Hop Costs In Brewing Business

Are you considering a brewing business but don't know how to calculate your costs? After factoring in the cost of the necessary ingredients, there is one more cost that sneaks up on many brewers: the cost of hops. Hop prices can vary greatly, and their essentiality in brewing beer means there is almost never a stable market. Get the information you need to make sure your brewing business is prepared for these costs.

The Cost of Brewing Business: A Look at American Hop Markets

Brewing beer is an art, but it is also a business, and the success of the business is dependent on a variety of factors. One of the most essential ingredients of good beer is hops. Without hops, it just wouldn’t be beer, so understanding the cost of hops is essential to understanding beer as a business. Unfortunately, the American hop market seldom finds a comfortable equilibrium for very long. As essential as hops are in brewing beer, they serve almost no other commercial purpose.

In this article, we’ll take a look at why the cost of brewing business is so affected by the price of hops, the dynamics of the hop market, and what brewers can do to mitigate the impact of hop market instability. After discussing the basics, we’ll also explore some of the innovative solutions that brewer are utilizing in today’s volatile hop market.

Why are Hops so Important?

Hops, of course, provide the flavor and aroma to a beer. Their presence can be subtle or bold, floral or herbal, depending on the variety of hops used. However, hops are far more than just a flavoring. They also provide the beer with a stability and help to preserve its taste over time. When we consider that beer is a relatively delicate product that is meant for drinking soon after it’s brewed, the importance of this preservation is obvious. So it’s clear why hops are so important in beer making. What isn’t so clear is why the cost of them is so variable and volatile.

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The Dynamics of the Hop Market

It begins with supply and demand. As interest in craft beer has grown, the demand for hops has also grown, but because hops are hard to grow and relatively low yielding, the supply of them hasn’t kept pace. This increased demand has driven prices up and created a market with very little stability. What might make the situation worse is that hop growing is so difficult and so specialized, it’s hard for new farmers to enter the market, putting a damper on any hope of an influx of hops.

Then there are weather issues to consider. Hops are indigenous to the Pacific Northwest, so although hops in other parts of the world may be cheap and easy to find, the American market operates on Pacific Northwest hops. This means that Pacific Northwest weather plays a big part in the price of hops. If there’s a drought or too much rain, hop production could go down, adding to the instability.

Finally, there is the storage factor. Hops are best when used fresh and it takes about 18 months for hop growers to work through their inventory. So if a large harvest is followed by a low harvest, it will be a full 18 months before the market can expect a fresh infusion of hops, which could drive prices up. This is why the American hop market seldom finds a comfortable equilibrium for very long.

How to Mitigate Risk

So what can brewers do to cope with the costs of doing business in an unstable hop market? We don’t have all the answers, but we can offer a few suggestions:

  • Tie pricing structure to the hop futures market. This allows brewers to buy hops in advance at market prices, thereby getting the benefit of price stability.
  • Hedge on your own. If you buy a large quantity of hops in bulk, you can get a better price. But it takes a lot of investment up front to do this, so this is a riskier strategy.
  • Look for varieties of hops that are more stable. There are certain varieties of hops, such as Summit, that are more resistant to weather and disease, thereby providing a more stable price over time.
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Innovative Solutions

In addition to mitigating risk, brewers are turning to innovative solutions to lower the costs of doing business in an unstable hop market. Some of these strategies include:

  1. Hop contracting. This is when brewers buy hops in advance of harvest season and pay the farmers a small amount up front. This allows brewers to secure a consistent supply of quality hops at a known price.
  2. Toasted hops. Toasting hops reduces their bitterness and makes them easier to work with. It also helps brewers reduce their overall hop costs.
  3. Hop pellets. Hop pellets
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