In my previous blog, I wrote about Europeans taking a conservative approach to the hops market and why they should be more aggressive in planting hops. The coming years will be turbulent with regards to hop supply and demand, which can mean crazy, fluctuating, unpredictable prices. The problem, however, will not be equally distributed across the industry. We’ve put together some strategies to help both brewer and grower navigate the difficult times ahead.
For the Grower: A strategy to maximize profit from the current market while insuring stability on the farm.
- Act now to plant new aroma varieties on 5-year or even 7-year contracts. Contract 80% of your estimated production. Save 20% to play with on the spot market and to cover bad crop years.
- Price new varieties in the short-term at a price that will compensate for potential risks you believe may happen in the long term. If you don’t believe there are any risks and craft beer is here to stay, prices that return your farm 10% profit are probably fine if you are content with your current acreage. If you believe craft is a fad, not a trend, price your hops higher so the income pays for changing varieties twice and provides a healthy profit in the meantime. Perhaps instead of 6 Euros per kilogram, that means 10 or even 15 Euros per kilogram. The number will be different for every farm. Find out what the market will bear and ask for it. It’s better to shoot for the moon and miss than shoot for $H!T and hit.
- Be aggressive in the market. If you don’t like your current options, seek out merchants that will pay the prices you need. They are out there!
With these strategies, even if demand for these new hop varieties disappears after five years, which seems unlikely at the moment, the grower will make enough money to compensate himself for the risk.
For the Brewers: A strategy to insure your hop supply, European or otherwise, during the turbulent times to come.
- Contract your base. Your base is what you know you need. Top up each year. Don’t buy assuming 50% growth for the next 5 years. Be realistic. If you buy on the spot market today, you’ll regret it tomorrow.
- Get the longest contract you feel comfortable signing for the varieties and quantities you know you will need, 5-7 years out would be best. A longer contract can sometimes mean a lower price. Hops grown anywhere but Washington, will probably require a contract to begin 1-2 years in the future due to natural growing cycles.
- Pay a fair and sustainable price. Because of the demand for all the inputs, the cost of producing hops is genuinely increasing every year. If a farm is growing, it needs profit for the hops it’s growing and also enough money to continue to grow. That may seem like a lot of money compared to just a few years ago. Remember, you can’t just turn up the hopometer to produce more hops.
These strategies will help you secure most of your hop needs without putting you too far out on a limb. Sure, you’ll have to think about contracting more hops every year, but hops are kind of important. Shouldn’t you buy your hops from a merchant who also wants you to be aware what’s going on in the market?
Relevance in the Future
Of course, nobody knows what will come in the future. I am looking into getting a crystal ball right now though. Nobody would have predicted two years ago that we would be on the brink of another war in Europe currently playing out in the Ukraine. That still seems ridiculous. They need to chillax over a good beer together. The only thing constant is change.
Here’s something to think about … What if we are at the beginning of a trend that does not slow down for 40 years? Sound impossible? It’s unprecedented in the hop industry! You only have to look at the California wine industry or coffee consumption across the United States though to see examples of other beverages that have sustained upward trends for decades. If European growers sit this one out, it creates more opportunity for American growers, who are naturally more inclined to take advantage of just such an opportunity. Of course, there will always be hops in Germany and in the U.S. What is really at stake today is the future landscape of the hop industry and the relevance of the players within it.
Early adopters of the strategies above and those informed about the market will benefit. We will continue to be a source for quality hops, but also, we’ll continue to be the ONLY source for relevant information on the hop market in the future. Share this blog with a brewer or hop lover today. Knowledge is power.
Long live the hop revolution!