Merchants of Hope … and Hops at Brau 2015

I accidentally write “hops” more often than not when I try to type the word “hope”!  I’m sure that’s a sign I’ve been in the hop industry a while. It seems interchanging the two was elevated from a simple typo on the computer to a strategy for some hop merchants at the 2015 Brau trade show in Nürnberg, Germany last week. More than one key player in the hop market decided to collect demand requests from visitors to the show. They also continued to search for any potential supply that might be lurking in the shadows. The strategy seems to be to match any available supply with demand after Brau in the comfort of their own offices. Kudos to them for coming up with this clever strategy! This is a brilliant way to manipulate the market and keep prices low. Instead of the fear of deficits and potential shortages spreading through the show like wildfire, inflating prices and causing a potentially significant market event, everybody left the show with something. They may not have left the show with a hop contract, but they left with the promise that somebody would be looking at their needs and would work to take care of them in the next couple weeks. In short, they left the show with the hope that their needs would be taken care of. Yes, I did just write hops there instead of hope … again.

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Hope is a powerful thing … For that reason, there aren’t any crazy price spikes to report from the Brau … We didn’t expect there would be though. You didn’t either if you read our previous blog. Still, it seems some growers were holding out hope for a very different outcome. I say that because of the amount of growers contacting me from all different parts of the world asking if there was any news. I’m not sure what they expected, but we saw just what we expected to see. Prices for German aroma hops increased to levels double what they were just a few months ago. Prices for future contracts took a significant leap upward. Prices for alpha increased slightly, yet again. Older crop years were in high demand. The 2014 crop year is not being offered at a discount to 2015. Any remaining 2012 and 2013 crop hops that surfaced were available at slightly discounted prices. Those prices were still higher than market prices for 2015 crop just a few months ago. From what we hear, those old crop years are moving fast.

American hop varieties were in extremely high demand and the premium prices they command did not scare buyers away. Some of you are undoubtedly reading this right now and thinking, “Hang on a minute … I heard there weren’t any American hops available.” That was the message from at least one American hop merchant at the show … but that’s a bit misleading. That just means that they didn’t have any hops to offer, not that there aren’t any out there to be found. Even without a booth, quite a few people in need of American hops approached us as we walked around the show. We sold quite a few hops … 47Hops does have hops available … European and American varieties.

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There were a lot of Russians at the Brau this year! People were speaking it in the hallways, in the raw material hall and in every other hall at the show. That’s key to the story because the Russian market is typically a very price sensitive market, but that is not to imply that they do not have money to spend. The current political and economic situation in Russia have its citizens believing their currency will continue to be devalued relative to other world currencies and they were eager to spend it on things that will retain value going forward.  The Russian presence heightened the buzz at the Brau, which is always an exciting place to begin with.

Even the news of one Eastern European hop merchant, who shall remain nameless, defaulting on their contracts and selling hops at expensive prices on the spot market was not enough to jumpstart a runaway market. Hope is a powerful thing … as is the willing suspension of disbelief and cognitive estrangement. What?!?

Suspension of disbelief or willing suspension of disbelief is a term coined in 1817 by the poet and aesthetic philosopher Samuel Taylor Coleridge, who suggested that if a writer could infuse a “human interest and a semblance of truth” into a fantastic tale, the reader would suspend judgment concerning the implausibility of the narrative. Suspension of disbelief often applies to fictional works of the action, comedy, fantasy, and horror genres. Cognitive estrangement in fiction involves using a person’s ignorance or lack of knowledge to promote suspension of disbelief.

                                                                                    -Wikipedia

Some brewers have over bought due to an overly optimism vision of their future sales . We see some adjustments in contracts on a variety-by-variety basis, but the adjustments are minor. Overall, we are seeing huge net increases in demand for hops. Based on information we received at the International Hop Growers Convention meeting also in Nürnberg last week, we have reason to believe that every hop producing country will reach production capacity for the 2016 crop. There are always ways to extend harvest, but only at the expense of hop quality. That means that without further increases in the market price enabling further investment in infrastructure we will not see the supply hops develop at a rate to match demand. All that, and we still haven’t touched on the alpha market, but we’ll save that for another time. There is enough excitement in the aroma market. We expect prices will continue to strengthen in the coming weeks and months as structural deficits within the industry surrounding the 2016 crop become more apparent.

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Sure, there are a few doubting Thomases that may say the situation is not so extreme, but they probably can’t see the forest for the trees. Maybe they enjoy being merchants of hope. You can’t brew beer with hope.