The 2023 American Hop Convention kicked off the start of another growing year as hop growers, dealers, and brewers met in Santa Rosa. The Convention highlighted key challenges hop growers continue to face such as climate change, rising costs, and market pressures.
The hop industry is incredibly cyclical as an agricultural product. Acreage in 2004-2005 decreased so dramatically that it led to a global alpha shortage in 2007 and 2008. At that point, growers could make alpha contracts with strong pricing that helped lift growers up, though not all made it out.
Craft brewers entered the scene around 2011, leading to intense demand for aroma hops. By this time, the alpha market was oversupplied and everyone slowly began switching to aroma hops. We all rode the wave until 2020 when the pandemic hit, and even then craft was already showing signs of maturation.
Three years later, a slow return to pre-pandemic beer growth and too many acres of hops has led to an oversupply. Where does that leave the industry in 2023?
The Current Hop Market
Every year, the Convention hosts a merchant panel consisting of CEOs, Presidents, and owners of the top hop distributors in the world. This year’s panel included Alex Barth of BarthHaas, Bud Hollingbery of Hollingbery & Son, Louis Gimbel of S.S. Steiner, Ryan Hopkins of Yakima Chief Hops, and Charlie Matt of Charles Faram.
The current market shows an oversupply of hops, despite lower yields in 2022 and a slight decrease in acreage in the Pacific Northwest. Current hop stocks – inventories held by brewers, dealers, and growers – showed a total of 139 million pounds as of September 1, 2022, up 9% from September 1, 2021. The majority of these hops are being held by dealers and growers.
U.S. hop production has nearly doubled since 2015 and currently, the hop industry has the capacity to produce 115 to 120 million pounds annually, according to Barth. But he posed the question: Is this really needed?
In this year’s presentation, he introduced a new data point. Based on hop shipments, not contracts, he outlined the number of hops produced and compared that to the actual number of hops shipped. The data shows that since 2015, six out of the eight years have shown more hops produced than shipped, resulting in an oversupply on the market.
Hop contracts do not equate to hops sold or used. There are thousands of “sold” hops sitting in dealer and grower warehouses. Until those hops are shipped to a brewery and invoiced, that volume does not reflect current demand.
Barth estimates that the hop market is sitting at an excess of 35 to 40 million pounds. Based on the historical data of these shipments, demand has sat at around 100 to 105 million pounds of hops for the last eight years.
To address the oversupply, he estimates that nearly 10,000 acres of hops will need to be cut, almost 17% of total U.S. hop acreage. In 2022, we saw the first acreage decline in years of only 2%. And even with a 12% decrease in overall U.S. hop production and an 18% decrease in German hop production in 2022, it wasn’t enough to remedy the market.
The majority of U.S. hop varieties currently planted are proprietary, meaning they're controlled by an entity that determines how many acres go into the ground or come out of the ground. This includes breeding companies like the Hop Breeding Company (HBC), a joint venture between John I. Haas and Yakima Chief Hops. So, those entities are responsible for making those cuts, which we’re already seeing going into 2023.
But only the season will tell if a 10,000 acreage cut is likely to happen. Growers might replace cut acreage with public varieties where there is no control over how much is planted.
So, what should growers plant? That question was submitted during the panel with Hollingbery’s answer of corn garnering a few nervous laughs. But some growers in Idaho did plant corn in idled fields last year.
Varieties like Centennial and Cascade have been severely underplanted over the last few years after strong investment into higher-margin proprietary varieties like Citra®, Mosaic®, El Dorado®, Sabro®, Strata®, and Idaho 7®. Given the rebalance, we might see an influx of growers planting these public varieties to maintain acreage. But that doesn’t solve the problem Barth presented.
The 35-million-pound elephant in the room still looms.
The Alpha Market
The severe drought and decreased yields in Germany in 2022 left some to believe an alpha boom was on the horizon. But in Gimbel’s presentation at the Convention, it appears the market remains balanced.
This would’ve been a natural outlet for growers and dealers in an oversupplied market. They could take aroma varieties that produce higher alpha acids and move them to the alpha market, but it doesn’t appear to be as needed.
Costs Facing Growers
Fertilizer, overtime pay, and fuel remain the highest costs hop growers face, according to Hopkins in his analysis of the Cost of a Hop presentation.
Production costs are looked at on a per-acre basis. Based on data taken from YCH’s grower owners and other industry averages, Hopkins estimates the cost per acre to rise to $12,748.28 in 2023. This number isn’t going to be the same for every grower – some see a cost as little as $8,000 or as high as $13,000 per acre.
But costs are rising. He noted that fuel prices might be more stable in 2023, though fertilizer costs with contracts written during an inflationary period, like 2022, are likely to remain high.
The most immediate threat to hop growers is the new overtime law passed in 2021 that requires growers to pay overtime for work over 55 hours in 2022, 48 hours in 2023, and ultimately, 40 hours in 2024. It’s unclear if growers will attempt to bring in more crews, create more shifts, or pay overtime as many did at the 55-hour level.
These costs continue to rise and make growing hops more expensive in an already unknown hop market.
In Other News…
Bart Watson presented the Brewer’s Association annual usage survey which looks at brewery production and hop usage.
Here are just a few key findings of interest:
61% of breweries report at least some forward contracting, though this number is lower than in previous years.
The expected hopping rate is 1.47 pounds per barrel in 2023, which is slightly down from 1.51 pounds per barrel in 2022.
Breweries are seeing growth in lighter styles but IPA growth is still the strongest.
43% of respondents report using some sort of downstream/oil/powder hop product.
BA-defined craft will grow slightly in 2022 and expect similar growth in 2023.
Growth in categories like IPA, Hazy IPA, and Imperial IPAs, which require more hops typically, present an opportunity for continued strength.
Wrapping It All Up
Growers will face pretty drastic cuts in mostly proprietary varieties this year in an effort to bring the market back to balance. But instead of planting public varieties in lieu of those, the market needs a permanent 35 million pound cut. The hop industry has experienced cycles of a downturn like this, and if history repeats itself, many are hoping for a bounce back in 2024 and beyond.
Presentations created by panelists at the 2023 American Hop Convention have not been made publicly available. Presentations will be linked once they have been posted on the HGA website. Questions? Reach out to Claire Desmarais at claire@clsfarms.com.
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