About a month ago, the USDA released its Hop Acreage Strung for Harvest report. If you didn't receive it, you can download it for yourself here.
A Look at the Numbers.
According to this report, in 2022, there will be a net decrease of 976 acres (395.1 hectares) in the U.S. Based on 2021 yields, this means 3,169,759 pounds (1 437.8 MT) fewer hops produced in the U.S. in 2022 (Tables 1, 2 & 3). Some of that change comes from the traditional alpha producing varieties you'd think of, like CTZ. That makes sense since there's a pretty massive alpha surplus happening in the world right now. Some of that surplus comes from aroma varieties that have high alpha acid yields. Their excess production can be extracted where it can sit for a decade or more waiting for a good market. The problem is if that keeps happening year after year the alpha market will just keep getting worse.
Pictured above: Idle hop acreage in Yakima
Based on average alpha values for the varieties in the June report, there should be 1,088,836 pounds (494 MT) less alpha (time of harvest TOH). This is an estimate, but if that's even close that's a lot of alpha! Of course, hop and alpha acid yields vary from year to year so don't pay too much attention to the exact figure. That's not the real magic that's happening here. The direction of the change and the approximate size of the effort is what matters, but the fact that it's happening at all when hop prices are higher than they've been for years is significant. As far as cutbacks go, the reduction isn't enough to bring the market in balance. In the years before proprietary varieties dominated the industry, such a surplus would have crashed the market. Fast forward to 2022 ... massive alpha acid surplus and no market crash. The concentration in power during the past decade has changed the way the hop market works. This is due, in part, to the lack of unbiased market information. Case in point, did you know about the alpha surplus and the cause of it prior to reading this paragraph? That's what this report is all about.
Back to the story ... Germany, the other significant producer of hops and alpha acid, increased their alpha variety acreage slightly in 2022. This is very likely a shift for price reasons as American hop farmer price expectations have grown over the past decade to the point where some of them believed ... sincerely believed ... that they were struggling for survival before the recent bout of inflation took hold. European farmers, not yet having the advantage of producing American proprietary aroma hops signed long-term contracts. Sadly, the prices at which they signed those contracts will soon be unsustainable. A crisis of international hop farmers looms large due primarily to the change in the way the market functions. The roots of this crisis lead back to the U.S. hop industry and surplus alpha production from aroma varieties over the past several years. We'll explore how and why that can be in a future article. For now, let's focus on the June Strung for Harvest numbers.
Table 1: 2021 U.S. Proprietary Acreage, average PNW Proprietary yield and Proprietary Production Combined with 2022 June Acreage Strung for Harvest Report Data for Projection Purposes.
Source: USDA NASS National Hop Report 2021, USDA NASS June Hop Acreage Strung for Harvest report 2022.
TABLE 2: 2021 U.S. Public Acreage, average PNW Public yield and Public Production Combined with 2022 June Acreage Strung for Harvest Report Data for Projection Purposes.
Source: USDA NASS National Hop Report 2021, USDA NASS June Hop Acreage Strung for Harvest report 2022.
TABLE 3: 2021 U.S. Total Proprietary and Public Acreage, average PNW Total Proprietary and Public yield and Total Proprietary and Public Production Combined with 2022 June Acreage Strung for Harvest Report Data for Projection Purposes.
Source: USDA NASS National Hop Report 2021, USDA NASS June Hop Acreage Strung for Harvest report 2022.
*Does NOT include varieties in the "Other" and "Experimental" categories, which in the June 2022 Hop Acreage Strung for Harvest report was 9.49% of U.S. acreage.
Why Does this Matter?
In 2022, prices are far above the long-term 73-year average (Figure 1). Nevertheless, farmers reduced acreage to avoid the potential for an all-out market crash. In the past, the hop industry reacted to signals from the market. They have never been able to be proactive in the market despite their many attempts. That bears repeating in simpler language:
This is the first time the U.S. hop industry has voluntarily reduced acreage while season average prices are high to ensure that prices remain high.
Even during the three Federal marketing orders, farmers were not able to control the supply of hops available to the market to the degree they can today. Don't believe me? Have a look at the response in production between 1980 and 1986. Not enough ... Have a look at production between 2007 and 2010 (Figure 2). These are traditional farmer response to high prices. Notice a trend? The current approach represents an impressive new direction for the industry!
If you're a brewer and you think hop prices are already too high, you should be concerned. You should be very concerned. This is just the beginning.
Why Now?
The U.S. hop industry appears to outsiders to be united. I wasn't aware of this until I hired a brewer to help with sales. I was surprised to learn how unaware he was of the secrecy, divisiveness and competition between hop farmers and merchants. That was a few years back. Maybe today the unity is real, but I doubt generations of distrust could change so quickly when so much money is still at stake. Unity was never possible in the past. So why is the appearance of unity possible in 2022? The answer is simple. Craft brewers have been buying a disproportionate number of proprietary varieties from the U.S. German farmers have converted to alpha hops in the absence of American production. The rest of the world has remained stable (Figure 3). The concentration in power brought on by the increased popularity of proprietary varieties changed market dynamics. The owners of those varieties can exercise their influence over planting decisions to maintain the markets for their property (i.e., the proprietary varieties craft brewers love). The reduction in acreage reported in the latest USDA June report is the latest example.
The premium prices of the past decade brought on by the popularity of proprietary varieties enabled American hop farmers to spend hundreds of millions of dollars on infrastructure and equipment. Hop poles, are placed in the ground today with laser precision at extra expense. That precision creates perfect geometric patterns in the fields as you drive by, which is a lot of fun to see for anybody who is into that sort of stuff. It doesn't matter for production though. Craft brewers like to tour hop yards though and straight rows of poles are more aesthetically pleasing. Today, concrete surrounds picking facilities to keep the dust down, another unnecessary expense that's nice and pleasant to the eye, but unnecessary for production. These things and many more are expensive. Money in the hop industry over the past decade has been there for the taking due to the increase in popularity of proprietary varieties, but it comes at the expense of independence. Farmers may not yet have realized that the future of their farms is in jeopardy if they don't own the proprietary varieties everybody wants. I imagine it's hard to feel like there's a crisis brewing when hop prices are so high.
Consolidated power combined with long-existing extraction, cold storage and pelleting bottlenecks owned by the very people who influence proprietary variety planting decisions enable coordinated actions in the pursuit of stable premium pricing. Brewers may not yet have realized that in the future they'll have fewer places from which they can buy their hops. The lack of real diversity is a topic we will explore in a future article.
Figure 1: Long term price graph
Source: USDA NASS 2014, USDA NASS 2014, USDA NASS National Hop Report 2000-2021
Figure 2: long term prices and acreage chart.
Source: USDA NASS 2014, USDA NASS 2014, USDA NASS National Hop Report 2000-2021
Figure 3: Change in proprietary vs. public varieties 1999-2022
Source: USDA NASS 2014, USDA NASS 2014, USDA NASS National Hop Report 2000-2021
Unilateral Changes
If you are a farmer, the reduction of alpha producing acreage by the U.S. is a positive step. It demonstrates that farmers can manage their production. Their actions, while admirable, only serve to reduce the overproduction of alpha acid worldwide. It is a small step relative to what is necessary. According to the alpha balance reported in the 2021 Barth Report, the most current public data available at the time of this writing, a reduction in alpha production of 500 metric tons (the approximate anticipated reduction from the U.S. acreage reduction in 2022) is small relative to the surplus projected by the BarthHaas Report in 2021 (Figure 4). Hop growers of America also used the BarthHaas numbers for their 2021 Statistical Packet[1]. Assuming those numbers are correct, this means that if 2022 yields resemble 2021 yields, the world's hop farmers will reduce the surplus to approximately 1,000 metric tons of alpha acid. Two more years of similar production would bring the market closer to equilibrium.
Figure 4: BarthHaas
Source: BarthHaas[2]
Projections from HopSteiner (Figure 5) differ from those of BarthHaas revealing a surplus approximately 800 metric tons greater than that projected by BarthHaas (Figure 4).
Figure 5: HopSteiner World Hop Supply Analysis 2014-2022
Source: HopSteiner World Hop Supply Analysis[3]
To add a bit more confusion to the pie is the data presented to the International Hop Growers Convention (IHGC) by its member countries (Figure 6). From 2005 to 2007, I served as the Chairman of the Economic Committee of the IHGC and was responsible for putting these types of data together. One of the reasons the differences may exist in this data is the difference between Time of Harvest (TOH) alpha and processed product. During processing a small loss is incurred. Further processing into extract and other products incurs greater losses still. Those losses, however, would only explain part of the difference gap between the largest and smallest estimates for production. That discrepancy is a topic for a different time as this article is already quite long. I mention the different numbers here only to demonstrate that not all suppliers are of one mind on the current market situation. If that sounds like something you'd be interested in learning about, stay tuned and consider subscribing.
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Figure 6: 2022 IHGC Summary Table
Source: IHGC[4]
Alpha production from traditional alpha acid production like that from the U.S. variety CTZ will likely move to Germany and other European producers as a result. American alpha production will come from surplus aroma varieties that contain high alpha, which is appropriate for the generic alpha market. Is that what brewers want? Macro breweries often diversify their purchases by variety and geographically. Craft brewers should do the same. Few do. They are often so focused on getting the newest cool proprietary or experimental variety that they forego the safety diversity brings with it.
If you like statistics, you can receive hop data directly from the USDA on the day they release it. Data is great. Knowing how to interpret that data is even more important. That's what this report is all about. Here, you'll get an unbiased analysis of the data from the MacKinnon Report.
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[1] https://www.usahops.org/news/2021-hga-statistical-packet
[2] https://www.barthhaas.com/en/downloads/berichte-broschueren
[3] Page 13 of the 2021 GUIDELINES for hop buying found at https://www.hopsteiner.com/wp-content/uploads/2021/11/Guidelines_2021_online.pdf
[4] http://www.hmelj-giz.si/ihgc/doc/2022_APR_IHGC_EC_Report_Summary.pdf