Commodities - JANUARY 20, 2016

High hopes for hops

by Trevor Warren

A shift in American drinking culture has put craft beer in the mainstream. It satisfies millennials’ desire for individualism, and it piggybacks on the local food movement, all while nurturing a consumer’s leeriness of big business in the post-Great Recession world.

The American hop farmer has been a chief beneficiary of the booming demand for craft beer. Hops are used an average of 20 times more in craft beers than
in traditional American light lagers, and the hops in craft beers are typically of a more expensive category known as Aroma hops. But craft beer comes at a hefty price with some retailing for more than $20 for a 22-ounce bottle. That price tag is pushing the $272 million hops industry to expand acreage and improve quality in the traditional production areas of the Pacific Northwest as well as in new regions across America.

Aroma hops are more difficult to grow and yield less production than their traditional counterpart known as Alpha hops. Aroma hops offer a wider range of varieties and a more diverse flavor profile than traditional Alpha hops. Hops farmers forward-contract the bulk of their product with merchants or directly with brewers because of the high upfront cost and relatively small size of the industry.

Craft beer’s demand for the higher priced Aroma hops has caused a shift out of Alpha acreage and into Aroma acreage. Aroma hop acreage surpassed Alpha acreage in 2013, and the trend has continued. In the last year alone, Alpha acreage lost 11.5 percent while Aroma acreage gained 35 percent in the Pacific Northwest. In the past decade, total U.S. production of hops expanded 34 percent to 71 million pounds, while the average price of hops doubled from $1.94 per pound to $3.83 per pound.

The Pacific Northwest is ideal for hop production with the Yakima Valley in Washington having some of the highest yields in the world. The region offers a dry climate, near the 48th parallel, with access to water. Its northern latitude allows for longer growing hours during the summer and its dryer climate helps prevent common diseases that plague hop vines. These characteristics allow Washington to offer an economically viable harvest in the first year of production, while other regions take longer for the plant to mature.

Despite the advantages of the region, the do-it-yourself and local values of the craft beer movement are leading an increasing amount of hops enthusiasts to experiment with growing hops in atypical geographies. In the last year, hops acreage outside of the Pacific Northwest grew 42 percent. The non–Pacific Northwest states with the largest percentage growth tend to be near areas with a strong craft beer culture, large metropolitan areas with high populations of young millennials. This core demographic at times is willing to forsake the irreplaceable quality found only in a handful of growing regions in the world for locality and familiarity. At only 1,249 acres, non–Pacific Northwest hops remain just a drop in the beer keg compared to the 43,987 acres in the Pacific Northwest.

Craft beer’s need for hops has allowed farmers to defy typical supply economics by greatly expanding production without causing prices to drop. It is a rare story of a mature agricultural industry experiencing a boon from pop culture.


Trevor Warren is an associate at MetLife Agricultural Investments.

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