Purchasing Hops: Contracting vs Spot
The availability of hops has become more abundant than ever. With a growing number of varieties in high demand, and with nearly 7,000 active breweries in the United States today, one would expect quite the opposite.
Yet, even with the abundance in supply, the task of knowing which varieties to enter contracts for, how long the contract should be, and which hops to spot purchase, can be daunting.
As the industry continues to grow and mature, it becomes increasingly important to have a game plan for how to purchase and manage hops.
In years past, as hop shortages came about, most notably in 2008, then 2014 through 2016, contracting hops became a necessity. Then, in the summer of 2016, when “American growers planted an additional 8,000 acres”, according to 47 Hops, the market saw change. Since then, hops have been more accessible than ever before.
Today, as the number of smaller breweries have proliferated, so too have the number of new, one-off brands being sold, primarily in taprooms or via small, self-distributed releases. “From a consumer perspective, we’re seeing flagship brands not being as much of a priority for all of these breweries,” says Zak Schroerlucke of Crosby Hop Farm in Oregon. “They’re starting out looking to do something new every six weeks.”
These shifts in both supply and production norms have changed breweries’ approach to purchasing. “About five years ago it was about 90% contracting and 10% spot,” according to Schroerlucke. “Right now, it’s about 70% contracting 30% spot, and we’re still seeing that shifting up even more.” The continued shift in supply and demand is just one of many facets to this complex topic.
Timing when to enter into a contract versus using spot purchases, is as important as choosing the length of contract to enter. “At a time when nobody needs hops, it’s usually a great time to start thinking about contracting to get a good rate locked in before something shifts in the market,” says Schroerlucke. “When all of a sudden there’s a decrease in supply, we’ll see prices skyrocket, and if you’re stuck on the spot market, you’re paying a higher price for what you’re looking for.”
Best practice in our current industry is to enter 12-month contracts for your most utilized hops, and save spot purchases for one-off R&D batches, small canning runs, or during this season of fresh hop batches.
Managing Contracts and Purchases
A key benefit of using software built specifically for brewery transactions – like hop contracts – is the automation that replaces previously manual work. As hops are contracted, brought into inventory, consumed in production, used for contract work, or even kept in storage, OrchestratedBEER manages dates, cost, and remaining inventory on every contract.
Within OrchestratedBEER, inventory is tracked from purchasing, through production, and out the door via sales. Real-time costing is invaluable when a decision needs to be made about cutting an underperforming brand, or budgeting for rare hops in preparation for 2019’s small batch releases.
Most of all, OrchestratedBEER enables breweries to make the best business decisions, by providing a single source of the truth. Learn more about who we are and what sets OBeer apart, below.