Communicate now with growers and dealers to share your updated hop requirements
April and May are busy and exciting times on farms, with plants emerging from winter dormancy, and on-farm tilling, pruning, trellis building, twining, etc. Spring 2020 was shaping up to be the first year that total U.S. hop acres would surpass 60,000 in many decades. At the January 2020 hop convention in Portland, growers and dealers were estimating an additional 3,000 acres would be planted this year.
Fast forward to the COVID-19 era, and all the unknowns that now permeate daily existence. This is a critical time to take stock of your brewery’s situation, especially your hop needs. Why? Because this is the one time of the year when hop growers can actually adjust production to match likely demand for their crop.
Some Questions to Consider:
- Have you adjusted your brewery’s estimated hop demand for the remainder of 2020 and 2021 beer production years?
- How significantly does your likely usage differ from the anticipated needs reflected in your hop contracts?
- Do your grower and dealer partners know how many pounds you will actually need?
Now Is the Time to Communicate with Your Suppliers
Now is a critical time to share your anticipated hop needs with your suppliers. The sooner you communicate with them, the sooner they can:
- Curtail production of hops neither you nor any other brewer will ever use, thereby right sizing your future purchases and inventory, and saving resources and reducing systematic costs
- Modify purchase agreements to reflect actual needs resulting from significant demand destruction and disruption in the brewing industry
- Account for purchases of open market hops. This is especially important for smaller brewers who do not purchase hops under contract. In these uncertain times, buyers who are otherwise not visible in the form of contracts are assuming extremely high supply surety risk. While most hops are produced and consumed under contract, a large proportion of the U.S. hop crop is produced and purchased without a contract.
Uncommitted acres represent an especially juicy target for reduction by growers seeking to avoid long positions on uncommitted pounds they may never sell. This situation is made even more precarious by the highest March hop inventories ever recorded. Think about it from a grower’s or dealer’s perspective: if you’re already overstocked on hops heading into the uncertainties of COVID-19, are you most likely to increase or decrease production?
By way of example, every extra acre of unwanted hops imposes an establishment cost of around $8,950 on the system. Brewers are the only buyer of hops, so the brewing industry as a whole will ultimately pay these costs, whether the hops are actually consumed or not. Assuming 2021 brewing demand remains unchanged from 2020 predicted demand, and the 3,000 new acres planned could be avoided, that’s around $27.8 million in costs that could be eliminated from the supply chain. The savings would increase even further if total U.S. acres actually decreased, which while unlikely, would be possible if all brewers communicated their needs accurately and in a timely manner to growers and dealers.
Help your brewery and the businesses of your hop grower and dealer partners. Reach out today and have a clear conversation about your actual hop needs going forward. Your growers and dealers will thank you for it, and your inventory will match your needs much more accurately.