The Warehouses are Full of Way Too Many Hops
The optimism about craft beer's growth fueled aggressive brewery expansions--leading to what many think is an overcapacity right now. That is mirrored in a giant glut of hops now sitting in warehouses. For growers and hop merchants, the consequences could be dire.
The Capital Press has a must-read article on a glut of hops that is just sitting in warehouses and the consequences are already being felt.
For the first time in more than 100 years, the Annen family’s farm near Mt. Angel, Ore., is taking a break from cultivating hops — perhaps indefinitely. Contract prices quoted by hop buyers are below the cost of production, prompting the farm to idle most of its hopyards, aside from a portion rented to another grower. “We decided not go broke growing hops for nothing,” said John Annen, the farm’s owner. Annen plans to lease his property for a while, but may decide to get out of the hop industry altogether.
I met John a few years back during the hop harvest. (Okay, it was actually eight years ago.) Hop-growing has challenges no other crop has, and Annen was telling me about his slow development of Sorachi Ace--which goes to show how capricious the business can be. It's expensive, slow to develop, and growers have exactly one customer (brewers). All of that is coming to a head now. The article is well worth a read, but here are some of the key highlights:
- The current inventory of hops is 169 million pounds. This is 40% above the previous peak that followed the 2008 shortage.
- The acreage growth was fueled by craft beer growth, and mirrors it in over-estimating the future need.
- One of the primary mechanisms to protect both breweries and hop merchants are hop contracts. This means in lean times, brewers have guaranteed hop supplies; during surplus (and cheap hop prices), merchants have guaranteed sales. But at the extremes of boom and bust cycles, these arrangements can break down, and merchants are worried brewers aren't going to honor contracts.
- Merchants lose additional money when they sit on inventory; currently there's a billion dollars on which they're paying interest.
This is just the first salvo in this story. Expect more as it evolves.