Early in 2020, Brewers Association (BA) Supply Chain Specialist Chris Swersey and I attended the annual Hop Growers of America Convention. This year’s theme was “The Hop Pendulum,” with a logo showing a hop cone beginning to swing back in a new direction. As anyone who has followed the hop market for some time knows, it is a fitting theme. The hop market has distinct cycles driven by supply and demand, and the market rarely looks anything like it did five years ago. That said, it occurred to me that many of today’s breweries probably don’t know much about this pendulum, hop market cycles, or even what the market looked like five years ago. Why? The median BA member has only been open a bit over four years, and so has only seen a partial cycle, if that.
So with that in mind, I thought it might be helpful to provide a history of the hops world, or at least a short, recent history of the American hops market portion of the hops world.
History of the Hops World
Part I: The Old World
We pick up our story in the far ago year of 2005. The U.S. hops market in 2005 was a part of a global market that mostly produced commodity hops for their bitterness. 2004 marked the lowest acreage for U.S. hops going back to 1986, and most of the hops in both 2004 and 2005 were alpha varieties. Aroma acreage had actually declined since 2003 and in 2005 there were less than 11,000 aroma acres harvested in the United States. Craft brewing was in growth mode after a slowdown in the late 1990s and early 2000s, but still only totaled around 6 million barrels, and IPAs were not yet the leading craft style. To hop growers, that meant craft was a trend to watch, but their core markets were still the largest U.S. brewers and global markets for alpha.
Part II: The Fire and the Shortage
The global hop market is a finicky beast, and small perturbations in supply or demand can have large ripples in prices and planting. What happened just before noon on October 2, 2006 was not a small perturbation, but rather a large conflagration, as a warehouse fire at a S.S. Steiner warehouse saw around 4% of the U.S. hop crop, or about 1% of the total hop crop, go up in flames.
Coupled with a crop that was already smaller than expected, the fire was an additional factor that pushed the market into shortage. The 2006 and 2007 crops had historically low carryout. Poor yields for the 2007 crop, the third crop in a row to come in with lower than expected yields, and small brewer growth of almost a million barrels pushed the market further out of balance. Global factors also mattered as demand for alpha acid grew following a wave of international consolidation. American small brewers felt the pinch almost immediately.
Hops that had been selling for $2/pound before the fire jumped to $25-30/pound on the spot market (more like $30-$35 in today’s prices). An equal challenge to price was simply getting enough hops. Many small brewers didn’t hop contract. The damage to many of those brewers was lessened somewhat as Boston Beer sold 20,000 pounds of contracted hops at their contract cost to 108 different small brewers (about 7% of all the breweries that operated that year). They received requests from more than 20% of breweries.
High prices brought on by the demand-supply imbalance saw U.S. hop acreage spike nearly 10,000 acres in 2008, still the largest single year acreage increase in the stats kept by the United States Department of Agriculture (USDA), which date back to 1915. After a massive production increase, mostly in alpha, the industry re-settled back to 2005 acreage levels by 2011.
Part III: The Birth of a New Industry
More important than that short-term spike in production was a longer-term shift in the ways that small brewers thought about hops, used hops, and the relationship of small brewers to the hops industry.
An article in Wired in early 2008 noted one of the changes. Donald Gortemiller of Pacific Coast Brewing in Oakland, California was forced “to use fewer and different hops than before, changing the flavor of his beer. He’s also resorted to beer hacks, like ‘dry hopping,’ in which the hops are added late to the mix, consuming fewer hops and yielding a more consistent flavor.” This certainly wasn’t the first time brewers had dry hopped, but I don’t think it’s a coincidence that it was during this time period that many brewers upped their game in how they thought about hops, where they used them in brewing, and their general knowledge of different brewing techniques related to hops.
In addition to exploring new ways of using hops, and increased contracting, it also drove changes in the way that small brewers began working together to communicate with the hop industry. The Hop Quality Group, whose motto “oils over alpha” signals some of the changes that were to come over the next decade, first met in 2010, and incorporated in 2011.
2011 was the turning point of a new U.S. hop industry, one that no longer revolved around alpha and commodity hops, but one driven increasingly by small brewer contracts, new specific varieties designed to appeal to craft brewers, and overall higher prices from a more specialized and fragmented hop market.
Contracts and higher prices fueled massive investment in the U.S. hop industry as growers steadily built out a new industry around aroma hops. This massive investment has paid off in terms of varieties and acreage.
Alex Barth, arguably the paternal figurehead of the global hops industry, showed a slide at this year’s conference noting that 40 million pounds of production in 2019, or 36% of total production, came from varieties that have been released in the past decade. The demise of a robust public breeding program (something the Brewers Association is working to revive), means that the vast majority of those new varieties and pounds have come from proprietary varieties.
Aroma hops, which were under 11,000 acres in the U.S. in 2010, are now up to 40,000-45,000 acres. Barth Haas estimates that the U.S. produces 60 million more pounds of aroma hops than it did in 2010. The total U.S. hops acreage is now north of 55,000 acres and the four highest acreage years in U.S. history are 2016, 2017, 2018, and 2019, in that order. In 2012, 20% of U.S. hop acres were aroma. Today, that is closer to 80%.
The contrast can be seen with the other leading hops producer, Germany. Germany and the U.S. make up almost 80% of global hop production, and while total acreage has increased along a similar trend in Germany as the U.S. over the last decade, German production has stayed rooted in alpha production (primarily Herkules, the leading German hop).
Part IV: The Slowdown of Craft
Craft growth was both the fuel and a wrench in the gears of the U.S. hop machine.
As craft growth peaked in 2014, adding 3.3 million barrels, hops were once again moving toward shortage as the hops industry–even in expansion mode, with 8,300 acres added between 2012-2014–struggled to keep up. For many craft brewers, the future was limitless, and even as craft growth slowed in 2015, down to 2.6 million barrels or 12%, many craft brewers were locking in long-term contracts to make sure they secured the hops they expected to need.
From 2014-2016 craft brewers who responded to the BA hop survey averaged a 96% contracting rate, and even brewers under 2,500 barrels had 92% of their hop volume under contract. The average contract was four years, and five-year contracts were fairly typical (today the average is 2.6 years).
The 2016 contracts, signed early in the year, are another mile-marker in this history. It was sometime late in 2015 or early in 2016 when the craft industry really downshifted, and 2016 growth finished at 1.3 million barrels, two million barrels below the growth level of 2014. It was also a more fractured growth, as several thousand brewers opened in 2015 and 2016, meaning that many of the five-year contracts written in early 2016 were suddenly completely out of sync with the future demand needs of the companies who had written them. From 2017 to 2018, the average contract for a brewery 25,000-barrels and up dropped from four years to 2.5.
As a whole, the U.S. industry (both brewers and growers) caught a break in the growth of international small brewers, who followed in the footsteps of the U.S. industry in both growth and styles, making high hopping rate IPAs, many with the American hops used by the American brewers they were emulating. The sharp rise in recent years of U.S. hop exports allowed dealers the flexibility to be much more flexible with U.S. brewers in stretching and modifying contracts, and likely saved many U.S. brewers from a larger reckoning.
In addition to modifying or extending contracts, over-contracted U.S. brewers have also moved millions of pounds of unneeded hops onto spot markets. Data at the conference shown by The Lupulin Exchange, the leading spot market site for hops in the US, showed the steady rise in hops listed in order throughout 2016, 2017, and 2018. Many of those hops were older public varieties that used to be the workhorses or craft, but have fallen out of favor as beer drinker preferences in IPA flavors have shifted. Though more in balance and at higher prices, there has also been a steady supply of proprietary hops available. As of writing this piece, The Lupulin Exchange lists 1.3 million pounds available for sale, stored at breweries and hop dealerships all across North America.
If I were to summarize today’s spot market, I’d say that most U.S.-grown hops are readily available, and the market is teaming with public varieties at incredibly low prices for the post-2011 era. No, you can’t get all the Nelson Sauvin or Galaxy you want, but for most varieties, as long as you’re willing to pay spot market prices or have a buddy at a regional brewery that is still long in their contracts, you can find what you need. The industry is working through a massive inventory surplus that has existed for the last three years. But, the pendulum swings, and if history is a guide, when those surpluses dry up, the spot market will shrink.
Part V: The Future Swings of the Pendulum
That leads us to an odd market point today. Most hops are readily available. Brewers are contracting at much lower rates than they have in the last decade. Contracting rose in 2019, but is still below 75% for all brewers and around 50% for brewers less than 2,500 barrels. The industry is fairly balanced, and while we’re seeing acreage growth, it’s no longer at the breakneck speed of 2012-2017.
But the hop pendulum swings.
It’s always hard to predict the future, and I’m not here to tell you that every tiny brewer should contract or that if you do, every hop cone you need for the next year needs to be under contract, but if the last 15 years have shown us anything, it’s how quickly the hop market can change.
We’re rapidly approaching the end of the contracts signed in 2016 in 2017. When those contracts end, growers without acres under contract are going to face hard choices. Do they risk keeping those acres in, without a guaranteed buyer, or do they plant something else? It’s easy to forget that most hop growers also grow many other crops. A lot of hop growers have been growing hops for generations, but they’re going to plant what keeps their farm alive and their families fed. Yakima is a leading county for high quality wine grapes, tree fruit, berries, vegetables, and a growing location for hemp and cannabis. It’s not a stretch to imagine that if global growth experiences a hiccup and craft regionals reset their contracting levels, that the 2022 crop could look very different than the 2020 crop. Brewers would be wise to think about the levels of contracting they need to survive if a market got tight, and which varieties they need for flagships. If you’re interested in more hop contracting resources, there are some links at the end of the piece that may be helpful.
There are also risks from climate change. Hops are currently a water intensive, geographically limited crop with a number of known disease pressures. The German crop, which tends to be less irrigated than the U.S. crop, has seen wide fluctuations in yield in recent years due to heat and drought in German hop growing regions.
On a more positive note for the future, we’re in the early stages of a revival of a public breeding program, something that has the potential to benefit the entire industry, from growers (both in the Pacific Northwest and elsewhere), to dealers and brewers. A robust program provides germplasm for other private programs, new varieties to growers not limited to a specific dealer, and will hopefully develop agronomically viable varieties that meet evolving brewer needs. New public hop varieties are starting to show up on the market. The USDA announced the release of Triumph in 2019–brewers who are interested in assessing Triumph for their brands can contact the Hop Research Council.
These are likely just a few of the changes that will occur over the next few years. Brewers will also continue to evolve how they use hops and downstream products focused on aroma attributes, such as lupulin powders and distillates. Global changes in beer preferences and industry structure will matter. Whatever the variables, the key is that there will be changes, and those changes will ripple through the hop market in a way that makes today’s patterns outdated very quickly. The brewers that remember that the hop pendulum swings, and think about how they will manage those swings on an ongoing basis will be best prepared for the next turn in momentum.