If you’re a brewer, you’re used to thinking about water. You use a lot of it. Some of our brewer friends in California have to think about it a little more than the rest of us these days. That’s a concern that’s starting to trickle into the hop industry too. Last week there was a local news story about the Roza Irrigation district (one of the irrigation districts in the Yakima valley) and how they will be shutting off the water for 11 days this month to ration water. Check out the story for yourself here. The Roza district is infamous for being at the end of the line, meaning that they are the first to get shut off in times of trouble … the canary in the coal mine if you will. There are other districts that are senior to the Roza and are always guaranteed water.
There’s a lot of concern out there about water now. It seems reporters are thirsty for a story about how water will doom the industry. We know that about 25-33% of the Washington State hop acreage is grown within the boundaries of the Roza irrigation district. That’s a significant number! A lot of growers there have access to wells, and there are other irrigation districts around some farms. It’s definitely not a black and white issue. The water irrigation system has reserve capacity built into it so a short supply does not equal a shortage. There are a few other options for some people. It’s too early to predict exactly how the short water supply will affect the 2015 crop. It’s not too early though to predict, that if we have another warm winter with very little snow in the Cascade mountain range like the one we just had, 2016 will bring with it serious water problems that will negatively affect the hop crop. That’s how serious the situation is at the moment. That’s a concern among hop growers today.
The Balancing Act
A table normally has 4 legs, but it can also stand on just three if you take one away. Sure, it’s less stable that way, but it’ll stand. Although it’s standing, that table will fall over if you put some weight on the wrong side once that fourth leg is gone. Once you’ve taken away that fourth leg, you lose the stability built into the table. The result is that you are at greater risk and more vulnerable to the next problem that comes along. That is where the hop industry is now with its water problem, a little closer to tipping over. A heat wave, or another warm winter with very little snow, and we’re in a serious drought situation that could drastically affect the supply of hops.
Farmers always have a lot of risk. Considering that, I’m surprised how much they like to gamble in their free time. You would think they get enough at work. I guess next to farming a little game of dice or poker doesn’t seem very risky at all. After all, all they can lose is the money on the table. Something farmers also like to do … they also like to complain how they can lose the crop. I often hear criticism from brewers that growers and merchants are trying to drive the price up by creating things to worry about. Some people may be doing that for sure, but by and large the things that come along, like today’s water situation, can develop into real problems and the crop can really be affected. Those are the things growers have to be concerned about. If brewers understood all the risks to the crop that happen every year on the farm, they would be thankful there are hops at all.
I don’t want to boost grower egos too much because some of them already drink their own Kool-Aid, but it comes down to the fact that most of them are experts with generations of experience behind them. With farming, that’s important. That enables them to overcome the challenges they face every year to produce an average crop more often than not. Farming isn’t as sexy as being an astronaut, but most of them do the equivalent to what the pilots of Apollo 13 did when they brought their ship home … but they do it every year. Some of them read this. It’s good for them to know that they are appreciated. I don’t want them to start thinking they can walk on water though so I’ll stop saying nice things about them now. Sometimes though, despite the day and age in which we live, there are still surprises. Let’s not forget, it was just last year that Centennials and every early-harvesting variety in the U.S. were short 30-50%. Nobody saw that coming. The crop looked good, but the cones just didn’t weight out. How do you plan for that?
Sometimes it’s Better to be Lucky than Good
Let’s say the crop is down 5-10% across all varieties this year. It doesn’t have to be from a water-related problem. There are threats to the crop all around. It could just as easily be because of a heat wave that shut down the growth of aroma varieties and bring on spider mites. A short crop could also be due to cold temperatures that don’t allow the crop to mature quickly enough. The crop can suffer from more rain and humidity than normal. That increases the chance of powdery mildew and other diseases. In the Hallertau region of Germany, there are several areas that seem to be particularly susceptible to hail storms. I could go on, but I think you get the point.
Fun Fact: Did you know many aroma hops don’t like when the temperatures get over 100 degrees Fahrenheit. They stop growing in response and need even more water.
Growing a great crop depends on a lot of knowledge and experience … but also a bit of random luck. As the saying goes, the harder you work, the luckier you will get applies here too. The lucky ones choose to be proactive rather than reactive regarding circumstances that may affect them. In the pricing of hops, it seems we take for granted the experience and wisdom and discount the value of luck.
On the Edge
Due to the popularity of hops from the craft beer revolution, the hop industry has been pushed to its limits. That means, unfortunately, there is very little room for error. For all intents and purposes, you can say the 2015 and 2016 crops are fully sold. Crops 2017 through 2020 are heading in that direction quickly. Quite a few European hops are contracted beyond 2020. The trend is moving toward longer-term contracts. Any of the threats to the crop mentioned above could result in a decrease in yields of 5-10%. Five or ten percent is not much. It’s definitely not unrealistic to consider the crop could be off by that much. To put it in perspective though, that’s roughly 4-8 million pounds of U.S. hops that could just not materialize. That is significant. That probably doesn’t even represent the growth in hop demand for the craft beer market this year alone.
Many people have some reserve set aside in case the crop comes in short. With so much demand in the market though, it’s tempting to grab the business when it comes along. As a result, some are selling dangerously close to 100% of what they expect to receive from an average crop. That’s risky! Consider that the crop in the growing regions in the rest of the world are much more dependent on weather than growers in the Yakima valley and you start to grasp the full scope of the risk involved. Germany has long had a rule that they do not contract more than 80% of their crop due to the fluctuations in yield from year to year. According to the most recent IHGC data, They have already exceeded that for 2015, and those numbers were collected in April. A world crop that is 5-10% down could be 10-20 million pounds short. That’ll leave a mark.
Fortune favors the prepared mind.
Right now you’re thinking, “Sure, this hop merchant is telling me how the crop can be short. I know it goes the other way too. You can have a bumper crop in any given year too. Then maybe I could save some money.” That’s absolutely true! Bumper crops don’t happen very often though for a reason. There are a lot of things working against huge monocultures of crops succeeding to begin with. Hoping for a bumper crop is like betting on green at the roulette table. It hits once in a while, but it’s not as safe as some of the other bets you can make. It all depends on your appetite for risk as a brewer. My guess is you probably have car insurance even if you know you’re a great driver because you never know when something out of your control will affect your path. Do you do that because the State requires it, or would you buy it on your own too?
The farther we look out on the time horizon of the hop industry, the greater the odds that there will be some black swan event that can touch each of us directly. Can the water supply affect the 2015 crop in Washington State? Yes, It can. The answer to that question is usually NO. Unfortunately, it’s too early to know with any certainty whether it will or not. We should be always prepared for anything because this is agriculture and agriculture depends on random things we can’t control, like the weather. We will just have to wait and see what Mother Nature has in store.