The total number of hop acres planted has increased significantly over the past decade, mostly driven by growth in craft brewing and the planting of aroma varieties. Today, drinkers have access to almost every aroma, from fruity mango and pineapple to more savory flavors of pine and spice.
Another result of that demand has been the rapid increase in new hop varieties from both private and public breeding programs. Today, hop growers can choose from hundreds of varieties to plant.
However, the hop market is facing an inflection point, as growers turn over acreage to previously underplanted public varieties. The ups and downs of the past few years have created an imbalance of supply and demand for certain varieties, despite hop stocks—the inventory held by growers, dealers, and brewers—increasing 6 percent from March 2021 to March 2022.
Every year, these growers face the challenge of knowing which varieties brewers will need, so they can plant accordingly for the next growing season. However, with some varieties staying in the ground for less than two years, how do growers decide? Decreased beer production and a focus on core brands have resulted in a narrowing of in-demand varieties. As growers navigate the intricacies of hop supply and demand, the investment to switch fields has become riskier, even as costs rise and the longevity of newer varieties decreases.
According to Eric Desmarais, co-owner of CLS Farms—and, disclosure, my dad—growers in the past turned over fields every three to five years. Now, growers are abandoning fields after only one to two years, creating a new financial challenge.
The hop market follows a cycle of years with exponential growth followed by sharp declines. Today, those involved in the hop supply chain are feeling the additional pressure of inflation, says Blake Crosby, CEO of Crosby Hops in Woodburn, Oregon. Prices are leading to fewer spots available while growers look to mitigate risk through contracts.
“A nice decade of market stability from 2012 to now—where growers could invest in facilities, staff, infrastructure—[now] appears to be moving toward the boom-and-bust cycle,” says Diane Gooding, VP of operations at Gooding Farms in Parma, Idaho. The pressure to plant accurately—that is, matching what brewers will need—is intensifying. When deciding which varieties to pursue or abandon, growers must weigh several different factors.
The Decision Matrix
Demand and disease pressure are the primary reasons a grower opts to replace a variety. Acreage that is not contracted is more susceptible to these switches. Growers assess the risk of varieties based on past trends while simultaneously doing their best to predict future demand.
Andy Roy, account manager at Roy Farms in Moxee, Washington, says that as dealers and brewers become more hesitant to contract—as a result of variable demand—growers will become more methodical.
Hop stunt viroid (HSVd) and other diseases have forced some growers to take out entire variety groups, including Cascade. Double R Hop Ranches in Harrah, Washington, recently explained the difficulty in maintaining a healthy field (see “Hops for the Future: What Does It Mean When a Hop Farm Gives Up on Cascade?” brewingindustryguide.com).
In Idaho, Gooding expects to transition or idle 15 percent of this year’s crop acreage. Normally, she budgets about 10 percent every year. Crosby Hops reports a similar level of idle fields or rotations.
Turnover rates only continue to increase. A decade ago, turnover levels hovered around 3 to 5 percent; now, growers face a yearly turnover rate of 5 to 10 percent. That creates a new financial challenge, Eric Desmarais says.
The cost of growing and switching acreage can fall anywhere between $5,000 and $10,000 per acre, according to several growers. Factors such as plant material—whether a grower uses rhizomes or pots made from clippings—labor, chemicals, irrigation, cover crops, and land go into the decision to swap fields. Both Washington and Oregon also recently passed overtime laws for agricultural employees, further increasing costs. Meanwhile the costs of land, fertilizer, and other inputs continue to rise as well.
Farms can use several methods to rip out old plant material in a field, though there are cost and environmental considerations for each. Growers can lift roots manually, till the soil, and then fumigate to rid the soil of disease, nematodes, and other issues—that’s what we do at CLS Farms. Tilling aerates the soil, allowing more moisture and air to go into the ground. Salmon-Safe growers, such as Roy Farms and Sodbuster Farms in Oregon, avoid fumigation and use root lifters and tilling. Whichever a grower chooses, the process requires significant labor plus the costs of chemicals, equipment, and other materials.
Growers also often move the poles to the right or left, so that the new plants go into cleaner soil. This minimizes the potential for off-types to occur between old and new plants.
After a field is cleaned and poles are moved, growers plant either rhizomes or pots (baby plants) made from clippings into the new rows. Both are roughly the same cost. Rhizomes must be planted in late March or early April; pots go in slightly later, in May. There is a benefit to planting later: It provides a bit more time to gather additional market insights and contracts before making final decisions.
However, there are other things to consider when deciding between rhizomes or pots, such as scalability, “clean” sourcing, and timing. Rhizomes provide a better first-year yield, but growers must source the roots from a virus-free field with minimized off-types. Pots coming from a nursery are typically used for newer varieties; these give the grower time and provide a disease-free source of plant material. However, nurseries also face issues with potential cross-contamination, spread of contagion, and mix-ups. Need and availability of certain varieties also play a role in this choice.
Yields are another factor to consider when turning over fields. In plants’ first year in the ground, growers report that the plants typically yield 25 to 50 percent fewer hops, and the aromas tend to be softer.
That yield varies by location, potentially changing the whole calculus of whether to switch varieties. Alexa Weathers, operations manager for Sodbuster Farms, says that hop plants in Oregon don’t yield until their second year of production, because of the state’s different heat and wet soil. Thus, growers there can’t plant until May at the earliest—but more realistically, in June—losing out on an entire year of production, she says.
“It becomes incredibly expensive to do this,” Weathers says. “And it is incredibly frustrating, because it’s so expensive, that we’ve done this on over 500 acres in the past five years. We’re losing that money for a year because we have to wait. … So, it’s just much more detrimental to us Oregon growers versus Washington and Idaho.”
Yet another variable: Some varieties grow better in certain regions. The West Coast Hop Breeding program, established in 2016 by six Oregon growers—has committed to releasing varieties that thrive in Oregon, given the state’s unique climate and soil types.
“Today, our average yard is in the ground for about five years, which increases our switching costs, the risks that a variety may not even work in our area, and the learning curve of growing new genetic material,” Crosby says.
One way growers can mitigate the risk of new varieties is through test fields, which are becoming increasingly popular. Gooding Farms has a seven-acre field to test three different varieties in a nursery-style scenario, which also will provide roots for future fields.
At CLS Farms, a handful of varieties such as Vista—a new public variety—will go into a 12-acre field. In this way, we can trial the viability of a variety, both growing and market-wise, without the heavy investment of a larger field.
The Pendulum Continues to Swing
Proprietary hop varieties made up almost 65 percent of the acreage in 2021, according to the 2021 National Hop Report. Centennial, Cascade, and Chinook saw a steep decline in acreage by an average of 33 percent in 2020, according to the National Hop Report, with a slight increase in 2021.
The USDA manages public varieties but lacks control over the market compared to private programs, Sodbuster Farms’ Weathers says. Growers are reliant on the owners of proprietary varieties to control the market, manage supply and demand, and create a more stable price, she says.
Typically, proprietary varieties offer a better price for the grower. But that comes with certain controls in place and reliance on the owner to manage it. Though public varieties are more accessible, the margins for switching a proprietary for a public variety can create higher switching costs and a potentially decreased return.
It can take a decade to develop and release a new hop variety. In the past, breeding programs tried to plant ahead of demand to have adequate volume, Eric Desmarais explains. But the pandemic resulted in an imbalance of supply and demand of these newer varieties.
“So, one of the outcomes of this for brewers is not immediate, but dealers and growers will not get as speculative with newer varieties. They’ll plant much more conservatively,” he says.
Other growers have noted a similar market correction with the move out of many proprietary varieties and a gravitation toward underplanted public varieties. Crosby says that some of the acreage correction for 2022 is a result of the aggressiveness of planting some proprietary varieties.
Crosby Hops primarily grows public varieties and is continuing to do so this year. While already a large Centennial grower, CLS Farms has put in more Cascade and Centennial acreage as a result of the increased demand and undersupply.
Contracting Is King
The primary method of mitigating some of this risk of switching hop varieties is through multiyear contracting. Contracts provide stability on both sides of the supply chain because they provide forward visibility, Gooding says. Brewers can guarantee volume to ensure they receive a consistent product. Growers can justify the investment knowing there’s buyer stability for future years.
“If a brewer does find a new variety, I would secure [it] because the natural result of this at a grower and dealer level is there will be less speculative volumes of new varieties planted,” Eric Desmarais explains.
The same can be said for uncommon varieties. CLS Farms is working with a buyer to plant some Brewer’s Gold, an older and less in-demand hop variety. The relationship between grower and buyer relies on trust and contracts to make the decision to invest in this type of variety.
Predominantly selling to dealers, Gooding Farms tries to keep no more than 20 percent of the current crop year open. Without contracts for certain varieties, that acreage isn’t grown. Before Triumph’s release, Sodbuster Farms had 20 acres as an experimental plot but only with a multiyear contract in place.
“Everything’s on contract,” Weathers says. “Our inputs have exponentially grown in cost. It’s too big of a risk for anybody.”
If buyers fail to renew a contract, then it’s likely that farms will either take the variety out or idle the fields. Gooding says she expects to see a lot of corn grown in idle hop fields this year in Idaho because the infrastructure is already in place.
Many growers are facing these renewals from larger buyers. With the effects of the pandemic still creating some ambiguity in the hop market, several growers have noted a goal to contract most of their 2022 crop, leaving little open for the spot market.
“If we see a market contraction where contract prices drop in the current inflationary environment, there will be less incentive in the system for a grower to overproduce and generate spots, which could put uncontracted brewers in a precarious position,” Crosby says.
The decision to produce spot hops for the upcoming year will likely result in a price that reflects the risk of those spots, he says.
Communication with buyers is important in making these decisions. Going forward, growers will have less flexibility than in previous years. Securing acreage for specific varieties will need to come from multiyear contracts. But while growers face these challenges, the craft-beer industry continues to struggle amid the pandemic.
Rising costs of aluminum, barley, and other inputs make it incredibly difficult for brewers to orient their supply chains. Breweries are also continually working to accommodate a consumer-driven market with new flavors and beer styles within the struggles of the supply chain. Writing contracts for varieties without a definitive view of future demand makes it challenging for some breweries.
As the 2022 growing season continues, the hop industry faces a market correction in the form of reduced spots, a switch to underplanted public varieties, and more hesitancy. Growers will continue to face the delicate balance between planting to match demand and planting to sustain.