Hop market report
Too much alpha and not enough aroma - there's never a dull moment in hops
The sun is shining on growers of aroma hop varieties – their popularity among brewers looking for new beer styles and flavours is increasing at such a pace that it has spawned a potential new classification – ‘flavour’ hops – for variants that combine strong flavours with high alpha contents
But it’s not all good news for hops growers, thanks to the continuing over-supply of alpha hop varieties. Nowhere is this more acute than in the United States, where as much as 40% of the alpha acreage may be removed following the 2012 crop, warns the Hop Growers of America.
According to Thomas Raiser, head of sales at Barth-Haas Group, the diverging fortunes of the two ends of the hop spectrum are best illustrated by the prices being achieved – a kilo of alpha in Germany fetches around €1.50, compared with €10 -€15 for the likes of Citra, Galaxy and Amarillo.
Forward contracts feature heavily in both alpha and aroma scenarios, however. Raiser warns that, unless brewers and merchants are willing to start contracting on the newer aroma varieties, there will in future be neither the capital nor the incentive for growers to plant crops sufficient for growing demand.
And as for alpha varieties, the over-supply from previous years – with brewers sitting on hefty inventories – has led to very little appetite from brewers or merchants to take out forward contracts, which will potentially lead to shortages.
“Two to three years from now the industry could be in shortage as contracts will have run out. In my 23 years in the industry I know that when the brewers have got plenty of hops, they don’t think about the future. With prices low it’s a good time to get contracts sorted”, warns Paul Corbett, managing director of Charles Faram & Co.
The fall off in contracts is mainly affecting the US, says Raiser, pointing out that the 90% contracted level in 2012 drops down to only 40% and 30% in 2013 and 2014, respectively. The situation is less severe in Germany, but this year’s 80% contracted level there will fall to 75% and 55% in 2013 and 2014.
Meanwhile, the craft brewing revolution continues to create great interest – led by the US market – and although Raiser says global aroma hops account for less than 10% of total hop production, he predicts that this will be a long-term trend, “with the beer market becoming more segmented – with different beer types and style and more diverse specifications”.
The challenge for growers will lie in predicting which of the flavoursome aroma varieties will become the hop staples of the future, and, in turn, most likely to help offset a potential long-term decline in the levels of demand for alpha.
Big harvests in 2010 and 2011 have left German brewers sitting on well-stocked inventories, prompting the industry to reduce acreage by an estimated 1,300 ha this year (1,200 ha of it Hallertau), to around 16,700 ha, in a bid to create a more stable supply and demand base.
Against this plentiful backdrop, price increases are unlikely this year, says Joachim Gehde, managing director of Hopsteiner. But he believes there is still the opportunity to be pleasantly surprised on the demand side as “some countries will be buying because the low prices will enable them to build-up positions”. This could provide an unexpected fillip to prices.
The export side of the German business (accounting for 70 - 80% of the country’s total hop production) could prove increasingly important as the domestic beer market continues to decline, says Raiser, who suggests the big emerging markets of Asia, Eastern Europe, Russia and Ukraine will continue to drive consumption of beers with alpha hops. “The mainstream beers they demand [in these markets] use the alpha varieties,” he adds.
In contrast, in the likes of the US, UK and Japan, the craft brewery revolution is demanding more aroma hop varieties, says Gehde. This trend, however, has not been replicated in Germany, forcing German brewers and merchants to source aroma varieties from the US, albeit in very low quantities.
But Gehde admits to some experimentation that could enable Germany to fulfil at least some of the future global demand for more aromatic varieties: “There is always demand for specialist varieties and so we have to watch these niche markets. We’ve varieties that have no names yet so it’s early days and there is enthusiasm for them. We’ll see how they develop.”
For now, however, the bigger concern remains the traditional alpha varieties. Gehde expects more acreage to be taken out in 2012, but he warns of a potential “over-reaction” where too much could be removed.
As the centre of the craft brewery movement, the US is in prime position to benefit from the growing demand for aroma hops, a demand, however, not yet high enough to offset the continued over-supply of alpha.
“Thousands of alpha acres are being replaced with hundreds of aroma acres”, says Ann George, administrator at Hop Growers of America, adding that for the time being at least, the industry must continue to manage an over-abundant supply of alpha.
Large harvests in the US have been building up supplies since 2009, prompting the big brewers to buy back contracts or roll them forward. Anheuser-Busch, for one, is reducing its reliance on contracts and focusing on just-in-time delivery methods requiring less inventory, says George – with the result that Willamette is among the varieties being grubbed up.
It’s a similar story with the high alpha varieties CTZ (Columbus-Tomahawk-Zeus) and Summit, says Raiser, but “some relief is being felt” from increasing aroma demand.
George agrees and says the shift in plantings has seen Washington now divided 70/30% alpha/aroma, with increasing demand for the likes of Citra, Amarillo, Cascade and Chinook.
Forward contracting for some of the newer aroma varieties is providing the capital for investing in new crops, helping the market develop and further reduce reliance on alpha.
“As craft brewers including Boston Beer Co. and Sierra Nevada have come into their own, with flagship brands, they’ve stabilised their base usage, got to grips with their annual needs and begun contracting. They recognise that over time you come out better with contracts rather than relying on the spot markets,” she says.
But the most pressing issue remains the fall off in contract levels on alpha, says George. “We may replace 40% of the contracts [that expire in 2012] but not to the 90% levels of today. But the blow will be softened by getting more contracts on aroma varieties.”
This shift brings with it the challenge of tougher inventory management. Twelve big varieties may end up replaced by 40 smaller, more specialist types of hop, warns George. Managing yields on these varieties may also cause a headache or two, she stresses. “20% up or down on 40 acres is a real issue when 20 to 40 acres could be satisfying worldwide demand for a year for certain hops”.
The Czech Republic is looking at a minor reduction in acreage in 2012, to 4,500ha, following on from a 2011 reduction of some 1,000 ha.
“We reduced our hop acreage over the last two years and we feel that the current acreage is in line with the market’s needs”, says Zdenek Rosa, chairman of Bohemia Hop. “Czech hop growers have always tried to produce only the volume that is contracted, based on average yields.
With this balancing exercise taking effect, Rosa expects most of the crop of 2012 to be covered by forward contracts. And this applies to all varieties in all of the hop growing regions – Saaz, Auscha and Tirschitz – with growers working only on acreage already contracted. 0 ha.acreage in 2012, to 4,500ha. warns George. new crops, helping the marke
This has provided some stability in pricing, and Rosa suggests that the average forward contract price for 2012 will be similar to that achieved in the previous two years, with no large volume conducted on the spot market.
This degree of stability means that the Czech market is unlikely to have to resort to a ‘hop pool’ similar to that created in 2011 by the growers’ association Chmelarstvi to handle the unsold lots of Saaz hops from the 2010 crop.
“Chmelarstvi is ready to provide this service again, but we do not expect the need to arise in 2012,” explains Rosa.
While aromatic hops are creating excitement around the world, Rosa says the total demand for these varieties has not changed dramatically in the Czech Republic, largely due to the “very good crops of 2009, 2010 and 2011 (reaching 6088 t in 2011, and with very good alpha content)”.
In 2010, however, two new aroma varieties were registered – fine aroma variety Saaz Late, and a higher alpha content aroma variety Bohemia – which sit alongside Sladek, Premiant, Harmonie, Kazbek, Bor and Harmonie in the country’s higher aroma hop canon.
Of these, Sladek has the larger acreage (with 487 t harvested in 2011) but Rosa says the others could be increased in the future, should demand grow.
There are many unknowns in China at the moment, with plantings, prices and demand largely guesswork, according to Andre Feldmann, director of China operations at Barth-Haas Group. One of the key underlying problems with the country, he says, is that low yields are creating great uncertainty in the market.
The issue stems from the difficulty of picking the Tsingtao Flower hop variety (China’s most popular hop). It cannot be picked efficiently by machine because the equipment – brought in from the Czech Republic – is designed for differently shaped hop cones, leading to losses of 20-30% on picking.
China’s developing economy has signalled the end of hand-picked hops – the available labour market for this low-paid labour-intensive work no longer exists. On top of this, says Feldmann, China is “still over-stocked from the previous year, with around 4,000 t of hops sitting around”.
Beer output in China rose significantly in 2011, up some 9% according to the country’s brewers’ association. Feldmann would, he says, expect hop demand to rise accordingly, but with brewers sitting on existing supplies, this may not happen.
He is also concerned that the current surplus of hops might cause a significant rise in prices.
“By 2013 stocks will be depleted and so price increases could be moving up to a peak at that point. We had the same in 2007 but although it will not be as extreme this time around there could still be this shift-up in prices,” he says.
New Zealand hops are certainly proving popular, and growers are enjoying the benefits of the shift from alpha to aroma, the former now making up only 25% of current plantings and the remaining 75% split into aroma and dual purpose – so called ‘flavour’ – hop varieties.
This new hybrid category comprises Nelson Sauvin and Wakatu, which make up, respectively, 13% and 40% of the country’s hop crop. The two have contributed to a 30% year-on-year increase, taking total production to 700 mt.
“New Zealand has a focus on aroma varieties and tends to market to speciality markets rather than commodity. The world’s over-supply of alpha has forced us even further away from commodity”, says Doug Donelan, chief executive of New Zealand Hops.
“In recent years our plantings have become more reduced on alpha types and replaced with varieties such as Nelson Sauvin, Motueka, Wakatu”, he adds.
More of the same is planned for 2013 and beyond, with Donelan revealing that “we did not grow everything last year... we idled much of the alpha types and grubbed some of them out during the winter and replanted with others”.
New varieties Kohatu and Wai-iti are in their second year of release and have both been very well received, says Donelan, although he admits that plantings remain limited and expansion dependent on forward contracts.
But things look good on this front, he says, with the contract position for the 2012 harvest at around 95%. The aim is to have a forward position secured at a minimum of 90% for future years.
Organics continue to enjoy sustained demand – accounting for about 3% of total production, a slight increase on previous years – with the US and UK the traditional markets for New Zealand’s organic output.
England is another country grappling with the challenges of balancing current and future needs, and Charles Faram’s Corbett warns that over-enthusiastic pulling out of hops may lead to a shortage further along the road.
"We'll see some growers pull out hops, including Goldings, Fuggles, Target and Pilgrim. This means that in four or five years' time these crops won't be there, unless we see more contracting in the market”.
UK contracts could drop as low as 10%, predicts the Barth-Haas Group, a significant fall from 80% in 2011 and 50% this year.
It’s not all bad news, however. Demand for aroma varieties continues to grow, with the likes of Bramling Cross, Progress and Sovereign finding an audience. And in a bid to compete with New Zealand and Australia, English hop growers are planting new varieties such as Endeavour and Jubilee, which Faram expects to be commercially available in another three to four years.
"At the moment it's small acreage but it is growing rapidly as the UK brewers are saying they now want aromatic hops. We definitely see this as the route the industry will be going down but there will still be demand for best bitters," says Corbett.
But he sounds a warning note: “There is a danger that we are forgetting about the traditional varieties that are the bread and butter of the industry. It's not just about the sexy aromatic hops."