InBev cuts hop contracts
Farmers continue to cut acreage with decreased demand
By MATEUSZ PERKOWSKI
Expectations of robust demand for hops prompted Monte Smith to expand his acreage by nearly one-third in 2009, to about 320 acres.
This year, an oversupply of the crop compelled the Mount Angel, Ore., farmer to reduce his total acreage by half, to about 160 acres.
Smith is expecting to chop another 50 to 60 acres next year, largely because Anheuser-Busch Inbev, a major hop buyer, decided not to renew his contract for 2011.
"They cut it altogether," he said.
Smith's experience is a reflection of the overall volatility within the hop industry, which has seen production swing madly in the past few years.
Hop acreage climbed by roughly one-fourth between 2007 and 2009, according to USDA's National Agricultural Statistics Service.
In 2010, farmers are anticipated to shed most of that new acreage, dropping back down to the 2007 level of about 31,000 acres, according to a recent NASS report.
With Anheuser-Busch InBev reportedly slashing contracted production with farmers by 80 percent, or not renewing some contracts at all, acreage is expected to continue plunging in 2011.
"This is just an added situation to the worldwide oversupply we were already facing," said Ann George, administrator of the Hop Growers of America nonprofit trade association. "It's not just Anheuser-Busch."
John Annen, a farmer and chairman of the Oregon Hop Commission, said the brewer's weak demand for hops is already being felt throughout the Pacific Northwest.
"They pretty much cut across the board," said Annen. "Every farmer I've talked to has been affected."
Anheuser-Busch InBev and other major brewers are cutting hop production primarily because beer consumption has flattened, but there are worries the change may be more permanent.
Annen said he expects the company will stop buying as many whole-aroma hops and rely more on extracts from high-alpha hops, such as those grown in Washington, which basically deliver more bitterness per pound of crop.
Smith also suspects that the company will be reformulating recipes and simplifying its hop procurement process.
"For them to cut as many hops out of the equation, they've got to be doing that," he said.
Peter Kraemer, the firm's vice president of supply, acknowledged the brewing giant currently has a surplus of hops and is reducing the volume it buys from farmers.
However, he said the company would like to maintain its network of growers and doesn't plan to alter its recipes.
"We have not changed the time-honored brewing process for Budweiser or any of our beers and have no plans to do so," Kraemer said in an e-mail to the Capital Press.
How long the hop surplus is likely to last is also up for debate.--
Smith said the current oversupply will probably result in another prolonged period of farmers cutting acreage, not harvesting planted acreage or receiving low prices for the crop.
"The little bit of money we made in the past two years will get eaten up by idling them or growing them for nothing," he said.
George said she's more optimistic the current downturn won't be as drawn out as the decade-long slump of the 1990s and early 2000s.
"Growers appear to be taking acreage out more quickly this time," she said.