USA: Hops grower Roy Farms sees a chance to earn bigger returns in 2006

In a frenzy of round-the-clock activity, 200 farm workers picked, dried and packaged hops at Leslie Roy's 2,300-acre central Washington farm. The furious five-week hop harvest differed little from years past at Roy Farms, the largest independent hop operation in the country and a supplier to some of the nation's biggest brewers, including Anheuser-Busch Inc. and Coors Brewing Co. The returns, though, could be very different in 2006, Forbes learned October 22 from Associated Press.

After more than a decade of slumping prices due to a worldwide surplus of hops, growers are seeing a chance to make a profit for the first time in years. Large brewers have used up their stockpiles, craft beermaking has increased demand and prices are turning up.

"When there's overproduction, it takes a long time to get it out of the system. We're finally seeing that happen with the oversupply from the 1990s," Roy said.

The United States produces about one-fourth of the world's hops, a component in brewing beer. More than 70 percent of that supply is grown in central Washington's agricultural-heavy Yakima Valley, which is dotted with apple and cherry orchards, vineyards and hop fields.

But buyers, namely brewers, have decided the price. For years, a worldwide oversupply enabled brewers to stockpile dry hops in storage indefinitely, at the same time they began using more bitter hop varieties, thereby requiring less of the crop.

The result: growers abandoning hop fields worldwide. In the United States alone, acreage fell more than 30 percent, from 43,430 acres in 1995 to the 28,928 acres in 2006.

Aside from one year in the early 1990s when Germany suffered a drought, growers largely haven't turned a profit in years, said Ann George of the Washington Hop Commission.

As much as 70 percent of the U.S. crop, valued at about $120 million, is exported.

"Are we finally returning to a growers market?" George said. "We're cautiously optimistic. We live in hope."

After federal limits on hop acreage was eliminated in the 1980s, there was an almost immediate increase in acreage - and a big surplus of hops.

In 1980, clusters sold for $1.15 per pound in August, but rose to $5 per pound when brewers began to perceive a shortage, recalled Ralph Olson, general manager of Hopunion LLC, a collection of hop growers who sell primarily to the craft brewers.

Just one year later, the price bottomed out at 30 cents.

Hop growers need at least $2 per pound to cover their costs and make a slight profit.

"You need the stability, you don't need the slot machine," he said. "You just need the in-between. It's very hard to accomplish, but I think right now we're at a place where that's going to happen."

Prices so far this year have ranged from $1.40 to $2.40.

At least 17 varieties of hops are grown in the United States. Alpha hops are a bittering agent, while aroma hops are used to give beer flavoring.

Extra-bitter varieties introduced in the 1990s allowed growers to use fewer hops, resulting in the latest oversupply. As acreage declined, growers also have processed more hops for concentrated pellets and extract and planted new aroma hops, which have become favorites of the exploding craft brewing industry.

Twenty years ago, there were only a handful of craft brewers west of the Rocky Mountains, where most U.S. hops are grown; today, the Brewing Association counts 905 craft breweries as members, producing seven million barrels of beer in 2005.

"Craft brewers, I would say, are responsible for the breadth of hops. There are so many varieties now, and a lot of these varieties are being grown on anywhere from one to 300 acres," said Paul Gatza, director of the Brewers Association.

U.S. hop growers also are benefiting from the recognition craft brewers are receiving worldwide, Gatza said.

"American craft breweries are being viewed as making some of the best beer. Now, Belgian brewers, German brewers are using U.S. hops for flavoring, not just bittering," he said. "As American craft brewers are getting more renowned, that recognition is increasing the market for American hops."

The best thing the craft brewing industry has done for hop growers is to broaden consumers' appetite for beer, said Michelle Palacios, administrator of the Oregon Hop Commission.

"They've done a really good job of educating consumers about the different types of beer, about different kinds of hops, and educating their palate," Palacios said.

Oregon produces 17 percent of the U.S. crop, primarily those aroma varieties that are bought by domestic beer producers. But Palacios said an acreage decline of 30 percent since 1997 has leveled off in the past two years, and there may even be an increase in 2007.

"A lot of growers have diversified their acreage into other crops," she said. "It's put growers in a much better position - rather then growing hops that are not needed and not getting paid well for them."

It also could mean the return of more long-term purchase contracts. In the past, brewers bought hops as much as five years out. But when prices dropped, many turned to shorter-term deals.

"It made it very difficult for growers to do any planning," Olson said.

George, however, countered that rapidly fluctuating production costs may steer growers away from signing advance contracts.

"While it's nice to know you've got the crop sold, there is no adjustment for fuel costs or fertilizer or labor," she said.

Hop growers are a tight-knit community; only about 60 families grow hops in the United States. They know when one family abandons the crop, and they know when someone knew signs on.

During the downturn, Roy Farms relied on its other crops, such as apples, and planted a few others, including canola, alfalfa and pinto beans. That flexibility enabled the family to expand its hop acreage from 800 acres 10 years ago to 2,800 acres today.
But Leslie Roy, a fourth-generation hop farmer whose son has joined the business, said he was heartened to see new faces in the hop community. Two other farmers recently started growing hops in Idaho and just down the road in the Yakima Valley.

"It's definitely brighter than it was two or three years ago," Roy said. "At least in the short term, things looks good. Whether that's three years or 10 years, who knows?"

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