Stop?!

[jfulton]

While I understand general supply and demand, I'm just finally tired of not saying anything about this issue of excess hops sales at ridiculous prices. Tipping point was today for Simcoe on Lupulin Exchange for $36 per pound. Really?!

The beautiful thing is postings where there are obvious "at cost" hops for sale. But this is not the norm unfortunately.

If this trend continues, participating/existing breweries can over contract hops, then stand to make a small fortune at another small, startup brewer's expense upon subsequent sale.

This surely sounds like a rant, but it just ain't right fellas. Sell your overages for what they're worth and help the new guys out.

Rant complete.

[Bainbridge]

During this time of unprecedented growth the market's pretty fluid. Suppliers have generally been happy to allow transfers, and particularly to take hops off contract, because they can then charge the going spot rate instead of the contract rate, or make some bigger, better client than you happy by supplying something they were seeking. But it's certainly causing problems, and they are starting to do things about it.

I think it has to be solved on the grower/broker side and not the brewer side and here's why. I submit that there's three kinds of brewers out there.

The first painstakingly calculates what they will need in the coming 3-5 years, collects bids, develops relationships with suppliers, signs yearly nested hop contracts, checks throughout the year to see where they stand, and makes adjustment contracts as needed to insure they get the hops they need and a bit more as a cushion. Might not be perfect at predicting the future, sometimes we grow faster or slower than expected, sometimes we change a recipe, but they can buy or sell on the spot to cover any small shortages or overages. We don't need to worry about these brewers, these folks are our 'Gallant'.

The second has no idea what hops they want, how much they need, what they should cost, or when they'll need them. These folks are our 'Goofus'. Perhaps they're new to the game, perhaps it's a kid in a candy store thing, perhaps they're just lazy. "Umm how about 1000lbs of Cascade, and 8000lbs of Citra, and..." Or perhaps it's institutional. You get "The former Brewmaster contracted for all these hops, then put the contract in the file cabinet, and quit a month later." The the next Brewmaster was like "Crap! No hop contracts!" and then into the file cabinet they went. And then the next Brewmaster, and so on, until: Surprise, you're on the hook for 4000lbs of hops and it's time to pay up! If the brewery uses all their hops great, but irritating in the extreme if they then show up on the secondary market with thousands of hops to offload, panicking before their contracts come due. Great that Lupulin Exchange, ProBrewer, the BA Forums, etc have made it easier for us to trade among ourselves, but frustrating for the first type of brewery, that would have happily had those hops it needed locked in a contract well in advance.

The third is selling them at a profit or holding them hostage. I believe those trying to make a profit selling hops are a small minority out there. Some may be trying to make a profit, but when I see hops for $30 a pound I wonder if they are greedy, or they are just a Type 2 brewer who got screwed because they just 'Had to have X!' for their flagship IPA that all their homebrew buddies loved and had no idea what the going price for hops was, or the state of the market for things that they used to easily buy...in 2oz packages. The whole "Someone will always buy it if we don't need it" strategy falls apart when you do, finally, hit that price point where people go "WTF were you thinking?" And you are seeing middle-men, outside the traditional farmers and brokers, who are charging ridiculous rates and I wonder "Who would pay $19 for something I contracted for at $9?" But then again, "there's one born every minute", so who knows. Market forces will raise the price on rare, hot hops, but it's a classic problem of when it slips from a supply/demand thing into gauging. Only way we fight that is by refusing to buy ridiculously expensive hops. What you do see though is a lot of is 'trading fodder'. How many posts out there are "Have X, will trade for Y or Z"? Do you think they just ran long on X? Maybe, but probably not. Faced with a shortage of Y or Z due to the second and first types of brewers, the third type has grabbed something rare to trade for other shiny rare things. Not an unreasonable strategy, but irritating to those of us trying to contract responsibly.

With a few exceptions, there's really no punishment for poor contracting right now, other than higher prices and the stress and hassle of the spot market. And I wonder how many brewers really, actually, take the cost of their hops into account on their IPA pricing. But given that there's a lot more brewers than growers, I think the ball's in the supplier's court to control this.

Suppliers are facing burdens too. More brewers asking for more hops. Constantly fielding calls I imagine like: 'I want X', 'There is no X', 'But I NEEEED it!', 'Um, sorry?', 'Fine! Next year I want a billion million pounds, just to be sure!', 'Sigh...'. Having to deal with the paperwork and logistics of routing hops off this contract to this person over here, who won't answer his phone, and in the past had some payment 'issues' on his own contracts... Storage nightmares, with the new crop incoming and brewers who won't pick up their hops quickly enough (and I fully admit to being an offender there!)... Chaos and unpredictability. "Wow we've contracted for so many tons of X next year!" followed by "Everyone is frantically trying to get out of their contracts on it...Argh."

So I think they can address this, and will, by starting to do things like:

- A down payment on the contract up front. Would you contract for twice what you need if you had to fork over 25% right now? Could you?
- Storage fees. Would you contract for twice what you need if you had to spend $1 per carton a month? $2? Even if you had the cash and the room to order in the hops and store them yourself, is it worth the rent, refrigeration, and loss of that operating cash?
- Transfer fees. Similar to a restocking fee. You want to waste our time by shuffling your hops all over the place? That'll be 5%.
- Move the pick up deadline from the calendar year to the crop year. No more 'get it by New Years', now it's August. Better have cash in hand.

I know a few of my suppliers are starting to do things like the above, and I don't blame them. Might be best for all of us.

And once again I've written way too much while drinking my morning coffee. Off to go set up two different beer gardens in the rain. Ah Summer in the PNW...

[AnthonyB]

I've also noticed that a number of "brewery" accounts on Lupulin Exchange are fronts for places like Spothops.com (YakimaValleyHops.com), NikoBrew, Puterbaugh Farms, & seemingly random home-brew stores.

[yap]

Agree with all of the above, but I'll add this....

It's increasingly difficult to project hop needs accurately when you have to contract 3+ years ahead in order to be able to get certain things... I can work a spreadsheet as good as the next guy, but predicting this business 3 years out from now is almost pointless with the way things are going...

It's also tough when I have to contract a year's supply worth of hops but I only get from about February through July to buy them all or start facing "storage fees". Tough on the old pocketbook that be...

[beerguy1]

Years ago I worked for Harley Davidson back when you had to wait a year or 2 to get a bike. Time went on and they lost customers to the competitors due to that wait. I think the hop industry will see the same in the future. As more and more growers come on board there will end up being enough hops that we wont see quite as big a shortage as we do now and we wont have to do the 3 year projections. As for now the ball is in the hop growers hands and we have to play along. I am lucky I am in with a great hop distribution company that keeps in contact with me and is just a phone call away if I need help.

Cheers

[BMan1113VR]

While I understand general supply and demand, I'm just finally tired of not saying anything about this issue of excess hops sales at ridiculous prices. Tipping point was today for Simcoe on Lupulin Exchange for $36 per pound. Really?!

The beautiful thing is postings where there are obvious "at cost" hops for sale. But this is not the norm unfortunately.

If this trend continues, participating/existing breweries can over contract hops, then stand to make a small fortune at another small, startup brewer's expense upon subsequent sale.

This surely sounds like a rant, but it just ain't right fellas. Sell your overages for what they're worth and help the new guys out.

Rant complete.

Amen, Jamie! It feels really dirty getting email notifications from people on Lupulin Exchange trying to sell start up breweries hops at homebrewer's pricing.

[TonyT]

I couldn't agree with OP more. It does make me wonder, however, how many of the people posting Citra, Simcoe, Whatever for $28.99 a lb actually DID pay that much for it and are trying to cut their losses. I have a feeling it's mostly folks trying to sell at "market value", but I'd imagine at least a handful of people out there were suckered into paying those obscene amounts. You'd have to be at $17-18 retail on a 16oz 4 pack of IPA in my home state to make those kind of hop prices make sense, no thanks.

[orpheus]

And I wonder how many brewers really, actually, take the cost of their hops into account on their IPA pricing.

That's crazier than $30/# hops.

I've wondered to what extent I possibly get good pricing compared to nanos, and also if breweries 10x my size get significantly better pricing than me. I always notice when hops are put up for ridiculous prices that it's rarely more than 44#. You have to be pretty small for it to even be worth thinking about selling that much.

[jbryce]

Actual Trading Prices on LEX

Just because folks occasionally list hops at high prices, doesn't mean they always sell at those prices. When a few boxes do sell at >$30/lb that's not indicative of all sales for that variety. If you'd like to better understand actual trading prices on The Lupulin Exchange, take a look at the chart found here.