Hops make up a very small percentage of the overall cost of making a beer, yet they occupy a large percentage of brewers’ time and attention. Hop varieties define styles, distinguish breweries, and pack taprooms for limited releases. Putting hop names on a label can woo educated consumers who know what they want. But those same customers who sought out a specific hop last month are asking for something new this month. Because hops play such a critical role in brewing good beer and building a better brand it is essential that brewers learn how to source hops as best they can.
While this might seem like a simple task, many brewers quickly learn that it requires them to combine the skills of an economist, agronomist, marketing expert, statistician, and accountant just to start accurately and effectively sourcing hops. Because this is such a complex and ever-evolving task many larger breweries have dedicated sourcing specialists, but this is not a realistic expectation for most breweries. And even those people who do specialize at sourcing hops get it wrong from time to time because nobody has perfect insight into what the future holds.
Sourcing hops for craft breweries has always been a challenge, but it is especially difficult these days with such uncertain markets, rising costs, and unpredictable shifts in consumer tastes. That is why it is even more important for brewers to form strong relationships with a trusted hop supplier who understands their needs and goals for the future.
Hop Contracts Then and Now
Historically the hop industry has been built on hop contracts. In 2014, 96.6% of all brewers in the United States said they had hop contracts according to the Brewers Association [1]. These multiyear hop contracts, usually three to five years out, tell farmers what varieties and how much of each to plant. This is in an effort to avoid boom and bust cycles where there is too much or too little to go around. So, while hop contracts do provide a form of stability to the hop industry, they effectively shift risk off farmers and brokers and on to the individual brewer. This shifting of risk does provide price stability and availability assurances, but it forces brewers to predict their hop usage many years out.
Most brewers agreed to hop contracts because they were unaware there was a better way, but 2020 and the arrival of COVID-19 clearly highlighted the need for a different approach to hop purchasing. Due to the reduced craft beer consumption, many brewers were stuck with contracted hops that they were unable to brew with or pay for. Because of the unprecedented circumstances of the initial pandemic wave in 2020 many hop brokers worked with breweries to push contracted hops into future years, but the same flexibility was all too absent in 2021. According to the USDA Hop Stocks report from March, 2022, US brewers increased their hops on hand and now have 36 million pounds of hops in storage. And that number only accounts for hops that are paid for and physically held at breweries so it does not even count the contracted hops that breweries must pay for but have not yet.
If brewers are not taking out contracts, then where are they getting their hops? The most common place to pick up hops is on the spot market. The spot market refers to hops that are available for purchase without a contract. Pricing and availability on the spot market can vary widely from supplier to supplier and be extremely volatile to the point that it borders on speculation.
This leads us to another avenue for purchasing hops, from other brewers or on the secondhand market. Some breweries have over contracted on their hop needs, especially rare or difficult-to-source varieties like Citra® or Galaxy®, with the intention of marking them up and selling them to other brewers. Not all brewers operated this way and instead just found themselves with a bunch of overly contracted hops in their storage that they need to sell. Purchasing hops like this on the aftermarket opens up a brewery to risk because of quality, consistency, and storage concerns.
Even though hop contracts have definite downsides for brewers, there are a couple cases where they might be a good fit. Popular year-round flagship beers that require a specific hop for their signature flavor would be a good candidate to consider a contract. Another good candidate for a hop contract is if you incorporate a variety into your beer brand like Centennial IPA by Founders Brewing or even Citra Hop Session IPA by Costco’s Kirkland Signature Brand.
But even when you are entertaining the idea of contracting, it is important to layer in your exposure and not get into a long position where you are stuck with hops and no homes for them. That is why contracting only 75% of your expected needs one year out is a good starting point. If you feel the need to contract out beyond one year, then 50% in the second year, and 25% of your needs in the third year is a good strategy. This allows you to secure most of the hops you need and then scoop up the rest on spot as needed. This strategy also allows you the flexibility to pivot away from a specific beer and not be stuck with huge overages if sales do not meet expectations.
Building Better Recipes
Sourcing hops more efficiently actually starts during recipe creation. In the 2020 Brewers Association Hop Usage Report one 190-barrel brewhouse had contracts for 26 varieties. This is just one extreme example, but even for larger breweries this is probably too many varieties to accurately and efficiently source and contract every year. When building a new recipe or retooling an old one, it is important to understand the role each hop variety plays in the final beer and play to their strengths.
Hops are extremely versatile and can present completely differently depending on when they are added to the beer. Looking at a hop like Loral®, if added to the hot side you can pull out lovely aromas of purple flowers, but if used during dry hopping it can contribute bright aromas of lemons. So, a variety like Loral® might find a home in both a lager recipe and an IPA. Finding multiple uses for a single hop is how you can really maximize your efficiency and prevent potential headaches of having to manage a slew of inventory and ingredient SKUs.
There are also newer varieties like Sabro®, Talus®, and Galaxy® that can greatly impact the character of a beer even when used as a small percentage of the hop bill. Using high impact varieties like this can allow you to reduce your hop costs by layering in some lower cost hops like Cascade, Cashmere, or Chinook and then maximizing your high impact hop by adding it at the right moment.
Similarly, if you are targeting specific biotransformation precursors there might be a lower cost hop like Columbus or Chinook that can get you what you want on the hot side, while saving a more expensive variety like Citra® or Strata® for the dry hop. It is all about knowing what you are going for and the most efficient way of achieving it.
Hops like Columbus and Chinook are also amazing because they can be incorporated into so many different recipes. They can be efficient bittering hops, but also contribute great flavor and aroma as well as offering highly sought-after biotransformation precursors. Finding multiple uses for the same hop is extremely important not only because it is easier for inventory management, but because if a beer does not take off like you assumed it would then you are not stuck with a niche hop variety that only worked in that one beer.
Consistency, Creativity, and Quality
Hops are extremely complex and even the same variety can present in completely different ways from lot to lot. That is why it is important for brewers to work with a hop supplier who consistently provides hops that are true-to-type. If you are building a brand on a specific hop variety, you need to be sure that the hops you are brewing with this year will be consistently available as well as stay consistent in its character.
Creativity is one of the defining characteristics of craft brewing, but being locked into long term contracts can prevent a brewery from being creative or experimenting with the newest varieties. Being creative and flexible also allows breweries to switch up their offerings to keep up with consumers’ constantly shifting tastes.
At the end of the day, it is all about finding the right balance of risk and flexibility that allows your brewery to constantly adapt and grow. Finding the best hops for your brewery does not need to be such a constant challenge if you build a strong relationship with a trusted supplier.
Explore a world beyond hop contracts at YakimaValleyHops.com.
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