USA: Speciality hop market sent to bust by slowdown in craft beer sales
A sharp slowdown in US craft beer sales growth has sent the speciality hop market from boom to bust with its effects starting to be felt by growers beyond its shores, the Financial Times reported.
The fall comes as growers both in the US, the world’s leading hop producer and exporter, and abroad have increased their planting areas as the number of craft brewers increased rapidly, causing demand to surge for popular aroma varieties.
“People [in the hop industry] are very concerned; this is a problem that’s affecting everybody,” said Douglas MacKinnon, chief executive of trader 47hops in Yakima Valley in Washington, a leading producing area. The hop merchant was forced to file for Chapter 11 creditor protection last year as buyers reneged on their contracts and cash flow dried up.
Many of the hop varieties popular among craft beer makers have plunged from their peaks between 2015 and 2016. For example, Citra, known for its smooth floral and citrus aroma and flavour, has almost halved from $23 a pound, according to Lupulin Exchange, a US online hop exchange.
“The [price declines] are widespread,” said John Bryce at Lupulin, which is planning to expand into the UK this year.
Another variety, Cascade, was trading at $6-$7 a pound in 2015-16, but is now on the market for $1.20, said Mr MacKinnon.
The main issue has been the sudden slowing of growth in the craft beer market, which until a few years ago had been rising annually by double digits. However, market saturation, as well as competition from other alcoholic beverages, have affected growth, which peaked in 2014 at 18 per cent, slowing to about 5 per cent last year.
The oversupply situation has been made worse by the jump in hop production and acreage which almost doubled in the past five years. Brewers fearing a shortage rushed to sign three- to five-year contracts with farmers, who increased plantings on the back of those contracts and high prices.
The events in the US, also the largest craft beer market, are already affecting some international markets. “It’s having a ripple effect [on prices]. New forward contracts offered will be lower,” said Ali Capper, a UK hop farmer.
At 47hops, Mr MacKinnon says he noticed slower payments from breweries at the end of 2016 and by April of the following year, “it became very clear that it was a beginning of a bad trend”.
After failing to renegotiate contracts with his suppliers, the hop farmers, and on the other hand brewer customers refusing to honour their contracts, he faced filing for Chapter 11 bankruptcy protection or going out of business.
The rising output amid falling demand has resulted in a hop glut, with inventories in pre-harvest September rising 15 per cent to a record 98m pounds, according to the US Department of Agriculture. Of the total, growers and merchants held an all-time-high share of 65 per cent.
But despite the supply overhang, hop farmers — who on the back of demand invested in expanding operations, need to repay bank loans — are still expected to plant about 1,500 new acres.
At a hop convention this year, Alex Barth of the Barth-Haas Group, an international hop trader which has headquarters in Germany, told growers not to plant more hops. “We believe that the US has enough acreage in the ground and that additional acres are not necessary,” he said.
Some in the hop trade are pinning their hopes on new beer types that use more hops to create demand. “The New England [India Pale Ales] uses around six times more hops than normal IPAs,” says Scott Casey at brewing materials consultancy RMI Analytics. He added that an increasing number of merchants in Yakima were looking to expand internationally.
Mr MacKinnon is unsure how long the tough times will last, but has seen a few cycles. He said: “There will be a rough patch for a few years and things will be good again.”
13 February, 2018
