Posted: Friday, October 02, 2009 12:00 AM
With market glutted, many growers
harvest only enough to cover contracts
The hop vines at Tom Gasseling's farm near Wapato, Wash., have produced a heavy crop, but many of the cones will remain in the field.
Gasseling expects to forgo harvesting some of his hops due to a low demand for the crop. If nobody's going to buy the hops at a reasonable price, Gasseling can't justify processing them, he said.
"It just doesn't make sense to put the extra cost into it, then give them away," Gasseling said.
In light of industry-wide concerns about overproduction, Gasseling said he expects other Northwest farmers to make similar decisions.
"A substantial amount of acreage is going to be left hanging," he said.
Farmers are harvesting just enough hops to meet their contractual obligations, but not enough to try to compete in the "spot market" with surplus hops, said Alex Barth, chief vice president of the Barth-Haas hop merchant group.
"Growers are doing the right thing to pick to demand," Barth said.
Avoiding further inventory build-up will be important in mitigating the current oversupply of the crop, but growers will probably need to pull out vines as well, he said.
"Clearly the industry is going to go through a readjustment in acreage," he said.
Before harvest even began in September, the hop industry had about 65 million pounds of hops in storage -- up 38 percent from this time last year, according to a new report from USDA's National Agricultural Statistics Service.
"There's just a glut of hops on the market," said John Annen, chairman of the Oregon Hop Commission.
That glut follows a crop shortage that caused average hop prices to climb from $2 per pound in 2006 to $4 per pound in 2008, according to statistics from the Hop Growers of America.
The price increase spurred a level of production that exceeds the industry's current needs, Barth said.
"It's not easy to find the right balance," he said.
Adjusting supply to demand involves a lot of guesswork, Barth said.
Weather disruptions in globally important growing regions -- such as a drought in Europe -- can have drastic consequences on supplies, he said.
Consumer demand for beer is also difficult to predict in the current economy, Barth said.
After growing by about 5 percent in 2007, global demand for beer grew by 1.5 percent in 2008 and may drop by 2 percent in 2009, he said.
The hop industry also has a tendency to rely on perception and emotion rather than fact, said Annen.
To put it in simple terms, when a brewer makes inquiries to four merchants about buying 10,000 pounds of hops, that creates the impression of demand for 40,000 pounds of hops, he said.
A lack of information about what's really going on can result in exaggerated reactions, Annen said. "There's a disconnect between the producers and the users."
The effect of the current oversupply will depend on the sales strategies of individual farmers, he said. Those with a heavy reliance on the spot market are in a bad position.
"There's hops out there worth nothing," Annen said.
Even farmers with contracts may feel the pinch, since some buyers are rumored to be re-negotiating contracts or delaying payments, Annen said.
Reggie Brulotte, chairwoman of the Washington Hop Commission, said there's a lot of anxiety among growers whose contracts are coming up for renewal.
The decision to reduce acreage doesn't come easy, especially since many farmers recently invested in new hop trellises, she said.
In all likelihood, the current turmoil will force the industry to drastically shrink and prompt another roller-coaster ride of shortage fears and rising prices.
"It's going to be a bloodbath, and it's going to be a mess," Annen said.