Hop supply in the U.S. has outpaced hop usage for more than six years, a disparity that is “unsustainable” and will ultimately be corrected with reduced crop in the future, Brewers Association (BA) chief economist Bart Watson warned during a Collab Hour webinar last week.
Over the last few decades, U.S. hop production has gone through “three big periods,” according to Watson: The ’90s to early ’00s, when crop production was static or declining; 2010 to 2018, when the “craft boom” caused a sharp increase in production; and 2018 to now, where production is relatively static, but at a record high (more than 110 million pounds annually).
Additionally, more hop-centric beer production has grown in the past decade, Watson said. BA-defined craft production – typically more “fuller flavored beer” – increased by more than 11 million barrels from 2011-2016. And IPAs, a hop-forward style, increased its share of U.S. beer from 10.2% in 2010 to 28.2% in 2016.
“We saw these dual engines of craft growing very strong and hoppy beer,” Watson said. “As that craft boom went along, we saw everyone continuing to forecast growth. … And because of the tightness in the hop market during this period, everyone was contracting.”
Those contracts built a hop “infrastructure” that resulted in hop suppliers having increasingly more supply on hand than brewers needed. The supply has been slightly offset by an increase in hop exports from the U.S. – an increase from 40 million pounds in the early 2000s, to nearly 70 million pounds in 2022 – but the country is still “producing more pounds to stay in the U.S. than we need to produce beer in the U.S.” Watson said.
The oversupply has elevated stock levels at hop dealers and growers, which have steadily increased since 2016, while brewers’ hop stock levels have started to decline.
“At some point, that becomes unsustainable,” Watson said.
“We have reached a point in the U.S. where we simply have too many hop acres and so the hops are piling up in warehouses, and that situation at some point is going to become unsustainable,” he continued. “Hop growers and dealers do not want to be holding these higher and higher levels of inventory.”
Watson expects hop growers to reduce acreage soon, with annual U.S. production falling closer to 100 million pounds, “if not, maybe slightly lower depending on how aggressive growers and dealers are” in reducing built up stock.
“While this won’t happen all at once, those dealers aren’t going to sit on the surplus that has been building forever,” Watson said.
The decision to reduce production is not “an easy choice” for growers. However the oversupply will force growers to choose whether to “idle production,” or “sit on hops that they’re making and they can’t sell.”
“The message here to brewers is you should be thinking about and be ready for this market swing,” Watson said. “We’ve been in an era where structurally there have been more hops available than we need to use: Hop markets have been flush; your brewer down the street always has extras; varieties that you need are easy to come by, particularly for the most produced varieties. And while that’s not going to change overnight, brewers need to be prepared for the eventuality that this market is going to correct.”
The story is similar internationally, with global hop acreage increasing for eight consecutives years through 2021, according to global hop supplier BarthHaas.
“Contract durations are becoming shorter due to uncertain expectations,” Peter Hintermeier, BarthHaas managing director, said during a press conference last summer. “Customers enquiring about contract restructuring and delayed call-offs of hop products already ordered are further indications of lower demand and continuing inventory build-up.”
2022 Hops Survey: Craft Raw Hop Usage Up Slightly
Watson also shared results from the BA’s 14th annual Hops Survey. He noted that the survey is self-selected, so respondents – all BA-defined craft breweries – are more likely to be members who are the most heavily invested in the hop industry, and/or who are making mainly hoppy beers, which could result in slightly biased data.
The reported average hopping rate – pounds of hops used per barrel of beer produced – has been in decline since 2017, and declined again from 1.55 pounds per barrel in 2021, to 1.51 pounds per barrel in 2022, according to the latest survey results. Respondents also projected a decline in 2023, to 1.47 pounds per barrel.
Half of respondents reported their hopping rate dropped in 2022 versus 2021 and 46% expect rates to drop in 2023. However, 48% reported an increase in hopping rates in 2022, and 44% expected growth in 2023.
“These shifts are subtle, and it’s really an aggregated composition of a lot of breweries increasing, a lot of breweries decreasing, and what does that total look like,” Watson said. “And this year, it looked at a small decline.”
Watson noted the growth of “lighter styles,” with “medium hop styles” losing “a little bit of share,” which could factor into some of those small declines.
The way craft brewers are using hops is also changing. While pellets are still the predominant type – 78% of converted pounds used in 2022, versus 84.7% in 2021 – respondents reported using oils, powders and other non-pellet/whole cone products significantly more in 2022 (19.5% of pound equivalents used) versus 2021 (10.8% pound equivalents).
After speaking with brewers, Watson said the change is primarily due to efficiency, with these new products being used “not only to make different flavors and different beers, but also at times to save money, both on their total pounds they use, but also on the efficiency of the beer” and lessening beer loss.
Hops used by respondents actually increased slightly in 2022, when these hop types are converted into raw pounds, Watson said.
“What the brewers are putting in the tank is going down in terms of pounds of hops and hops products, but what they’re using in equivalent pounds is actually still going up slightly, and I worked it out at about [a] +4.5% increase,” Watson said.
Still, this hop usage is “not enough to make up the structural deficit and the surpluses that have been building” at hop suppliers, Watson continued.
“We’re going to see hoppers – even knowing that maybe craft brewers are going to use slightly more hops probably – still take out acreage and try to lower those pounds a little bit,” Watson said.