Changing Market Signals

The growth of craft changed the signals that traditionally guided hop growers and merchants as to what the market needs. The changing market created confusing signals for when to buy, when to sell, when to plant and when to idle acreage. The talk among hop merchants these days is how big brewers contracted for too many hops. Another hot topic is how payments from brewers are severely delayed and shipments of hops are moving at a snails pace. In 2016, late payments and slow deliveries primarily impacted the merchants. They reshuffled inventory to smaller customers whenever possible. Nevertheless, contracted inventory is piling up in warehouses. Nobody knows the complete picture of how pervasive the over contracting is in the craft brewing industry. For the most part, breweries still want their contracted inventory. They just don’t need it as soon as they thought they would.

Slowing deliveries is typically a sign of surplus and a harbinger of bad things to come. Not so in today’s hop market. Strong hop prices prevail. Strong hop prices are traditionally a signal to the industry to plant more. The industry traditionally reads that to mean that a variety is short and more is needed. Not so in today’s hop market. Quite a few growers and at least one merchant continue to plant more hops. Of course, they say it’s all contracted. I wonder when they will get paid for those hops? That’s the real question! It seems the people planting are still responding to signals of an old hop market where strong prices equates to short supply and a contract has a specific value in time. Everything has changed.

The current market requires delicate adjustments, somewhere between full throttle and full stop. Today’s market, with thousands of players acting in what they perceive as their own best interests, is unprecedented in our lifetimes. It sends conflicting signals to a hop industry used to a much smaller customer base. In 2017, the market will send hop growers plenty of signals. Right now, most merchants will not buy aroma hops. That doesn’t mean the market is gone completely. Merchants hesitate to buy hops from growers because of the optimism it can create. The hop industry does not need more acreage to satisfy demand.

Ten years ago, the current level of surplus would have crashed the market and acreage would be coming out. Will that news reach the fields in time to stop the production of millions of pounds of unnecessary hops in 2017? That is, literally, the million-dollar question! Growers don’t need to remove acreage. They simply need to slow down and let the brewers catch up.