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Hops Insider: Rightsizing the Hop Market

Many hop growers are cutting back on acreage this year, aiming to re-balance supply and demand while a large surplus sits in inventory. Here is some context on the situation and what it will mean for brewers.

Stan Hieronymus Feb 20, 2023 - 13 min read

Hops Insider: Rightsizing the Hop Market Primary Image

Mosaic hops await packing at Perrault Farms in Toppenish, Washington. Photo: Joe Stange

Brewers headed to the Pacific Northwest next September for hop harvest may be startled to see corn or other crops planted under trellises where hops were hanging in 2022.

Speaking at the American Hop Convention in January, John I. Haas CEO Alex Barth estimated that farmers in the Northwest need to reduce the acres of hops strung for harvest by 10,000—about 17 percent—to balance supply and demand. That’s more acres than any country outside of Germany and the Czech Republic even grows.

Barth wasn’t talking about getting rid of plants that produce unpopular hops. Stakeholders who own the rights to the most popular varieties—including the two most grown, Citra and Mosaic—have indicated they will cut acreage of many of them significantly in 2023, some by as much as 30 percent.

This story may sound familiar to many brewers. In 2020, when COVID made it apparent that demand for hops would tumble along with beer sales, Yakima Chief Hops asked its growers to reduce production by 7 percent. The Oregon Hop Commission proposed its members reduce theirs by 7 to 10 percent.

That isn’t what happened. Instead, Washington farmers strung an additional 2,000 acres in 2020, although not to their full capacity. Production declined, but only because high temperatures, a late windstorm, and wildfires reduced yields. They also planted 2,000 new acres in 2021. In Oregon, farmers cut acreage by 3 percent in 2020—but then they added 9 percent more acres in the next two years.

Why will it be different this time, and what does it mean for the hop supply chain?

The Cycle Remains Unbroken

The hop market has always been cyclical. Basically, when demand exceeds supply, hop prices go up and acres get planted. When production exceeds demand, prices go down and acres disappear.

Unexpected events can trigger some volatility. In 1867, the hop aphid wiped out 80 percent of the New York crop. Farmers in Wisconsin rushed to plant new acres of hops, selling them for 70 cents a pound. The following year, their hops sold for 5 cents a pound.

A combination of events led to a spike in the demand for alpha acids in 2007. To assure uninterrupted future supply, dealers and breweries offered farmers hop contracts loaded on the front end to finance investments in necessary infrastructure. Growers in the Northwest planted almost 10,000 additional acres of hops in 2008, raising the total under wire to 40,898. As in the past, prices fell, and acreage had shrunk to 29,787 by 2011. Corn, hazelnuts, and other crops replaced hops in many fields.

However, the infrastructure remained in place to start a new cycle—this time, driven by the new aroma varieties that craft brewers wanted. In 2010, aroma acreage reached a 25-year low, 30 percent of the crop planted. Since then, its acreage has increased fivefold, to more than 50,000 of the 59,785 acres harvested in 2022.

At the same time, the market share of proprietary varieties—cultivars developed and licensed privately—grew from less than 40 percent in 2008 to about 70 percent now. Owning plant rights gives companies greater control over production and prices than when scores of farmers are planting publicly developed cultivars. That hasn’t kept supply from exceeding demand for several varieties at their going prices.

As one hop grower told me, privately, “The hop cycle lives on. ...”

Hitting the Brakes

Pete Mahony, VP of supply-chain management and purchasing at John I. Haas, says the company expects growers in the Northwest to reduce acreage by 8,000 to 9,000 acres in 2023, or about 15 percent. Haas will cut acreage of both Citra and Mosaic by more than 30 percent. It will also reduce some newer varieties, such as Sabro and Talus, developed by the Hop Breeding Company (HBC).

Because they occupy 31 percent of acres planted, Citra and Mosaic are central to the discussion about making cuts. Acreage of those two alone grew by 9,125 over the past four years, even as overall acreage increased by only 4,750. Cutting 30 percent of those two would amount to more than 5,500 acres. There would still be almost 13,000 acres left to harvest, much more than four years ago.

Haas and Yakima Chief Ranches (YCR) are partners in the breeding company and thus hold plant rights to those and other HBC cultivars. On farms where Haas has not renewed contracts or bought them out for 2023, the plants will be removed. Growers will plant something else or leave them fallow.

Barth signaled the need to reduce acreage based on an estimate that the American hop industry has 35 to 40 million pounds of excess inventory, which will take more than a year to work through. “This is a two-year process,” Mahony says, explaining that after sizable cuts in 2023, more trimming could be necessary in 2024.

Although Haas and YCR are breeding partners, Haas and Yakima Chief Hops are competing hop suppliers. “As a grower-owned company, we have different ways of making production decisions than other hop brokers,” says Yakima Chief Hops CEO Ryan Hopkins. Decisions about reduction will be made “by variety, considering our responsibilities to the owners and growers. I’d be cautious [about] putting numbers on it.”

However, it’s clear that cuts will be significant. “I’ll speak for our organization only,” he says. “The market changed very quickly. The optimism that presented itself in the spring wasn’t sustained. There was a dramatic slowdown in the second half.”

Working Together

It’s one thing for dealers and growers to agree that the industry will benefit from reducing acreage. It is another for growers, individually, to choose to idle their own fields, or for the holders of plant rights to forego potential income by licensing fewer acres.

“I left the convention with this feeling of optimism around the fact that this is a hop industry working together to find a solution,” Hopkins says, “taking collective responsibility.”

The collective reduction of acreage—both overall and for specific varieties—will be revealed mid-June when the USDA reports acres strung for harvest.

“We can’t avoid this mess,” says Jim Solberg, CEO at Indie Hops, which will have growers idle 25 to 30 percent of acres in 2023. “It’s hard to slow down [the inventory buildup]. You have to be aggressive. The market is overloaded with other varieties.”

Where hops aren’t strung, farmers will provide minimal care to keep the fields healthy, leaving them ready to be strung again in 2024.

“I probably made a mistake letting [growers] talk me into putting more in in 2021,” Solberg says. Strata acreage increased over two years from 484 in 2020 to 1,143 last year. Inventory grew even more because production exceeded projections by 20 percent. Solberg plans to fulfill 2023 contracts, but he says they won’t sell any 2023 crop on the spot market until excess 2022 inventory is gone.

CLS Farms in Washington and Jackson Hop Farm in Idaho also will reduce acreage of their respective proprietary varieties, El Dorado and Idaho 7, even though they already cut back in 2022. Acreage of Idaho 7 more than doubled between 2019 and 2021, reaching 974. That was slashed to 546 in 2022, and owner Nate Jackson projects another 30 percent will be pared this year.

“[It’s] just the product of COVID and other brewing industry–related issues,” he says. “We still have growth in usage. Unfortunately, it was way over-planted in 2020.” Its high yield, which will be a positive down the road, far exceeded expectations and added to excess inventory.

Hops awaiting harvest in September 2022 at CLS Farms in Moxee, Washington. Photo: Joe Stange

Finding a Balance

After reducing acreage of El Dorado by 33 percent in 2022, Eric Desmarais at CLS anticipates cutting it another 20 to 25 percent in 2023. Some of those acres will be idled, but most plants will be removed. “You can really only get away with idling it one year,” he says. “The plants start to degrade after a year.”

He expects a second round of cuts will allow dealers to work off excess inventory, putting El Dorado and Idaho 7 back on the demand side of the cycle. “I don’t know if there is really any other methodology to achieve a soft landing, as they say.”

It is a reminder that each variety is also in its own cycle. For instance, supply and demand for Simcoe and Amarillo appear to be in balance. After tumbling from a peak of 7,581 acres in 2016 to 4,038 in 2020, Cascade has settled in at 5,107. Centennial has only started to recover from a 58 percent decline from its peak in 2017, and the consensus is that more acres should, and will, be planted in 2023.

It also won’t be a surprise if some farmers speculate and plant CTZ (Columbus/Tomahawk/Zeus) on acres that would otherwise be idle. The alpha market appears to be well-balanced, but a second consecutive bad crop in Germany could result in a supply shortage.

Hopsteiner, one of the largest growers in the Yakima Valley, is not planning any reductions. In 2018, CEO Louis Gimbel told hop convention attendees that the market was already over-supplied.

“We’ve been banging that drum for the past six years,” says Doug Wilson, director of sales and marketing. “We’ve been trying to stay ahead of the game, doing a lot of work on contract modification.”

There Will Be (Cheaper) Hops

Wilson acknowledges that there will be bargain prices for some varieties in the spot market the next few years, particularly for brewers who have discovered that hops from previous-year crops are just as good as, and sometimes better than, current year.

Those prices won’t last. Over-supply has created competitive pricing, but inflationary forces—for inputs such as fertilizer and chemicals, as well as higher labor costs—will force growers to seek higher prices for current crops. And without the guidance the industry receives from contracts, dealers and growers will find it harder to gauge demand. Varieties that were once over-supplied could end up under-supplied, and more expensive.

“Hop dealers and owners of proprietary varieties need good insights [into] demand for the coming crop about 10 months, minimum, prior to the crop, so we can ensure sufficient acreage is in place, and plant material propagated if new acres are needed,” Mahony says.

It won’t necessarily be easy to convince brewers who signed multi-year contracts in the mid-teens and saw hop prices go down to resume signing contracts. “This is the time to evaluate that and make changes,” says Hopkins. “I don’t think it is working for brewers, and it clearly has created challenges for growers.”

Mahony agrees.

“What we need is tighter coordination/communication between brewer and supplier, better visibility into projected demand forecasts,” Mahony says. “I know that’s a challenge at the moment, but that’s really the reason why we’re in this current pickle. That is our failure. It’s not due to the contract system being broken.”

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