Hops surplus looms over industry
By MATEUSZ PERKOWSKI
The supply of hops in storage has surged to a record-high level, casting a pall over the Northwest hop industry's prospects in 2010 and beyond.
At about 102 million pounds, hop stocks have increased more than 50 percent in two years -- breaking the previous record of 100 million pounds set in 1984, according to USDA's National Agricultural Statistics Service.
"We just have too many hops out there," said Ann George, administrator of the Hop Growers of America, a non-profit industry group.
Anticipating a lack of demand from brewers, farmers in Oregon, Washington and Idaho are expected to reduce cultivated hop acreage by as much as 6,500 acres in 2010, she said.
Last year, growers in the Northwest harvested about 39,700 acres of hops, down roughly 1,000 acres from 2008, George said.
However, the current level of curtailment may not be enough to prevent a major oversupply of hops, said John Annen, farmer and chairman of the Oregon Hop Commission.
Annen said he expects Northwest farmers would need to cut back hop production by 15,000 acres to bring supply into balance with demand, especially in light of increased European plantings in recent years.
The average price for hops fell from $4 per pound in 2008 to about $3.50 per pound in 2009, according to statistics from the Hop Growers of America.
That's still a much higher price than during first half of the past decade, when farmers received less than $2 per pound.
Contracts have prevented hop prices from taking a steeper plunge, which is good news for growers now -- but may be discouraging them from reducing acreage as much as necessary, Annen said.
"It just makes the pile bigger and the pain last longer," he said.
Alex Barth, chief vice president of the Barth-Haas hop merchant firm, said he appreciates the industry's efforts to cut acreage, but doesn't think a 6,500 acre reduction would be sufficient.
Farmers would likely need to cut acreage by 10,000 acres to bring production in line with demand, he said.
Barth said he's not surprised by the record-high level of hop stocks because beer consumption has flattened due to the recession and brewers haven't needed as many hops.
"We're shipping out the crop much slower than we wanted to," he said.
The current oversupply of hops comes soon after a major shortage that caused prices to double between 2006 and 2008 -- an increase that spurred production nearly 40 percent, from 58 million pounds to 80 million pounds.
Volatility in hop production is hard to control due to the market's size and lack of liquidity, said Barth. "The hop industry is a small industry with relatively few participants."
Hops are very storable, so they're prone to buildups compared to more perishable crops, said George.
"If you have an oversupply of lettuce, you just wait two weeks and it will take care of itself," she said.