O'So Brewing Company

Supply shortages are estimated between 700 and 1,300 metric tons alpha or approximately 8.6% to 15.5% of the annual worldwide demand due to the poor 2006 European crop. The main factors that have contributed to this situation are that Europe's 2006 crop was ruined by heavy rains; while Australia's was cut by a severe drought and Canada's was "just average. Slovenia (grower of Styrians) lost at least 1/3 and possibly as much as 1/2 of their crop to a hailstorm. England is almost out of the hop business. Their acreage of 2,400 in 2006 (down from 17,000 in 1976) represents only 2 percent of the worldwide acreage. The Czech crop was down 25% and estimated alphas on Czech Saaz from the 2007 crop are 2.7 - 2.9. The German crop is average at best with earlier aroma hops coming in below normal (such as Hallertau Mittelfruh). New Zealand and Australia crops this year (which arrived in the US in June and July) were normal.

Even though US hops for 2007 was an average crop a warehouse fire in the US destroyed 110 metric tons alpha. Also, acreage reductions as a result of low prices in the last years and a tendency of most global brewers to rely heavily on the spot market and not on forward contracts have caused grower’s not to be able to invest in their hop fields and equipment. For 10 years, Northwest farmers grew too many hops. Prices plummeted. Farmers grew less. Local farmers were lured to plant more lucrative crops, such as cherries, apples and grapes, or to sell their land to be built on. Now, with increased beer output, the brewer’s are in need of hops and a lot of the hop farmers are gone.

Right now the craft-breweries are paying tens of thousands of dollars right now for something that will not be used until the following year. When there is a price increase in raw ingredients it will be passed on to the consumer. The impact will be higher beer prices or your favorite hop-heavy brew might have a slightly different taste.
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After mulitple years of strong growth in the market, brewers will see hop and malt prices this year skyrocket like never before. Malt is getting expensive and some varities are scarce, and I've heard of some brewers not even being able to get their hands on the types of hops they usually use. They are either having to pay inflated prices or use substitute varities. Hopunion sold out of it's 2007 crop of Amarillo, Simcoe, Centtenial and Czech Saaz in September....

I think what we'll see in the short term this year, is less big, hoppy Imperial IPAs. Brewers may stick to more lightly hopped beers, even here in the hop crazy NW. I think that many of us would have no issues paying more money for our hoppy beers....I'm sure not going to stop drinking IPAs if they go up in price by $1/bottle. I won't pretend to know how this will affect local brewers. But, it seems that it may hurt Redhook/Pyramid/New Belgium types more than Big Time/Maritime/Elliott Bay types of brewpubs.

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Back in October of this year the news of an impending hop shortage claimed that prices will skyrocket for their favorite craft brew and that the price of hops in general would rise to all-time highs. If you are a micro/craft brewer perhaps the situation of the world hop market should be taken very seriously. If you are a homebrewer, how will this affect you?

Even though US hops for 2007 was an average crop a warehouse fire in the US that destroyed 110 metric tons alpha. And acreage reductions as a result of low prices in the last years and a tendency of most global brewers to rely heavily on the spot market and not on forward contracts have caused grower's not to be able to invest in their hop fields and equipment. For 10 years, Northwest farmers grew too many hops. Prices plummeted. Farmers grew less. Local farmers were lured to plant more lucrative crops, such as cherries, apples and grapes, or to sell their land to be built on. Now, with increased beer output, the brewer's are in need of hops and a lot of the hop farmers are gone.

The long-term average growth in beer output has ranged between 1- 2%. However, annual growth has increased over the last 10 years (1995-2005) to approximately 3% coinciding with the fall of communism and the establishment of capitalistic free market economies in Eastern Europe and China. During the same 10-year period the world acreage for hops has decreased by 35%. The brewing industry could help by sending the right signal to the growing community by committing to long-term contracts of at least 4 years duration in order to entice growers to stay in business and to make the necessary investments into modernizing their operations. Of course, forward contracts are not a guarantee against crop failures they greatly enhance the farmer's security of supply and represent an effective tool for forward planning.

Right now the craft-breweries are paying tens of thousands of dollars right now for something that will not be used until the following year. When there is a price increase in raw ingredients it will be passed on to the consumer, possibly by between 50 cents and $1 per six-pack. The impact will be higher beer prices or your favorite hop-heavy brew might have a slightly different taste.

What's the bottom line for homebrewers? Well, certain varieties are getting more expensive and a few varieties will run out. Brewers have to be willing to try other varieties. Homebrewer's should prepare for the potential need to substitute different hops, to replace varieties that currently give your favorite brew their "signature" flavor. In fact there may be slight flavor variations over the next several years, as the hop industry works to correct this situation.

Already some of larger online homebrew retailers have raised their price and a number of "temporarily out of stock" statements can be found in the "Hops" section. The good news for homebrewer's is that the cost of hops per five gallon batch is negligible and results in an added cost of pennies per glass of brewed beer. So while all of your micro/craft brewed drinking buddies are complaining about the cost of their favorite beer, you can smile a little as you are brewing your next batch of beer.

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Ralph Olson returned to Yakima from last week's Great American Beer Festival in Colorado to find his e-mail clogged with messages from German hop merchants unable to meet all of his demand for the dried flowers that put the bitter in beer.

Last year, the season average price for a pound of hops in the Yakima Valley was $2, and reports say that's tripled and quadrupled so far this year.

The problem isn't just hitting craft brewers, who have been growing in popularity and demanding more of a share of the hop harvest. For the first time in nearly a decade, worldwide hop production is down.

"It's an international situation," said Ann George, longtime administrator of the Moxee-based Washington Hop Commission, which represents growers. "There are not enough hops out there and it's hitting major brewers as well as the craft brewers."

The United States and Germany together supply two-thirds of the world market for hops. The Yakima Valley is by far the largest supplier in the United States, growing 70 percent of the domestic crop.

In Europe, yields have been poor for two years in a row. China, also a major producer, hasn't had a stellar crop either. In the Yakima Valley, the crop has been hurt by a combination of pestilence -- a fungus called powdery mildew -- and fire. Last fall, about 3 percent of the nation's total hop yield was lost to fire at the S.S. Steiner warehouse on Division Street.

But experts say the biggest factor in the market's turnabout is Economics 101. Years of excess hop production led to chronically low prices, prompting more and more brewers to jettison their long-term supply contracts and buy on the cheaper spot market. Growers, meantime, frustrated by those prices and the high capital and labor costs of hop production, turned to other crops or sold their fields to real estate developers.

In 2000, for example, 60 growers in Yakima and Benton counties harvested 27,000 acres with a value of $95 million. Last year, 36 growers harvested 23,000 acres with a value of about $92 million, according to the commission.

But this year, growers and merchants not locked into three- or five-year-old price contracts have been raising their prices. Commercial wholesale prices for a craft hop like Cascades are about $12 a pound, compared with $3 a pound two years ago, craft brewers report.

For smaller brewers, who typically don't buy in advance on a contract, the spike hurts.

"Prices are skyrocketing," said Terry Butler, the brewmaster at Snipes Mountain Brewery in Sunnyside.

Butler said he should have enough hops for the next 11 months because he doubled his reserves compared to last year. "I got most but not all of what I wanted," he said.

But bars and consumers will feel the pinch. To recover the higher costs, Snipes is raising the deposit it requires on kegs supplied to bars to $45, up from $12. That means a bar with 10 taps will have to keep $4,500 on hand in the event any of the kegs are stolen or damaged.

Consumers may have to pay an additional 25 cents to 50 cents per sixpack of craft beer, said Larry Sidor, brewmaster at Deschutes Brewery in Bend, Ore. Deschutes buys 70 percent of its hops from the Yakima Valley.

At 170,000 barrels a year, Deschutes is large enough to contract three to four years ahead of production to secure a stable supply of hops at a predictable price. Snipes, with 750 barrels, doesn't have that clout.

In any case, large brewers began jumping into the spot market last year and are now paying the price.

"A lot of guys were playing the spot market -- they were so used to low prices," Olson said. "Now they are panic-buying and it's filtered all the way down to me."

But George said the rebound this year for hop growers is bittersweet: "We have this wonderful market out there and no hops to sell."

Hop acreage in the Yakima Valley has been losing out to development in Moxee, which had the fourth-highest percentage of population growth in the state from 2000 to 2006.

"Acres out of the ground. That's the bottom line in this whole thing. Land's being sold for strip malls," Olson said.

Hops are labor- and capital-intensive, and growers have not had the profits to invest in new equipment, such as trellises, poles, kilns or other major equipment.

George said it's too soon to know if higher prices will stimulate much-needed reinvestment for expanded hop production. But she noted that hop growers have more options for their acreage nowadays than they have in years. Wheat, a low-cost crop, is selling for $10 a bushel compared with $3 just a few years ago. Good-quality hay is selling for upwards of $200 a ton.

"We haven't seen these prices in years," she said. Most hop growers also grow tree fruit, where prices are strong.

As if the hop shortage wasn't enough for craft brewers, the price of barley -- beer's other key ingredient -- is also up. Washington ranks fourth among the nation's barley-producing states, but the Yakima Valley grows little of the grain.