Hop harvest is underway. While anything can happen, all reports thus far indicate a bumper crop out of the PNW. But each year, there's some sort of nervous chatter. Last year it was the heat and barely enough water. This year the chatter is all about over-contracted brewers. Let's look at some data. Rumor has it August Busch III didn't like averages. I've been told by folks who worked for him that he often said, "The average American has one tit and one nut, but I bet you can't find 'em." That being said, let's pile all of crop year 2014 into one chart and see what the average price looked like.
Supply on The Lupulin Exchange clearly outstripped demand (not within each variety, but overall), yet prices climbed throughout the lifecycle of crop year 2014. Now, let's compare that to crop year 2015.
Supply dwarfed demand again, but this year prices have fallen. Let's drill down into the proprietary cultivars where we've seen the tightest supply and highest prices during recent years. Today, you can find more than 11,000 lbs of Mosaic parked on LEx in the $15-20 range. This would've been unimaginable only a few months ago. Mosaic isn't cheap, but the average price is approaching half that of early 2016. A whole lot more was planted in recent years - did all those acres go in for actual demand or a bunch of wide-eyed over-contractors? (Queue the nervous chatter in Yakima.)
Citra doesn't look terribly different over the last 6 months...
(FYI, over 17,000 lbs of Citra parked on LEx today) The price of Simcoe is also trending downward, and you'll find more than 27,000 lbs parked on LEx today.
There's nearly 15,000 lbs of Amarillo available now, and once again the price has similar trajectory.
Same story for El Dorado (>10,000 lbs parked)...you get the idea.
What about the major public varieties? Combined, there's over 175,000 lbs of Cascade, Chinook, and Centennial available on The Exchange right now. I'll break these out into crop year 2015 only, but the trends are similar when older crop years are included in the data set.
So, is it time to panic? It depends. The 2016 crop is expected to be big, but we won't know just how big for another ~45 days. Are you a farmer who planted aggressively? How fast will craft slow down? What about all of the multi-year hop contracts based on continued double-digit growth? Are you a brewer who intentionally over-contracted thinking you could easily sell at or above your contract price? Do we need to multiply that by a few hundred (or thousand) breweries? Let's hope not. I don't think the average brewer needs to freak out, but we should all be careful not to bite off more than we can chew. Be sure to communicate realistic projections to hop brokers...now more than ever.
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