How to Avoid High Hop Prices

Back in 2003, it was simple to get more hops whenever you needed them. You could just call up the merchant and ask for what you wanted. Chances are they had it sitting around, just like a bottle of Pepsi at the grocery store. Plus, brewers could get them for $2.00 a pound. A good friend of mine once told me, “the best thing about the good old days is that they’re gone.” It’s easy to go nostalgic to a time when we were all younger, but I think he was right. People weren’t drinking so much craft back in the good old days and hops available for $2.00 a pound hasn’t paid the bills since the 70’s!  

While times have changed, one thing has stayed the same … how long it takes to produce hops. It seems a lot of brewers don’t understand when they should contract for or buy their hops. You can’t blame them. They’re brewers, not farmers. When a brewer thinks of a year, it’s the calendar year. When a grower thinks of a year, it’s harvest to harvest. If you’re a brewer and you want the best selection, there are some things you should know. You want hops for 2015?  That means 2014 crop until October or November of 2015. If you want those 2015 hops, you should have ordered them already. Here’s why:
Washington and Idaho are the only places on Earth where hops can produce a full crop in the first year of production. The rest of the world needs 3 years before they expect a full crop. Even in Washington and Idaho the grower doesn’t always get a full crop the first year, particularly with aroma varieties, but it’s possible. Even with that incredible advantage, it’s not so simple for a grower to get a yard into production. He needs to have an empty yard just sitting around, something we don’t see too much of these days, and money, let’s not forget money. It takes lots of money.
If a brewer wants hops from Washington and Idaho for the 2015 crop, they should already be contracted, or they may not be there when he needs them. Why?  The grower needs land and poles. Land is everywhere you say?  True, but it’s not all for sale, especially the land within harvesting distance from picking machines. Also, the ground that is for sale is getting more expensive with each passing month it seems. Back in 2008 an acre of land cost $6000. That was considered a crazy price. Today, that price is $10,000!  Supply and demand!  After figuring out financing, land and poles are the first two things that need to be done … assuming the grower has enough picking capacity to pick the hops the brewer wants. If not, things get a whole lot more complicated. Let’s assume for now the grower can pick the hops needed. Ideally, those poles need to get to the farm so there is time to treat them before they are put into the ground. Treated poles can last 20-25 years. Untreated poles will rot out in 5 years. Hop yards are not usually a short-term investment. Growers are pretty busy with harvest this time of year. Those poles should have already arrived back in June or July to be treated, or they should arrive sometime during harvest so they can be treated right after harvest while the crew is still around.
Growers want to put up a yard in the spring before planting the roots, which ideally happens in March or April. The roots will need to be dug during the winter of 14/15 once the hops have gone to sleep. Of course, the grower needs to find the roots if he doesn’t have them himself. Roots aren’t available to all growers equally and the quality of some roots can really suck if there is a lot of demand. Some growers don’t like to sell roots to other growers, so growers are limited to buying roots from their grower friends. Yes, it is like high school. Most proprietary variety roots aren’t available for the grower to buy at all at any price because the owners own them ALL. Those are probably the same people who, as kids, wouldn’t let you play with their toys. If all goes well and the weather cooperates, a Washington or Idaho grower will have his trellis up and hops planted by April or May. They can go in later, but the results usually aren’t so great.
All together, including drip irrigation and all the other expenses that go into a hop yard, growers will tell you it costs somewhere between $9,000 and $10,000 per acre just to establish a new acre. There are lots of ways to shave off costs from that number, but that’s the number people are using today, so let’s go with it. Don’t forget that acre of land also cost about $10,000 in today’s market. So that’s roughly $20K already out the door and we don’t have a crop yet. Growers today estimate that cost is around $9,000 – $12,000 per acre depending upon the variety. From that acre, they’ll get somewhere between 1,000 and 2,000 pounds of hops for most aroma hop varieties.
Question: So when do you order your hops if those hops come from Washington or Idaho for the best price? 
Answer: In the summer OF THE YEAR BEFORE the hops will be harvested.
“WTF … a whole YEAR in advance” … you may say. “That’s impossible. I don’t know what I’m brewing next week!” We hear that a lot. Brewers call up in the spring or even in the summer needing hops from that year’s harvest. That’s not impossible, but it has consequences. It causes the market to get tighter. Why?  Growers always plant a little extra to be sure they don’t short their contracts. The merchant may buy a little extra for the same reason. That reserve gets smaller and smaller as more people come in to buy hops during the 9 months before harvest as everybody tries to accommodate the brewers’ needs. If the crop is not average or better, you had better have a good relationship with your merchant because things can get pretty tight. When that happens prices shoot up. That’s what’s happening right now! 
That doesn’t seem so bad though. “If I have to, I can plan out a year in advance,” you say. I’m sure my European hop grower friends are reading this now and thinking how lucky those growers in Washington and Idaho are. The rest of the world is not so lucky. They can expect to get 10-20% yield in year 1, 50-70% yield in year 2 and 100% yield in year 3 if Mother Nature cooperates every step of the way. Usually growers in the rest of the world don’t count on the 1st year’s production because it isn’t guaranteed. Year 2 can be a little more reliable. So … Growers in the rest of the world have to invest in 2014 for hops they can’t realistically see a return from until 2016!  They can delay the trellis expenses until 2016 if they don’t have the money, but that can hurt production so it’s not such a great idea.
Mother Nature is responsible for slowing European growers’ responses to market signals, which is why acreage expands and contracts more slowly in other parts of the world than in Washington or Idaho. That would seem to be an advantage for the Washington and Idaho guys, but, more often than not, it has a curse rather than a blessing. Their eagerness to take advantage of a market leads to overproduction, which causes the crazy swings in prices with which we’re all familiar. No bueno.
Question: So when do you order your hops if those hops come from anywhere other than Washington or Idaho for the best price? 

Answer: Up to THREE YEARS BEFORE the hops are harvested! 
Yep!  I did just say that!  Now you’re really thinking WTF!!  That’s not going to fit in well with Craft Brewers who like to switch things up, keep it fresh and try something new. That also won’t fit in well with a craft brewer who exchanges 5 or 6 emails back and forth, a phone call or two and maybe even a personal visit with a merchant and then disappears for three or four months before reestablishing contact to try to make his purchase (honestly, we see that all the time). In this market, those hops will disappear, sold to somebody else who understood the risks of waiting and who acted quickly. That goes for brewers big and small … there is somebody else out there who will buy the hops you want if you don’t contract for them quickly.

Somebody has to take the first step to get the new acreage in the ground. If it’s the grower or the merchant, the prices will be much higher as there is more risk involved. If it’s the brewer, prices can be lower. Since all the acreage is full now, regardless of who takes that first step, we’re talking about building new trellis. To justify that, growers need contracts that are 5 years or more so they can repay the enormous loans they’ll be taking out to get hops to the market that we mentioned in our previous article “Why Your Hops May Cost $1 Billion More by 2020”. Under the current market conditions, the spot market is the worst place to buy hops. You will pay the highest prices on the spot market right now. There’s a lot that goes into the hop growing process. Unfortunately, you can’t just flip a switch somewhere and make more hops. So what does that all mean for you if you need hops?
Contract Early, Long and Often to Avoid Paying Higher Prices!