining -- hops because of a 10-year glut and barley because many farmers are planting corn for ethanol instead. Ethanol has also diverted corn from the feed market, often making it more lucrative to sell barley for feed instead of to the malting houses that supply brewers.

But wait, there's more: Two years of failed hop crops in Europe, a 2006 warehouse fire in Yakima that destroyed 4 percent of the U.S. crop and two years of disastrous barley harvests in Europe, Australia and Ukraine. Factor in a weak dollar that has the world clamoring for our hops and barley and you have the makings of a uniquely bad patch for brewers and consumers.

It's not actually new info, just further evidence--as if you needed it--that this crisis is real. There were, however, some scattered facts about which you may be ignorant:

• BridgePort uses 55 tons of hops a year (!); they managed to secure contracts through 2010, so their flagship IPA should still taste the same.
• Small brewers try to keep a 30% margin on kegs, which means that tap prices are likely to rise $.25-.50.
  
• Prices are predicted to hit $9 a sixer, and $5 a pint--in pubs where they're not already that steep.

All of this could be very bad news for small breweries. I plan to keep buying the same amount of good beer I always have--and I hope other drinkers will, too. This crisis shall pass; I just don't want any brewers to pass with it.

A Run on Hops?

Lew Bryson is reporting an unnamed brewer who was quoted $32 a pound for Cascades. This compares to $2 a year ago (probably low, reflecting surpluses carried over from a glut in the early '00s) and $10 a pound in September. I would guess a balance between supply and demand would put them somewhere in the $3-$5 range, so this price is something like 800% above what brewers expect to pay.

That's obviously very bad. But I wonder, with the extraordinary attention the hop situation is getting (even NPR did a story a couple days ago), could this be the result of a run on the market? I know homebrewers (some of whom might even write for this blog) who have bought bulk to lay in a store for the hard times ahead. Surely ours was not an isolated inspiration.

I wonder if this means there are deals on other, less popular hops still to be had. If so, we might see a series of new beers with new hop profiles--not an altogether terrible outcome. I also wonder if it means that we'll see haves and have-not breweries as the year wears on, as those who jumped first and picked up the (relatively) cheap Cascades have a larder, while others look at $32 a pound and say, "gee, how about a nice Scottish ale?"

This Hop Shortage Thing May Be Serious

We have been hearing rumblings of an imminent hop shortage for a month now, and I'll admit that I haven't taken it all that seriously. I wasn't thinking very deeply about it, and ignored the market reality. In my mind, hops are grown in the NW, so somehow we'd be the first in line. Of course, that doesn't square with how the national hop market actually functions, nor with the unsavory truth that little breweries like Oregon's are going to have to get in line behind A-B and the national brands--never mind how close they are situated to the hop fields.

Well, about the time our NPR affiliate ran a locally-produced story about this (they've changed their website and it's not online), I started to get alarmed. A few facts worth considering:

• Cascades, the signature hop of the NW and one you find in at least half the beers brewed here, was selling at $1.70 a pound last year, when the last of a backlog was finally exhausted. A month ago they were selling at $10 a pound. The 1,000 acres of Cascades are 300-400 short--and no new acres are being planted.
  
• Hop supplies from around the world are down, thanks to a hailstorm in Slovenia and a poor crop in the Czech Republic. This will increase pressures on hop supplies coming from the US.
• Hop acreage is down from over 200,000 acres from the 80s into the early 90s to just 123,000 acres now. It takes three years for a hop vine to reach full production.

The upshot is potentially grim. Industrial lagers aren't in particular danger--their IBUs are at or below the level of perception, and there's no way to tell the difference in varieties. (To save money, the big companies buy high- and super-high-alpha varieties so they can use fewer hops per barrel. Most of the planned new acreage is of these varieties--most of which aren't broadly used by craft brewers.) But craft brewers, especially those on the West Coast, use lots of hops, and the vast majority of our beers are distinct because of the hop varieties and amounts used. Mirror Pond, for example, is hopped solely with Cascades. If they run out, Mirror Pond will essentially cease to be Mirror Pond--no matter what label the brewery uses.

At the very least, beer is going to cost a lot more for craft brewers to brew: they can't easily substitute varieties, which will cause the supply of certain hops to spike. Where the bigs could take advantage of other types, craft brewers are going to have to bite the bullet and shell out. At the worst, breweries may have to experiment with different varieties and hope to approximate the beer's character. This will hurt bottling breweries more than brewpubs, where variability is embraced. Can you imagine the consequences of a beer like BridgePort IPA having to change its recipe? Oy.

If there's a silver lining for breweries, it's that this may force certain innovations--experimentation with new hop varieties, use of non-hop bittering adjuncts, new, low-hop styles. This would actually be a wonderful thing, but the cost may be high.

Brewing isn't a high-margin business. Thanks to the run on ethanol, barley production has lost acreage to corn, which is also driving price increases. Breweries will have to choose whether to cut margins even more or raise prices. If they cut prices, can they stay solvent? And if they raise prices, will they lose market share? Craft breweries will be at a competitive disadvantage to bigger breweries, which can absorb costs more easily. The result could be a downturn in the craft market, and a shakeout that kills off smaller or more unstable brewers. This happened a decade ago, and it was ugly.

I'll quit taking this so lightly and try to keep an eye on what's happening. Stay tuned.