The Current State of Hops | Brewing Industry Guide

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The Current State of Hops

What’s happening with hops? It’s not that complicated, actually. Increased demand for hoppy ales and lagers has led to excellent growth in the agriculture sector. Can it last? Yes, but everyone needs to pay attention to the numbers and actual needs.

John Holl | Photo: Jamie Bogner | February 15, 2018

The flower that gives beer its bite can’t get a rest. Once a simple, but necessary, ingredient in beer, hops have become a global crop, a bitter necessity, and subject to scrutiny from growers, brewers, and consumers alike. As the number of breweries in the United States and around the world has grown, so have the acres devoted to hops. While much hoopla is made each year at the harvest, there’s usually a smattering of reports and articles that come out annually warning that the sky is falling, that brewers should brace themselves because there’s going to be a shortage. Like any other crop, hops are susceptible to weather impacts from storms and drought, to threats from pests, and even to over-ambitious contractors whose eyes were bigger than their hop baskets, leading to a surplus.

However, a report released in late January says that the industry has made considerable strides over the past half decade and that while things look good, everyone involved in hops production and usage should proceed “cautiously and pragmatically” when forecasting out the next few years.

A Record Year

History will tell what 2017 will be best remembered for beer-wise, but the hops crop is one contender. According to the Hop Growers of America, the U.S. hops acreage has increased 79.5 percent since 2012; production by 77 percent; and the “average yield per acre jumped to 1,959 pounds per acre, a 14 percent improvement over 2016. The resulting 2017 U.S. hops harvest saw a 20 percent increase over 2016, breaking the 100-million pound mark for the first time in history.”

The 2017 value of production for the United States totaled a record high $618 million, up 24 percent from the previous record high value of $498 million in 2016, says the U.S Department of Agriculture.

And while hops are being grown in almost every state, the Pacific Northwest continues to lead the pack. Combined area harvested for Idaho, Oregon, and Washington in 2017 totaled a record high 53,282 acres, up 5 percent from the 2016 level of 50,857 acres. Harvested acreage increased in all three states: 24 percent in Idaho, 3 percent in Washington, and 1 percent in Oregon. U.S. hops yield, at 1,959 pounds per acre, increased 246 pounds from a year ago.

Also of note in the report, in the Pacific Northwest, Idaho’s hops production (13.2 percent) surpassed Oregon’s (11.4 percent) for the first time. Washington State continues to dominate, accounting for 75.4 percent of hops produced in the region. “In Idaho, the cost of production can be lower, and people new to beer are getting into the business. A few farms have been growing hops, and maybe now their neighbors have heard how the market has been doing, and they are excited to get in on it as well,” says Jaki Brophy, communications director for the Washington Hop Commission and the Hop Growers of America.

But, can this last?

Looking Ahead

There were some worries and concerns in the overall industry when the Washington-based hops broker 47Hops declared Chapter 11 bankruptcy this past August. Douglas MacKinnon, the company owner, said the cause was brewers who overcontracted for hops, based on the previous year’s growth in the industry. When that growth slowed, the need for hops dropped, and his company was left holding the bag as brewers slowed their delivery of hops and asked to renegotiate contracts.

Agriculture experts say that, for now, the hops acreage that exists in the United States is good to hold steady, to meet the existing demand, even with new breweries coming on line.

“We just had our hops convention for the industry, and that was overall the underlying message, that the market is satisfied,” says Brophy. “We are looking at more of a depletion of our alpha hops because people tend to forget about them because today it’s more about aroma.”

Through selective breeding, most hops now known as “aroma” hops also tend to posses significant amounts of alpha acid. Citra, Ekuanot, Mosaic, Simcoe, and others all feature alpha-acid percentages in double digits, so while they tend to be more expensive than workhorse bittering hops such as Magnum or CTZ, they’re not so far off on the price-to-alpha ratio, and excess stock can be used in advanced hops-bittering products such as extract.

One of the challenges that 47Hops faced was their singular business model and comparative lack of resources that gave them much less flexibility with customers than bigger brokerage houses such as Hopsteiner, Haas, and YCH Hops who all have the ability to use excess hops stock for these advanced products.

While there has long been speculation and anecdotal evidence on the shifting consumer palate, the report notes that in 2012 there was a fifty-fifty split between alpha and aroma/dual-purpose hops, compared with 2017 where aroma hops accounted for 80 percent of the acreage.

“If you think back to what beers were popular in 2012 compared to now, there’s a bigger need for aroma, for those robust IPA and pale ales, and for flavors that come from hops grown in the United States,” says Brophy.

Still, as it has for the past five years, Cascade remains on top followed by Centennial, which has held that place for the past three years. Citra, which ranked eighth in 2013, has steadily climbed and is now holding strong in the third position for the second year in a row.

“While global hops demand appears to be on the rise, thanks to burgeoning international craft-beer cultures, many industry leaders caution against adding acreage in the United States for the 2018 crop. All key indicators suggest that current aroma-hops demand has largely been satisfied by the unprecedented expansion of U.S. acreage in recent years,” says Brophy. “Conversely, many reports also indicate that current global alpha inventories are insufficient for market demands as the global brewing industry has finally worked through decade-long surpluses, which had perpetually depressed the alpha market since 2009. However, the alpha deficit is expected to be satisfied in the near term with the impending transition of certain excess aroma acres back to alpha in the United States as well as the recent additions of significant alpha acreage in Germany of the Herkules variety.”

Typically, a brewery will contract for 100 percent of their forecast hops needs from the next harvest, 50 percent of their forecast needs two years out, and 25 percent of their forecast needs three years out, creating price stability and insurance for the grower as well as the brewer. Any overcontracting that might have occured for the 2017 harvest year has almost certainly been priced into the market already as those brewers reduced their 2018 contracts while “topping them up” through the fall. So, long-term fallout from this exuberant period of excessive contracting is relatively self-contained and should not persist into future years.

When it comes to contracting, Jeff Perkins of Yakima Valley Hops, a broker who typically works with smaller breweries, says that if you’re a brewer who is uncertain about the market or still getting on solid footing, you should contract for about 70 percent of what you need, and then you’ll have 30 percent wiggle room to buy later if necessary. Yes, the hops might be a little more expensive if it comes to that, but going that route can also save headaches down the line.

In fact, a greater concern could be brewers overcompensating for overcontracting by reducing their future contracts below their actual needs and expecting to fill those remaining needs with hops from the spot market. If enough breweries were to take such action, spot prices could increase dramatically, and eventually stock may not be available through spot markets at all.

The bottom line, experts say, is brewers should be contracting responsibly and, regardless of size, should know the supply chain and how it works. It’s less about taking chances and more about planning properly. And most of all, everyone—brewers and growers alike—should be working sustainably in a way that supports mutual success.

What’s the Next Big Thing?

As craft beer has grown over the past four decades, the familiar and persistent question has been, “What’s new?” Because the aromas and flavors of hops have been the primary fuel for this growth, it makes sense that the question is applied to hops varieties. And why not? We’ve seen the rise and regular appearance of proprietary hops such as Mosaic, Lemondrop, and—of course—the darling, Citra.

Most private (or proprietary) hops today come from the programs run by Hopsteiner or the Hop Breeding Company (HBC), a joint venture between the Select Botanicals Group (which is owned by YCH) and John I. Haas. These companies cross breed different varieties of hops and select promising offspring based on aromatic quality, acid and oil composition, and agronomic concerns such as yield per acre and disease resistance. They then license the right to grow those hops, charging hops farms royalties for that right to grow them and reducing the margins for those growers while increasing the price for brewers who buy them.

We’ve also seen the rise of public hops such as El Dorado. Public hops-breeding programs, such as the one run by the USDA that will now be funded by a grant from the Brewers Association, release their successful cultivars to hops growers royalty-free, so the prices are typically lower, and there are no restrictions on which growers can grow them. Greater competition for these varieties typically means lower prices for breweries and homebrewers.

For each promising new hop that will delight the senses and cause broad smiles, thousands don’t make the cut. Farmers and growers are keenly aware of the appeal and potential windfall for producing the next big thing. In recent years, we’ve been treated to new varieties, grown around the world, that are bursting with blueberry, strawberry, peach, intense citrus, and more. However, good things take time—in some cases a decade or more.

In these moments, it’s important to remember that hops are an agricultural product, harvested once a year, and while everyone wants the shiny new thing, sometimes we have to embrace the traditional.

Some larger breweries are promoting beers with traditional and publicly available hops. This not only gives hops that have been playing backup a chance to shine again, but it also allows brewers to brew with what’s available.

Case in point is the Luponic Distortion series from Firestone Walker Brewing. The ninth “revolution” in the IPA series was recently released, and rather than using privatized hops, this IPA features six public-domain hops from Germany and the Pacific Northwest. In a bit of an ironic twist, the brewery doesn’t publically disclose which verities they use in the series.

“Don’t get me wrong—we love and use a ton of privatized hops here at the brewery,” says Brewmaster Matt Brynildson. “It’s also nice to shine a spotlight on these public cultivars that are readily available to all domestic hops growers. I am passionate about public-domain hops that may not have the cachet of their privatized brethren but that are cooler than some might think.”

It’s a vote of confidence in the classics and a nod to where things were to help us appreciate where we are today.

With additional reporting by Jamie Bogner.

John Holl is the Senior Editor of Craft Beer & Brewing Magazine®. Email tips and story suggestions to [email protected].