Hop Contracting

[Jesse Shue]

Howdy brewing industry associates!

I am new to hop contracting- and wondering how far I should go with it. This year we will be contracting for our Cascades, as I have heard that it may be hard to get any otherwise. Of course the source for that tip was trying to sell me a contract. We use a lot of Willamettes, a hop which I was under the impression was practically ubiquitous. The price per pound I was quoted for a 2013 Willamettes contract was about 140% what we are paying for spot Willamette hops now. What to do?? Will the world ever run out of Willamette hops? Anybody have a working crystal ball out there? Or absent that, some advice?
Thanks,
Jesse Shue
Brewmaster
Golden Valley Brewery

[HopEnvy]

Jesse,

Couple things....
You should have signed supply contracts for 2013 harvest six months ago (or three years ago)...now you are caught in the "emotional contract dilemma"
Crops are coming in as we speak and the merchants are hedging on the current fear of a short crop.
You should use contracting for its intended purposes......Security in supply (unless there is truly a cause for force majeure) and to reduce the periodic price swing.
To do that you need to have multi year future contracts with more than one supplier.

Willamettes....You say you can buy 2012 spots....well what are you waiting for?
Oh and good luck on the Cascades.

[Jesse Shue]

Should-a, Could-a, Would-a

Perhaps I should have.
Perhaps I should have mentioned that I recently came on as brewmaster for a brewery that has never contracted hops, nor did the brewery that I worked at prior. They both got by, and probably saved money.
Perhaps I should scold my employer and the previous brewmaster.
Perhaps I should seek advice elsewhere…
Whoops. Looks like I got caught in the “emotional response dilemma”. Excuse me.

[mashpaddled]

The point being made is that you don't want to buy a contract to supply the future on the panic of not having hops today.

There are multiple factors to consider:

*What is your demand for hop varieties? Does the demand exceed what you can reasonably obtain on the spot market?
*When buying contracts out into the future, is the contract price the same or cheaper than spot market prices -- especially if there is a tightening of the market in the future?
*How much of a premium might you be paying to take the contract?
*What will happen to your beers if you cannot obtain sufficient quantities of the hops you need (i.e. are you relying on particular varieties over blending that could be manipulated depending on supply)?
*What will you do if there is another widespread hop shortage?
*Can you afford to buy the contracts now? Will you be able to pay for the hops at harvest?
*How do the contracts play into your contingency planning?
*And so forth.

It is both a cost-benefit analysis as well as a contingency planning issue.