The team has just come back from a week in the mighty United States – visiting customers and suppliers as well as learning about US hop growing and visiting the US Hop Convention in Portland, Oregon. We found out a lot of interesting facts and knowledge relating specifically to the US hop market, so if you are into your hops like us, read on.
Demand Continues to Grow for US Aroma Varieties
- Craft beer growth as defined by the Brewers’ Association (loosely the US equivalent of SIBA) remains steady at around 4%. This is a big slowdown from the mid-teen growth of a few years ago, but remains positive. Underlying growth may be higher – brewers which have been acquired by the big lager producers are growing significantly faster than this and aren’t included in the BA numbers.
- The growth in average craft beer hopping rates has accelerated again to 1.2KG / barrel from 1.1KG last year. This is across all beer styles – some NEIPAs are well over 3KG / barrel! While we may have passed ‘peak haze’ there is still a lot of this style being enjoyed.
- On a variety-by-variety basis, a weak baby crop in 2019, combined with continued high demand from craft breweries has pushed certain varieties such as Citra into short supply. Growers and merchants are reacting – Citra acreage was up by 35% in 2019 and more is expected to be planted for the 2020 harvest. It may well be that this is enough to quench demand that variety in the medium term, but it will remain hard to find at least until the 2020 harvest has become available. Despite this new planting, the market for newer NEIPA-friendly hops such as Strata, El Dorado and Ekuanot seems to have tightened in recent months. Back in early 2018 it was possible to still buy the most sought after varieties at reasonable prices on the spot market. It is now becoming increasingly difficult to contract for premium varieties for the 2020 crop in advance.
Further Acreage is Needed to Meet Demand
- Brook House Hops’ involvement in the ‘alpha’ or bittering hop market is limited. Existing inventory (or stocks) is limited, which has pushed up spot prices, however the market is unbalanced because there is sufficient acreage in the ground currently to satisfy brewer demand. The current shortage is largely caused by a series of poor harvests in the Hallertau which is now the world’s largest producer of hops. Northern Bavaria seems to be disproportionately exposed to climate change and it is possible that these weak yields are the ’new normal’. If this is the case, then more alpha from other growing regions may be needed.
- Supply of land and labour is beginning to crimp the ability of US growers to expand into further acreage:
- Inflation – pay is up to $16 / hour for casual workers, and it seems probable that an exemption for overtime which has existed for agricultural workers in Washington state will soon be eliminated. This could push effective pay up by another 20-25%.
- Land availability is poor – particularly near existing harvesting facilities. Many of the most popular newer varieties also have relatively short picking windows – existing picking facilities are running at maximum capacity during these picking windows. This means that existing growers are going to have to invest in whole new farms or ranches in order to expand. A modern picking facility with 600 acres of land (roughly one facilities’ harvest capacity), and operating costs getting plants established costs north of $20 million. This is not a trivial investment – especially given the historic cyclicality of the hop industry.
- Besides labour, the main headache for US growers is pesticide and fungicide availability. Different countries have different environmental and food-safety standards. Importers are able to specify certain ‘maximum residue levels’ or MRLs on importer products. MRL alignment is becoming a bigger and bigger issue. Because of their growth pattern (perennial below ground, annual above ground), hops are almost uniquely vulnerable to pests and diseases.
Growers like us work extremely hard to minimise fungicide and pesticide usage, but it is exceedingly difficult to grow hops 100% organically. Governments in Europe are continuously tightening residue regulations too and US growers are subject to these regulations if they want to export their crops globally. The good news is that the British Hop Association continues to do valuable work aligning these regulations globally and the demand is strong, seeing the market thrive and evolve each season.