This time last year, Brewers Association (BA) chief economist Bart Watson warned that the U.S. hop supply was becoming “unsustainable,” and predicted a drop in hop production in 2023.
While hop acreage did decline “fairly sharply” last year, declining by nearly 6,000 acres, crop yields ended above 2022 levels, according to Watson’s blog post this week for the BA. That increase adds to the growing overstock of hop supply in the market.
Over the past decade, hop stocks have increased from approximately 115 million pounds in March 2013, to 185 million pounds in March 2023 – equivalent to “roughly two years of usage,” according to Watson.
While 2023 stock reports were down versus 2022, the rate of decline ”would take nearly five years to get back to the 35 to 40 million pounds of inventory that dealers estimated last year were in excess of needs.” That estimate is also based on 2022 yields, not the elevated 2023 production that was up 104 million pounds year-over-year (YoY).
One contributor that “may have delayed the U.S. hop reckoning” and production decline so far has been increased hop demand overseas in previous years. Converting exported hops, including extracts, into raw pounds, Watson estimates that hop exports have increased from an average of 40 million pounds per year in the early 2010s, to nearly 65 million pounds in 2021/2022.
However, exports “took a big step back” in 2022, declining -20% YoY. That decline in demand, mixed with the increase in crop in 2023, suggests that “we won’t see as much of a decline in the 2024 stock numbers,” Watson told Brewbound.
“The import and export balance was still clearly in favor of exports in 2023, and German yields have been under pressure in recent years due to climate change and lower levels of irrigation compared to the U.S.,” Watson continued in his report. “That said, with the world brewing industry not sucking up as many excess hops, U.S. growers and dealers will be more wary about leaving hops in the ground with warehouses full to the brim.”
To counteract overstocks, further acreage cuts are expected. One dealer in a recent BA survey estimated that the industry needs to cut at least 10,000 in aroma acres in 2024 – “and that 10,000 isn’t net,” Watson wrote. For context, such a cut would amount to nearly 20% of the Pacific Northwest’s total hop acreage in 2023.
“The same basic equation exists today as it did last year,” Watson wrote. “Demand growth has stalled or reversed, dealers are sitting on more hops than they want to be holding onto (one dealer at the annual hop growers convention estimated that current inventories are worth $950 million), and so hops will be coming out, by choice or by fiat.”
What does this mean for brewers? At the moment, breweries essentially can order whatever their hearts desire when it comes to hop varieties and volume. But Watson again warned brewers to be on top of long-term planning, as acreage cuts will continue.
“That’s not going to change overnight, but we’ve seen this movie before, and that balance of supply and demand is likely going to start to swing back,” Watson wrote. “As brewers think through their longer-term strategy, they should start planning for tighter availability as they look further out in their time horizons.”