The hop shortage

[olllllo]

This is how it all went down:

[youtube]RAXdie_gifI[/youtube]

 

[adx]

Some of the shortage of US variaties exists because there was a huge warehouse fire in Yakima last winter. That wiped out a good chunk of the yield from the Yakima Valley. Just like most things in ecenomics it's a series of events. Soon the market will level out.

 

[Cheesefood]

What I'm not sure of is how much the current shortages is simply magnified by being essentially between seasons. Like, come a month's time, when all the '07 crop is for sale, will many of these varities be available again, albeit at a higher cost? I never paid enough attention last year to know whether there's a natural seasonal element at work, which may be magnifying the fundamental problems in the hop sector.

Hold it one second, buckaroo. Aren't you supposed to be a financial advisor? Are you asking how to speculate the commodities market?

 

[the_bird]

There's a lot of momentum in the hops sector right now. Go long Cascade futures, put a stop in at the 10-day moving average. Got long EKG, short Fuggles, leverage that MF up 20x.

Damn, think I can run a hedge fund speculating in hops futures? I'll diversify with bets on the spread between Maris Otter and domestic 2-row.

 

[ohiobrewtus]

Cheese nailed it above. Farmers are getting paid to grow corn for E85. E85, which, as of about 2 hours ago was only 10 cents a gallon cheaper than regular unleaded here.

 

[westerntrout]

and it is 10 cents cheaper only due to the huge subsidy that we are paying through the fed. the unfortunate byproduct is a steep rise in food grain prices that will inevitably price many of the worlds poor out of the market with the result that the starving 3rd world poor will be on the head of gore and his myopic and misleading movie. it won't be portrayed as such though, naturally

 

[kappclark]

Growers need fertilizer....corn growers use potash.... check out the pricing for the largest potash producer, based in Canada - ticker symbol = POT (!)

 

[Bobby_M]

You can say that for all the agg stocks.. MOS POT TNH CF what a wild ride.

 

[david_42]

Corn land and hop land are not the same, so that has nothing to do with it. Almost all US hops are grown in areas (OR, WA, ID) that have never been used for corn, as they are too dry. Hops are drip irrigated on most farms because we only get 1-2 inches of rain in the summer. Corn needs that much a week.

There was a massive hop glut around 1999. Almost 30% of the crop wasn't sold that year. Hop acreage is down by 1/3 since that time period and there was still excess in 2005. Barring more bad crops, things should get better in 2008-9.

 

[jdoiv]

Part of it was that there was a glut of pelletized hops from over 3 years ago. Hop prices fell and growers either got out of the market or scaled back. Fast forward to today and the back stock of pellets has shrunk, you have various environmental factors (fire, hail storms, etc.) and suddenly the market is tighter. Still a big part of it is that the 2007 crop is still in processing and isn't shipping yet. Most hops are turned into pellets as they keep longer. The pellet processors are working on this years crop and should have it processed by the end of December, first of January. You should see prices recede as those inventories come to market, but I wouldn't bet on seeing drastically lower prices until mid 2008 as everyone will keep their prices inflated until they see how much demand there is and what they need to move out of their store rooms.

I say relax, don't worry and don't buy in bulk right now unless you absolutely have to. Prices will come back down and more items will become available. Also, get used to the idea of making some substitutions as some varieties that were hit with environmental factors (Styrian Goldings) will be in short demand regardless.

 

[Professor Frink]

Great headline on fark.com today for this story:

Hops and Barley prices take massive spike, beer prices likely to hit $10 a six pack. Thats hops, barley, and beer, so Bud drinkers can relax

http://seattletimes.nwsource.com/html/businesstechnology/2004004989_webbeershort09.html

 

[nicksteck]

our local news just ran a story on it

kare11.com i think the name was something like bitter beer

 

[rflem550]

I saw a news special on the hop and grain shortage yesterday where they interviewed workers at two local breweries. One brewer at Duck Rabbit in Farmville, NC state he expected to see prices in the stores and bars increase 10-20% in 2008. A brewmaster at Ham's in Greenville, NC said he was paying about $3.50/lb for hops and now he was paying $11/lb (if he could even get any).

 

[Jamo99]

My local shop is rationing their hops for the next year. 1 oz of hops per lb of extract or 2 lb of grains. I haven't asked what they have stored up, but I haven't been disappointed yet. I think that if you aren't able to find a specific variety, you can probably find a reasonable substitution.

 

[RangerG]

A couple of mechanics that I know tell me that unless you have an older, less sophisticated vehicle, that at least in here in Florida (because of condensation) that burning ehanol would be a bad idea for your car in the long run. Don't buy or encourage ethanol use if you guys don't like what it's doing.

Also, as hop prices rise, that should encourage new entries into that market - until there's anoter glut. There will likely always be hops available, just cost more. Just think of some other luxury good that you could live without and what you really need: roof over head, clothes on back, food on table / beer (like a food), and something to make wife tolerate beer.

Like the man said, I can always try to clone Bud and such by using just a pinch of old nasty dried-to-dust pellets, a dollop of malt syrup, and some rice.

I'm trying out a Hercules Double IPA, it's great, but if I'm willing to pay $7 for a 22oz bottle of 9.1% highly-hoped beer (I'm a returning brewer and have 6 batches in ferment but no drinky yet), then I'll probably just bend over and pay more for hops. Hey maybe we can get Ted Kennedy to help us with this beer dilemma?

 

[b33rm3]

sounds like its a good time to start growing my own hops

 

[BeerAg]

Part of the issue is that it takes 3 years to get good yield from Hop plants, as opposed to things like wheat or corn where you start from scratch every year.

If the lag wasn't there, supply would line up with demand much easier.

**Conspiracy theory**

Since the big guys use much less hops in their beer, this hurts everyone but the big guys a lot harder. Expect the prices of Budwiser and Miller to go up a lot less than craft brewers. Something tells me that Bud and Miller were not exactly in panic mode when they were checking out the market dynamics of all of this.

**Conspiracy Theory #2**

The supply hiccups are not near as bad as portrayed, but the beer business in general is trying to push a price hike through and is using Ethonol as a convienent scape goat.

 

[Adolphus79]

Zacks Industry Rank Analysis Highlights: Anheuser-Busch, Boston Beer, Molson Coors, Shire PLC and UTD Therapeutic
BusinessWire - November 15, 2007 12:34 PM ET

Drinking a cold one is about to get more expensive. Hops, a key ingredient in beer, are in short supply. The Brewer's Association (an organization that represents microbrewers in the U.S.) estimates that hop production is 10-15% below current demand.

Mother Nature and farmers are to blame for the shortage. Weather conditions in Europe and Australia have hurt crops this year. Previous overproduction led farmers to curtail the amount of acreage devoted to growing hops. At the same time, higher demand for biofuels such as ethanol have made other crops (e.g. corn) more profitable for farmers. (The Brewer's Association estimates that worldwide hop acreage has decreased by 50% over the last 10 years.)

Boston Beer (NYSE: SAM) partially blamed the higher cost of hops for hurting profit margins. The brewer missed third-quarter expectations by three cents per share and lowered its guidance for full-year earnings. SAM expects 2007 per share profits to be in a range of $1.40 to $1.65; it had previously guided for profits between $1.42 and $1.70 per share. The company also warned rising ingredient costs would adversely affect margins in 2008.

The hops shortage is expected to primarily impact microbrewers. It should have a lesser impact on the major brewers, who may be able to exert greater pricing power.

Anheuser-Busch (NYSE: BUD) experienced a drop in gross margins during its third-quarter, but intends to "implement price increases on the majority of its U.S. beer volume in early 2008, with increases in several states in the fourth quarter 2007".

Molson Coors (NYSE: TAP) has also been pushing through higher prices, but also relied on cost-cutting measures to offset higher ingredient costs.

The impact of brewer size is apparent in how brokerage analysts are adjusting their forecasts for 2008. Last week, two of the three covering analysts cut their profit projections on SAM (the other analyst did not change his estimates). At the same time, four of the 12 of the covering analysts raised their forecasts on TAP last week. During the past 30 days, two analysts raised their projections on BUD and four lowered their forecasts.

It is likely that the lower-cost beers have more price elasticity than the higher cost, specialty beers. Ironically, higher beer prices could potentially help BUD and TAP as some consumers opt for lower price brands (e.g. Michelob, Coors) over premium "microbrew" brands (e.g. Abita, Shiner Bock).

BUD, SAM and TAP are all Zacks #3 Rank ("hold") stocks and are classified in Beverages-Alcoholic.

 

[max4677]

Has anyone tried using some of the lesser known varieties? Northern Brewer has a bunch of types I have never heard of, and virtually zero of the ones I know.

 

[mew]

So has this hop/grain shortage thing happened before or is this going to be a problem forever (like what happened to gas prices). It seems like the demand is there, so the market should stabilize itself in a couple growing seasons, right?

 

[Brew Runner]

I really need to pay attention to the news more.

I have four flavor varieties growing here in the yard that went nuts with cones, but I dragged my feet with picking and now they're all brown. I would have had some Centennials too, but the HBS shipped the rhizomes out on a Friday (in late April) and they sat in a hot UPS wharehouse over the weekend somewhere and died.

 

[Seabee John]

So has this hop/grain shortage thing happened before or is this going to be a problem forever (like what happened to gas prices). It seems like the demand is there, so the market should stabilize itself in a couple growing seasons, right?

That would be the general thought. The only influence here in the US that could interfere may be ethanol... I know I know I'm beating up on farmers.. so what. If the amount of money they get per acre of corn is more than the price per acre of Hop (at the higher price) guess what they will be growing.

Looks like I'll be planting hops in the spring in the back yard garden

 

[the_bird]

That would be the general thought. The only influence here in the US that could interfere may be ethanol... I know I know I'm beating up on farmers.. so what. If the amount of money they get per acre of corn is more than the price per acre of Hop (at the higher price) guess what they will be growing.

Looks like I'll be planting hops in the spring in the back yard garden

As has been noted, though, corn and hops don't really compete; they're generally grown in entirely different climates. I would expect continued subsidizing of corn-based ethanol will have an impact on barley prices, however.

 

[Seabee John]

As has been noted, though, corn and hops don't really compete; they're generally grown in entirely different climates. I would expect continued subsidizing of corn-based ethanol will have an impact on barley prices, however.

That is very true, but there has been a large amount of farmland (especially here in Minnesota) that has been converted to grow corn. It doesn't really matter if the corn survives or not because of the additional federal crop insurance for ethanol producing. These farmers are smart... they know it doesn't matter if they actually sell the corn, they get the money (at market price) regardless. This, in my humble and uneducated opinion will lead to more land devoted to corn no matter where it is.

The only sense of relief I get is from knowing that the majority of America loves beer. The demand will be there, and by extension so will be the ingredients we need to make it.... but the cost? who knows...

 

[kenb]

As has been noted, though, corn and hops don't really compete; they're generally grown in entirely different climates. I would expect continued subsidizing of corn-based ethanol will have an impact on barley prices, however.

Corn competes with barley though, which is why you will see barley prices increase up to 50% over the next year....

 

[Chad]

As has been noted, though, corn and hops don't really compete; they're generally grown in entirely different climates. I would expect continued subsidizing of corn-based ethanol will have an impact on barley prices, however.

Corn doesn't compete with hops but urban development does. One article I read cited increased growth, increased land values for development, especially in the Pacific Northwest, and depressed hop prices driving hop farmers to sell off land. Given the overabundant crop and surpluses of previous years, I can easily see hop farmers selling acreage to developers rather than try to eke out another meager profit.

Chad

 

[the_bird]

Corn competes with barley though, which is why you will see barley prices increase up to 50% over the next year....

.... which is why I mentioned corn's likely impact on barley prices in the second sentance of my reply...

 

[cefmel]

Time to start growing our own.

 

[DontDrinkAndDrum]

if there was anything, in my opinion, that could make the future more bleek than "global warming" or robots taking over the earth, this might be it.

 

[CBBaron]

That is very true, but there has been a large amount of farmland (especially here in Minnesota) that has been converted to grow corn. It doesn't really matter if the corn survives or not because of the additional federal crop insurance for ethanol producing. These farmers are smart... they know it doesn't matter if they actually sell the corn, they get the money (at market price) regardless. This, in my humble and uneducated opinion will lead to more land devoted to corn no matter where it is.

I don't believe the government pays for farmers to grow corn whether it succeeds or not. More farmers are growing corn because the increased demand for corn to make ethanol has caused prices for corn to increase to the point it is very profitable to grow corn. The government subsidies are used to make ethanol more affordable than gasoline which drives the demand for ethanol.
Minnesota may not be the best place for growing corn but I believe it can be successful and profitable at the current prices.
Oregon and Washington are less likely to grow corn because corn requires alot of water which would require irrigation in those regions and the profitability of corn is not sufficient to recoup the cost of the irrigation. In the midwest summers are usually sufficiently wet to produce corn harvests without irrigation.
Short term prices for barley could become fairly expensive but if the demand remains strong then the profits are sufficient to ensure plenty of farmers will grow barley. Hops will see a greater fluctuation in price as it takes several years for a hop field to become productive so it takes longer for acreage increases to affect the supply.

As for my brewing, I will be using hops that have not skyrocketed in price. I placed a significant order from the HBS for a variety of hops that were priced around $1/oz. I avoided the varieties that were going for $2, $3 or higher per oz. I like experimenting so this is a good time to try new varieties.

Craig