Hope hops eternal in craft beer market | Hops, barley, beer | Michigan Farm News

Hope hops eternal in craft beer market

Category: Crops

by Paul W. Jackson

Hops Field
Hopping into a market that’s booming right now is a big risk, and hops growers need to start bigger than they have been doing, according to industry leaders. At an estimated cost of $15,000 to $20,000 per acre to start, it’s recommended that new growers begin with 40 acres. Hops photo courtesy Gary Howe.

A sack or three of barley, some pelleted hops, yeast and shiny equipment transforms an oil-pungent garage into a nanobrewery.

Suddenly, the stained floor and quirky buzzing neon sign replaces annoyance with character in the fledgling operation. By the time there's no room for the car anymore, a novice brewer might drink more beer than he pours down the drain. If he's dedicated (and licensed), he might even sell some to discriminating connoisseurs and buddies, and lock his recipe in a safety deposit box.

It's the image some craft beer makers wish to foment, but the reality is that craft beer, and the agriculture it takes to make it not only drinkable, but demanded, isn't so small anymore.

Indeed, it can't be small anymore, according to Brian Tennis, a pioneer in the Michigan hops business and president and founder of the Michigan Hop Alliance.

"You can't just take out a second mortgage anymore and get started," he said. "To get started in hops, you need capital and capital investors."

The days of spending $15,000 to plant an acre just isn't enough in the hops game, agreed Dan Wiesen, who owns Empire Hops along with his son near Empire.

"I don't understand what it is with hops that people think they can plant an acre," he said. "You can't grow an acre of corn or apples and make any money. Too much has to be done, and a lot of people are learning that the hard way."

Farmers are catching up with demand, however, Wiesen said, and when it comes to certain hop varieties, there's already a shortage.

"There could be a shortage of proprietary hops varieties every year," said Rob Sirrine, hops educator at Michigan State University Extension. "I'm sure there are plenty of supplies of Cascade hops, the number-one used variety. But for proprietary varieties, you have to be one of the contract growers and part of the group to even grow them."

That's a minor problem in Michigan, however, where there are currently about 1,000 acres in production and an estimated 75 growers. But like the rest of agriculture, Sirrine said roughly 10 growers supply most of the commercial hops.

While that number is certain to increase, it's not growing as fast as craft beer, Sirrine said.

"The craft beer industry is growing ridiculously fast," he said. "Overall, sales of beer as a whole have been static over the last two years, but craft beer sales have increased 18 percent every year. We expect it to hit a 20 percent market share by 2020. I heard an economist say that to keep up with demand, we need another 12,000 acres of hops in the United States, and that's not counting exports."

The perfect place

Michigan production is expected to move up, under such market conditions, from its current fourth-place behind Washington (where many of the proprietary varieties originate), Oregon and Idaho. Moving up should be a breeze, since the 45th parallel is just about perfect for hop production.

"Some people disagree, but I think the climatic conditions around Grand Rapids and north provide the ideal growing climate for hops," said Bryan Posthumus, co-owner of West Michigan Hopyards. "It would be nice if we had an earlier spring, like they do in the Pacific West, because it would give us a better chance to get to the right maturity range. And if we have a relatively dry summer, that's ideal because there is less chance of downy mildew."

Mildew is the most prominent and one of the few diseases that plague hops, growers agree. But even in Michigan, irrigation is a must.

"Hops grow about 18 feet in a month to six weeks," Wiesen said. "They are a huge plant with a lot of biomass, and they take a lot of water."

Because Wiesen grows on the light, sandy soil around Empire, he said he runs nitrogen to the plants several times a day through irrigation lines. Most growers in Germany, another source of proprietary hops varieties, do not have irrigation, which explains, along with a hot, dry year in 2015, the shortage of German hops, he said. The perennial plant's constant need for nitrogen also is a reason organic hops aren't all that practical.

"I see some small organic growers out there slinging fish guts around," Wiesen said. "That's not for me. This is a high-tech operation."

The local connection

High-tech agriculture can walk hand-in-hand with the decidedly more low-tech art of beer brewing, as long as the artisan-type image is prominent, as it is at the New Holland Pub in Holland. It proudly proclaims that all of its hops and 90 percent of its barley is grown in Michigan, and vows to have 100 percent Michigan-grown ingredients in all its products by 2017.

While that is an effective marketing tool to get people in the door, head brewer Steve Berthel said freshness is what keeps them sipping his craft beer.

"Hops that sit in a warehouse bake and get dried out," he said. "And we're still paying top dollar. The way I look at it is that you can have fresh oats or oats that run through a horse. All my oats are fresh. That's the key."

Of course, barley is more prominent in craft beer than oats, and that's a growing industry too. See the sidebar on page 4.

Knowing that agriculture is gaining, but still behind demand at this point, can Michigan farmers embrace the opportunity?

"There will be a time when the craft beer market will be saturated and we won't need more hops and barley growers," said Dr. Bill Knudsen, product marketing economist with The Product Center at Michigan State University. "I don't know when that will be, but I know that that point keeps getting pushed back."

As long as new breweries open, potential markets are available for Michigan farmers, he said.

"It's still a growing industry, with a report from (business market research company) Mintel noting that in 2011, only 14 percent of consumers drank craft beer," Knudsen said. "That rose to 19 percent in 2015, so there is still upward potential."

The price potential is still there too. Sirrine said prices now range from $10 to $12 per pound, but higher quality and preferred varieties can bring a premium.

"Growers today are price makers, not takers," he said.

Processing in demand

Potential also is seemingly on the rise for malters and hops processors.

"I think there are only two or three malters operating that I know of," Sirrine said, "but seven or eight more are being considered."

There is a shortage of hops processors too, which is why Posthumus and his partners decided to expand into that business.

"What was being used when we started was processing equipment that was made for producing wood stove pellets," he said. "It tended to scorch the hops and degrade the quality, so we bought equipment specially designed for hops, and the quality has been better. We did that because when we first started, it was hard to even get initial meetings with brewers because they'd been burned so many times by poor quality."

Now in their fourth year of operation, West Michigan Hopyards is taking in hops from other growers, but only if they can control the quality.

"For us to take in other people's hops, they must follow our nutrient management plan and our spray schedule," Posthumus said. "We require that because when we talk to a brewer, we want to be able to tell them everything they want to know about that field from start to finish. We have an added benefit in that I'm an agronomist and (partner) Jason Jaekel has a degree in plant biology."

Informed growers who pay attention to quality encourage Tennis.

"We can produce world-class hops in Michigan, no question," he said. "But we have to do it cheaper. That means that the business model is going to have to change from an acre or two to 40 to 100 acres. There's no money in an acre or two. Economies of scale just don't work at that level."

There is one other downside, Knudsen said.

"For hops, I think the potential is there to produce too much," he said. "Growers need to be sure they have buyers lined up before they commit."

And, Wiesen said, hops growing, unless you're in it for a private stock of garage beer, can't be small.

"Volume helps," he said. "I think the industry here is going to be good, but it's not a small-time thing. If you want to be a small grower, you first have to be associated with the bigger process and the bigger market. You can't sell GM a bucket of bolts, and you can't sell a brewery a couple bags of hops."

The barley pizzaz?

Carl Wagner would rather plant seed barley in the fall, but brewers who buy malting barley prefer a spring-planted crop.

"Brewers prefer a two-row spring variety, and I have to ask what variety do brewers want," he said. "Right now in the majority of the state, they seem to want to move to the Pinnacle variety. I guess it has to do with malting quality, but it's beyond me why they have that preference. It's a volatile, dynamic market, and I'm just trying to guess where the next move might be."

Wagner, who grows about 40 acres of certified seed barley in Berrien County, said sales grew slightly last year, his second in the malting barley seed business, but many of his buyers tell him they still have seed they bought last year.

"For farmers, one of the challenges is making barley cash flow in a way that competes with corn and soybeans," Wagner said. "That should be easier now than it was (because of competition in the craft beer market), but if the quality is low, you're out of luck and need to find an alternative market, like for feed or a cover crop."

The other challenge for a malting barley grower is infrastructure, Wagner said.

"The malting house is the connection point between farmers and the brewer, and there is a price advantage for local product, but it's not unlimited," he said. "There is good competition from out West, so we all have to figure out that balance. It's easy to be optimistic and pessimistic in the same day. But I think it will take hold. We need to figure out at what scale is growing barley sustainable?"

The same challenges that face wheat growers face malting barley growers, Wagner said.

"Head blight is probably the number two problem," he said. "Vomitoxin levels have to be less than one part per million, so you need a little luck with that. The top problem, though, may be keeping protein low. You can't over-fertilize. Sure, you want higher yields, but if you get that, you get protein too high. And if it's droughty, that pushes protein too high too."

While Wagner said he's barely keeping his customers supplied with seed at this point, he plans to invest in a seed cleaning operation on the farm, which he hopes to have in operation this summer, and not just for barley, but other certified seed.

There is obviously plenty of uncertainty in the malting barley business, but Wagner said he can find rewards beyond sales.

"It's a business venture here, but it's nice to be part of something bigger that you find neat and cool," he said. "That's the pizzaz."

Click here to view the map of Michigan malthouses