- Buy Early and Buy Often. It’s just like with voting in Chicago, but we’re talking about buying hops so it’s legal. Buy your hops early in an increasing market to take advantage of prices before they increase further. Buy often to take advantage of dollar cost averaging, meaning you take advantage of every price, blending the low prices together with the high prices. Over time, this will work to average out the costs of your hops. The big guys do that. So should you.
- Plan Ahead – Don’t wait to buy hops until you see you’re running out. OK, that sounds really obvious, I know. You’d be surprised how many brewers call us when they actually run out of hops. When they do they have no choice but to pay a fortune for overnight shipping. I remember two cases within the past 6 months where the brewer spent more on shipping than the hops themselves cost. We’re happy to overnight hops to people when they need that, but it’s a shame to see all that money going to freight when it could be spent on hops instead. Plan ahead and save money.
- Sign Contracts – Contract for your hops instead of relying on the spot market. OK, I’ve mentioned this one before. I know you’re probably thinking it’s a broken record, but it’s so easy. You don’t have to pay anything upfront just yet to sign a forward contract and you know you’ve locked up those hops. Why would you not contract forward for hops you know you’re going to need. True, prices may seem high now relative to where they were a few years back, but they are on the way up. The supply of certain varieties isn’t stable from year to year due to surging demand. Contract prices, historically are more stable than buying on the spot market. Buy your hops at least 18 months in advance to get the best prices. Contract as far out as you feel comfortable, 7 years would be attractive to get a nice contract these days. Five-year contracts are the norm. It’s still possible to get 3-year contracts, but remember you’re competing against the guys ready to sign a 5-year deal. Nobody’s going to do you a favor if all you’re willing to do is sign a 3-year contract in the current market.
- Perfect Timing – Buying at the right time of year can save you 25% in a good year whether we’re talking about contracts or spot purchases. For example, in January and February, a lot of brewers aren’t thinking about their needs for the coming year. Prices tend to take a jump in the spring and early summer when demand starts to squeeze everybody’s planned reserves tighter and tighter. At the time of this writing, hops in the current year are all spoken for so the prices we’re talking about are for the next year. In a short year, the prices of hops can double or even triple overnight. You don’t want to get caught without the hops you need when that happens.
- 5) Flexibility – Be flexible on price and contract terms to get the best terms that will fit your business. OK, that sounds cliché and very MBA business schooly. Sorry about that. In a nutshell … In this market, you need to commit to longer-term contracts to be attractive. You might want to think about starting a 5-year contract two years down the road to get some of the cooler varieties that just aren’t gettable in the current year. Also, if you always buy the cheapest hops you can find, don’t be surprised what you end up with … or when you don’t end up with anything at all.
Insider tip: Sometimes you can get hops because another brewery isn’t interested in extending their contracts and that leaves hops open in future years.
- Stay Connected – Developing a relationship with a hop merchant will usually get you the inside scoop first. Some brewers aren’t even to that point. They have a little trouble staying connected during a negotiation. If you’re talking to somebody about buying hops for your brewery, please don’t drop off the face of the Earth in the middle of the email exchange. Time after time we have brewers contact us sounding as if it’s urgent that they buy hops right away … a few emails get traded back and forth then they disappear into an abyss. The disappearance itself is not really the problem. We all get busy. The problem arises when the brewer reappears after some time (it can be weeks or even months later) as if there was never an interruption in the conversation. They expect everything to be the same as when they left. Trust me, it won’t be. When a brewer disappears, we usually figure they bought their hops somewhere else. As the supply side tightens the length of time an offer will remain valid will shorten. Back in 2008, I remember 24 hours was a normal validity time for an offer. Once an offer has expired, you can’t sign it, send it back and expect it to be valid. Unless we have an open offer outstanding, the hop merchant is not setting anything aside for anybody if there are other people demanding those hops.
Pro Tip: If you drop off the face of the Earth in the middle of a conversation about buying hops with the person from whom you’re hoping to buy them, you shouldn’t assume those hops will be there when you get back.
- Consistency – Brew using hops you know you’ll be able to get consistently. With variety shortages happening every year lately, you should know some substitutes you can use in case you’re not able to get the hops you need. Some proprietary varieties out there have very restricted supply. You probably know the ones I’m talking about … the ones you can never get. Unless you’re comfortable with your brand being dependent upon somebody else’s business plans, you might want to think twice about basing one of your beer brands on a hop variety that’s not Open Source.