Beer (& More) In Food

Beer: The Condiment With An Attitude!

Hop-onomics 101

Posted by Bob Skilnik on December 21, 2007

hop-cones.jpgI’ve been watching the brewing industry revelations with interests that hops and apparently barley too are in short supply. Looking past the next few years, most industry insiders predict things will get worse before they get better.

Why such a low hop (and barley) supply? Long story short, weather conditions, a free market, political considerations that encourage farmers to switch to high-yield and higher-profit corn (“Let’s go green with ethanol! Sure it’s tax-subsidized so any savings are a wash, but it makes us feel warm and fuzzy!”) and a further demonstration that most craft brewers still look at brewing beer as an art, rather than the business it is. The majority of craft brewers never thought of locking in prices with speculation in the hops futures market. The big boys do it, ensuring that they will know the future price of hops not yet harvested while also giving themselves a decent estimate as to what kind of future expense to expect for future hop supplies. More importantly, hop futures also give the smart brewer the ability to lock-in a future supply of hops.

There is a risk with hops futures speculation; if the hop prices prove lower, the brewers still have to pay whatever price they’ve locked themselves into, even if it’s higher than the so-called “spot market,” the current price of hops, but you’ll still be assured a supply of hops, when other “artists” won’t. It’s a risk, but at least you’ve not only planned for a future brewing expense, you’ve also ensured your brewery an adequate supply of hops to be. As a craft brewer whose cash flow is often less than tentative, you’d think that more of them would have jumped into the hops futures market as a planned and controlled expense-to-be. Instead, they’re out in the market right now, begging for hops, and either paying a high price for them or foregoing certain types of hops all together. Supply and demand; feast or famine.

From a historical perspective, a glance through 100-year old issues of The Western Brewer, arguably the most renowned and available of the old brewing trade journals, clearly demonstrates that hop supplies have fallen short of brewers demands throughout the history of brewing in the U.S. When the nineteenth century brewing industry was emerging as a big business, newspapers often reported the brewing business like newspapers today talk about Apple or Microsoft. Back in the day, you could pick up any big city newspaper, especially in a brewing center like Chicago or New York, and read all about hops futures and the old brewers’ problems with supply and demand. Pick up a copy of my Beer & Food: An American History and you’ll see that brewing in the English colonies, the young United States, during the food control acts of pre-Prohibition, National Prohibition itself, in World Wars I and II, and even the post-World War years, there has always been a struggle in the brewing industry between the feast or famine effect of supply and demand.

Current brewing newspapers, magazines, blogs, and such, are filled with stories of brewers who have had to chase high hop prices with the limited funds they have. The more interesting story, as I historically see this playing out, is something that no one’s talking about; will beer styles disappear? As hop production moved from the East Coast to the West during the 1880s-1890s, hop prices skyrocketed in the form of shipping charges as most of the country’s beer production was still in the Midwest and East. As a result, brewers were forced to lower the amount of hops they used.

Already we’re reading stories about brewers cutting back on the production of their IPAs and other high-hopped beers. Jim Koch at The Boston Beer Company has had to defer the brewing of this years winning LongShot homebrewers’ competition entry because the recipe’s hop bill was a bit too esoteric in its scope, indicative that the rarer hops—prized by some craft brewers—will be the most affected by current market conditions. Perhaps of most importance will be a shift in buying patterns as the big brewers, who yes, have always worked the hops and grains futures market, entice craft beer drinkers with their own interpretations of craft beers…something like a Coors Blue Moon or a Leinie Sunset Wheat, backed by deep pockets for advertising and marketing efforts. Having customarily worked the supply futures market as a part of doing business, and having the advantage of economies of scale, they might also crank out pseudo-Belgians, muted hop-monsters, and lower-alcohol “Imperials” with ease. While craft brewers either cut brands or start to try to recoup high hops (and let’s not forget barley) prices by making “adjustments” to the price of their beers, price-sensitive craft beer drinkers might mossy over to a nice 50-pack stack display of CoorsMillerBud-brewed “Imperial” Stout cases in the middle of the aisle of their local liquor store and kick its tires, so to speak.

Supply and demand has “helped” change the U.S. beers of 1792 into the kinds of beers that about 80% of American beer drinkers purchase in 2007. There’s no reason to believe that the craft beer sector is impervious to change, either voluntarily or not.
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On a side note; how will the lack of hops affect the too-contrived beer style guidelines hammered together by those folks in Colorado (C’mon…What the hell’s a “Light Hybrid Beer?” Really; who comes up with this stuff?) When guidelines are calling for hop International Bitterness Units (IBUs) between 50-90+ or describing a beer with “Medium to aggressively high bitterness,” what’s going to happen if brewers decide that they can no longer afford to brew that type of beer? I see beer judges in upcoming beer competitions sipping on more “Light Hybrids” than “Russian Imperial Stouts,” or for that matter, anything with the word “Imperial” on the label.

How about some of the more hard-hitting beers that are to be entered into next year’s homebrewing contests? If Jim Koch, of all people, can’t find hops for homebrewer Mike McDole’s LongShot winning double IPA, when will the ripple effect take place with homebrewers and their contest entries?

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One Response to “Hop-onomics 101”

  1. […] by Bob Skilnik on February 25, 2008 Awhile back, I pointed out that the current scarcity of hops was not an isolated event. It has happened before, but it should also be noted that the coinciding scarcity of barley (malt) […]

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