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Be happy somebody’s looking out for our hops

Looking for hopsHere’s a scary thought from Ralph Olson of Hopunion, one of craft brewers’ go-to hop purveyors:

“They (large breweries around the world) want your hops now.”

Olson was talking on a “packed” tele-conference call this week, along with Ian Ward of Brewers Supply Group, updating members of the Brewers Association on the status of the 2007 hops and malt crops and prospects for 2008.

You may have already read more about beer price increases than you want to know, but just how serious things have become quite quickly was visually apparent during the presentation. So many brewery representatives showed up that the accompanying online slide show loaded as if we were all on dial-up connections.

Turnout increased three fold over a similar presentation in 2006.

“It’s a matter of economics and agronomics,” Ward said, while detailing the global aspect of what has happened. For instance, when the barley crop tanks in Australia, as it did last winter, fast-growing breweries in the Far East have to look elsewhere for malt. Prices go up.

Same with hops. Hops had been so cheap for so long that when larger breweries around the world needed “alpha” they just bought it on the spot market. When, for reasons that included simple bad luck and ongoing trends, alpha dried up this year they began wandering the earth with their wallets open.

[An amusing aside. Talking about hops, Matt Brophy of Flying Dogs Ales (as you know not a brewing giant, but one that long ago contracted to make sure its hops needs are met in 2008) described what brewers are used to:

“It’s like pizza. You pick up the phone and order pizza and you get pizza.

“You ordered hops and you got hops.”

Not now. No wonder the guy in Illinois is making pizza beer.]

Back to those big brewers. Even though they produce beers with little or no hop character they want high alpha hops because those are the most efficient (making beer at a lower cost). On an ongoing basis high alpha hops compete for space in the hopyard with aroma hops, which are what craft and other traditional brewers use more of.

Circumstances are similar with barley for malt. The competition for acreage with bio-fuels is but one example of non-beer related pressures on barley.

Those are short summaries of a complex matrix. The bottom line is that the cost of beer ingredients is going to continue to rise in coming years. Unless disaster strikes on many agricultural fronts in 2008 we aren’t likely to see jumps of 50% and 100% in malt and hops prices like this year, but they are going up.

To finish what Olson was saying at the top . . .

“European brewers will wire us money (for hops) right now,” he said, fortunately barely pausing before adding, “I’m not going to do it. We have to keep them here, don’t we?”

At the beginning of his book Ultimate Beer, Michael Jackson wrote about “where beer is grown.” I thought about that while Olson was speaking, then Ward. Both emphasized the partnership between the farmers who provide the ingredients and the brewers who turn the ingredients into beer. Hopunion and Brewery Supply happen to be part of that as well.

So there’s another reason that when you drink a beer brewed with hops instead of “alpha” and with a focus on malt flavor instead of efficiency that it’s fair to pay more. And more than simply the percentage increase in ingredient costs.

Somebody, a lot of somebodies along the way, went to the trouble to make it happen.


6 Responses to Be happy somebody’s looking out for our hops

  1. Alan November 3, 2007 at 2:27 pm #

    Is it that hops are really cheap or production was cut back for ten years and a storage facility burned leading to this crisis? I’ve already told one craft brewer of my acquaintance to start asking local CNY farmers grow the damn stuff for them. Supply needs to be increased. Prices will fall again. Same with barley. The great thing is both are marginal crops that grown above “the peach line”. Good news for the bits of Canada that can’t really pull off a reliable corn crop.

  2. Stan Hieronymus November 4, 2007 at 7:20 am #

    Alan, kinda randomly presented:

    – The storage facility fire last year amounted to less than 1% of a hop crop. Not the reason for this year’s troubles.
    – Hops acreage has been going down longterm. 236,000 in 1992, 203,000 in 1996, 113,000 in 2006. Farmers have been getting out of the business because it doesn’t pay.
    – There are only some regions where you can grow hops, and there’s a pecking order within them. There are many reasons the center of hops production in the US went from NY to Wisconsin to Northern California to the Northwest.
    – Same with barley for malt. The EU dominates global malt trade (55%), while Canada is second (13%). You might want to learn more about the Canadian Wheat Board. Ward explained how its practices make is harder on the farmers, but I kinda zoned out during that.

    I love the idea of beer being grown locally, but there are roadblocks beyond the fact (in the case of hops) that farmers are abandoning the crop.

    You need tools (such as hop pickers) and production facilities. Again, because of the poor return on investment, maltsters are not building the production facilities needed, and at least four to five new large expensive plants are needed in the next 5 years if malt production is to keep up with beer demand.

  3. Todd November 4, 2007 at 8:51 am #

    Thanks for the updates Stan, I sure wish I would’ve heard Ralph’s talk.

    Not all hops grow above the “peach line”- thankfully. New plants, new turf, new inspirations. Hopefully not too many new problems.

    Is this just the perfect storm to inspire new hopyards in new places, or am I just dreaming? A day late and a dollar short?

    Which would be more expensive to build and which would return more profitable revenues, a malting plant or a biodiesel plant? Which one would use more water? Will beer return more $ than fuel in our coming future?
    Would our current maltsters switch to biodiesel production instead of beer?

  4. Stephen Beaumont November 5, 2007 at 6:31 am #

    Is it not possible that hop prices are, in fact, merely rising to the level at which the commodity becomes a viable crop? And is it not also possible that the principle issue at hand is not one of price, but of supply (as I believe Ralph implies)? And finally, just to complete my cynical trifecta, is it not also true that ingredient costs constitute a relatively small portion of the retail cost of a beer, dwarfed as they are by capital costs, packaging, transportation and distribution chain mark-ups?

  5. Stan Hieronymus November 5, 2007 at 2:44 pm #

    Cynical? I think you are right on all counts.

    Malt is a bigger factor in the price equation than hops – though hops seem to be getting more attention, probably a combination of sounding sexier to headline writers and the fact some smaller brewers are out of some varieties.

  6. Beer Answer Guy December 24, 2007 at 11:14 pm #

    I have also been reading that many farmers who have grown hops in the past are switching to growing corn. Why would they do that?

    The answer is that they can make more money now that ethanol is becoming more and more popular. Its pure economics.

    Eventually the price of hops will rise to a point where it becomes profitable again.. until then it may pay to do a little more home brewing with hop pellets.


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