Review
A review of the crop 2003 marketing season shows a distinct division between the markets for bitter hops and aroma hops.

The market for aroma hops was characterised by the poor weight yields and low alpha acid levels in nearly all of the European hop-growing areas. Nevertheless, the use of inventories held by breweries and hop traders helped ensure a sufficient supply. As a result of the 2003 crop, it is recognized that, in the future, the sale of aroma hops on a kg of alpha-acid basis can only take place if both parties share the alpha-acid risk. Following numerous discussions and meetings on the subject between all of those involved, a suitable Contract Adjustment Clause was drafted and is now an essential part of forward contracts for aroma hops.

The market for bitter hops, on the other hand, was significantly influenced by high inventories. Although the alpha acid content of European bitter varieties was well below the long-term average, price levels for bitter hops fell so sharply that growers’ and processors’ costs would not have been covered even if alpha acid contents had been high. Intense competition resulted in very low price levels worldwide. This, in turn, encouraged breweries to increase inventories, especially during the spring and summer months of 2004.

Forecast
2004 crop estimates and laboratory results suggest that yields and alpha-acid values for hops grown in Europe and the USA are good. The crop in China, on the other hand, appears to be well below expectations. We nonetheless expect the demand for alpha acid from crop 2004 to be met.

Increased yields and alpha acid contents continue to result in an imbalanced hop supply for crop 2004. When taking figures for both beer production and hop usage into account, there appears to be a surplus of some 180 tons of alpha acid.

It is interesting to observe that, despite this year’s bitter hop harvest being large enough to exceed demand, the market for aroma hops is quite strong. Initial sales of European aroma hops already suggest that there will be a shortage of these varieties and if demand continues at the current rate, it is likely that most aroma varieties will soon be sold out.

It is worth noting that the poor crop in China means that the Chinese brewing industry will be relying more heavily than usual on imports from Europe and the USA and, consequently, we expect crop 2004 bitter hop crops to come closer to being sold out than has been the case in recent years.

It is becoming increasingly difficult to assess the hop market. One of the main reasons for this is the ever-decreasing quota of forward contracts. The number of breweries who rely on the spot market has increased significantly, which, in turn, can make supply less reliable. While calculating alpha acid production and demand is fairly straightforward, the lack of information on brewer inventories makes it difficult to accurately identify specific aroma and bitter hop requirements. In fact, the calculation becomes even more difficult when splitting up the aroma and bitter segment into individual varieties.

Another important market factor is that the six largest brewing groups now use at least 50% of the world hop crop. Any activity on the part of these companies has a considerable influence on the market, and a lack of transparency of their inventory positions adds to the uncertainty in the marketplace.

We hope that by intensifying the exchange of information between the brewing and the hop industries, we will have a better basis upon which to plan and thereby ensure a sufficient supply of hops. This is surely in the interest of all parties involved, growers, processors and brewers alike.