contracting hops: A lullaby to ease a brewers bad dreams

Posted by Elijah Werlyklein on Jul 20, 2018 11:07:33 AM

In beer, hops, contracting

Picture this:   You’re walking the brewery floor some uneventful morning, when suddenly your phone starts buzzing frantically.   A glance down informs you that the new, experimental beer that you created and quietly slipped onto the tasting menu has garnered the attention of countless craft brew hounds, and now that same goofy name that you gave it is trending.   After the brief wave of elation passes, you realize that you had only planned to make a small batch of it, after all, it was just an experiment. You only bought a 44 pound box of those hops, and maybe, just maybe, you hope, that hops grower has a few more on hand.   You call him, and he tells you that he’s out - out of them for rest of the season. Your head starts to spin as you look down at the lonely 2 pounds of hops you have left, part of the amazing experiment that has now become the most delicious nightmare you’ve ever crafted.      

Every brewer’s bad dream (or at least one of the recurring ones), is to run out of supplies, bringing the brew floor to a grinding halt until whatever precious ingredient can be sourced and restocked.   Although the basic ingredients for brewing beer (yeast, malt, hops, water) are all fairly shelf-stable, this advantage doesn’t obviate the brewer from shortages. Ideally there would always be enough on hand, but often times, hops (especially the unique aromatics that are the backbone of many a craft-brewers operation), can become very hard to acquire.   This can worsen later in the growing season, as many hops-grower’s crops have already been picked over. These shortages can lead to any number of problems, the worst of which being simply the inability to brew. While the marketplace for hops is oftentimes inherently unstable, the savvy brewer can make use of a hops contract to ensure an ample supply throughout the season.   

What are Hops Contracts?

A hops contract is an agreement between the hops grower and brewer, promising to purchase a certain amount of a certain hops variety for the next 3-5 years.   It guarantees supply for the brewer, and promises demand for the hops grower. Since both parties rely on each other nearly solely, this is a mutually beneficial agreement.   To many brewers, a hops contract can seem like a far-fetched dream, especially for smaller operations. But these contracts, when used by even small to midsize breweries, can reduce costs and help to stabilize their business.   Early on in production buying hops only as needed may suffice, but once demand increases, maintaining a steady and reliable supply will become compulsory. While purchasing hops on the spot-market may seem like a viable resource, to rely completely on it is akin to building a house on shaky ground:   What seems reliable one day may turn to quicksand the next.

Why a Hops Contract?

Planning a hops order in advance for the next year, or the next three years, are to the brewers benefit and the benefit of the grower as well.   Aromatic hops, especially whichever variety that you may have chosen for your signature brew, are a niche market. As a craft brewer, you are surely aware of the particularity that the craft brew market requires.   Beer connoisseurs hunt down everything new with a nearly insatiable appetite for that perfect unique pint. While “high alpha” hops may be a dime a dozen, the specific ones that you are using for your newest great creation are, by definition, hard to find.   Once you have an idea of what hops you plan to use, making a long-term contract with the hops grower is as important as the hops themselves. As an exercise, try to look at it from t a different point of view. From season to season, each grower is presented with the typical farmers dilemma: whether to continue with last year’s crop, or to try something new.   For a farmer trying to decide between corn or soy, this is a simple choice, dictated by the market forecast. But for a hops grower, the situation is different. When harvested, hops are cut down to the root every season, and then, nearly magically, those same rhizomes are able to leap back up the trellis the following spring. For the hops grower, the calculus is simple:   if no one has requested a specific variety for the next season, then leaving those shoots in the ground is a gamble. Farmers are a pragmatic bunch, and don’t think for a second that they won’t tear out that perfect specimen of hoppy goodness that your beer depends on, just to plant some high alpha that they can be assured InBev will buy from them. Sure, they would rather grow something interesting, but they have a business to run, and mouths to feed, just like you.   A hops contract communicates your commitment to the grower and to the beer that you plan to brew.

How to Contract Hops

Depending on the size of your brewery, there are a few different ways you can go:  A hops broker can be an invaluable resource for a brewer who knows precisely what he is looking for, but doesn’t have the time or the connections necessary to cold call numerous different hops growers.   Once you have found a hops broker that you like, it’s important to nurture that relationship. There’s no harm in shopping around, but once you have settled on a reputable hops broker, stick with them. These individuals are running a business of knowing who to talk to, where they are, and when to lock in a good contract.   In business, it’s always a good habit to make a point of never burning someone, and brokers are no different. One advantage of using a hops broker is that if you ever have to change your order (hopefully increasing it), the broker can usually find the best deal for you on short notice.

Another way to make a hops contract is to develop a direct relationship with a hops grower.   Despite the fact that hops are a multi-million dollar a year industry, the market is still populated by a lot of small, privately owned farms, and for them a 3-5 year contract is ideal.   Contacting these farms directly is a great way to build a relationship that could potentially last for decades. Keep in mind that any farmer who decides to grow hops didn’t jump into it on a whim.   The trellises alone can cost hundreds of thousands of dollars to install, and they expect them to last for at least 20 seasons. The hops grower wants your beer to be a smashing success just as much as you do.   

When to Make a Hops Contract

It’s important to get a hops contract locked in as early in the season as possible,  but for many brewers the task of estimating next year’s need, let alone the next three years, can seem daunting.   It’s paramount that you solidify a hops contract no later than Dec. 31st in order to lock in your price, but as a rule it’s good to get one finalized by Nov. 1st.      When setting up a hops contract, it’s not unusual, in fact it’s the norm, to “Stair-Step” your orders from year to year. Meaning that your order for the next season should be for 80% of your expected use, the following for 60-70%, and the third year 50-60%.   Using FermentAble, you can easily look back at your hops usage for the past months to extrapolate what you may need in the future.

Responsible Hops Contracting

As we have already established, a hops contract is an especially useful way to reserve a steady supply of hops for the next few years, especially for hard-to-find aromatic hops.   One experience with trying to pick up these on the hops spot market, and the need for a contract becomes apparent. On the spot market, aromatics can often sell for much more than they would have cost had you made a contract in advance.   But if a lack of these specific aromatics would be a death-blow to your production, you are left with little choice to pay up or shut down. This market dynamic could drive the unscrupulous brewer to deliberately over-order in advance, in hopes of making money solely by selling these hops on the spot market.   Despite how tempting this may seem, there are reasons why it is a practice that is frowned upon within the industry. Growers plant the next year’s varietals based on their forecast of the next years demand, and a falsely inflated sense of demand can result, and has resulted, in hops gluts, shortages, and market volatility.   While this type of instability may be akin to a rounding error for a large-scale brewer, it can cripple small to midsize ones. Bottom line - much like ordering pints in a pub, only order what you need, and keep your forecasts optimistic, yes, but ultimately realistic. You don’t want to end up face down in the porcelains later on.

So What are You Waiting For?

Now picture that nightmare scenario again:   Except this time, when you realize that you’re nearly out of those perfect hops for your new popular brew, you don’t even begin to sweat it.   You glance back to the hops contracts that you have on file and make a quick call to your grower. “Yes,” they reassure you, “we have more of those, with your brewery’s name on them.”   

No need to panic.  Foresight has saved the day, thanks to the planning tools in FermentAble. You can strut calmly across the brew floor, and continue to brew with confidence.