Quant-o-rama

Ever since liquor stores started sticking notes on their coolers letting us know that the price of my beloved beer would have to go up due to the rising price hops, I’ve assumed it something to do with either the cost of fuel or the displacement of hops crops by corn being turned into ethanol.

I’d occasionally see articles about, which spoke vaguely about some sort of shortage of the crop so necessary to the beer making process. There was something about a blight in Washington and something about weather in Europe, but again very vague, and somewhat suspect with so little supporting data, none to be exact.

Curiosity got the better of me and I began a preliminary investigation into this missing hops matter. Across the board began to become clearer and clearer that pretty much no one writing about hops had any clue whatsoever what they were talking about, assumed their reader would be likewise uneducated, lazily following off of the existing scribbles, and journalistically getting the obligatory quotes by calling up a local brew pub to ask them about what they had done to hedge hops prices. Naturally, such a subject warrants a field trip to the local brew pub to see just what a hops is, since no one really seems to know, and the influence of the hopsmeisters secret stash showed through in the writing. They all have a secret stash in the back don’t they, ahat special, super-potent, uber-beer that the public never gets to saviour?

It seems that about the only thing that is really known with any certainty is that brewers are paying eight to 20 times more for the ingredient. Almost universally, it is suggested that the small brewer is taking a beating on hops because they failed to protect themselves by hedging this mysterious hop crop. But, as it turns out, there’s no exchange trading for hops futures, at least not that I could readily uncover. They traded in New York in the 1800s and in London up until the 1920s in specialty exchanges, but not since. So if you want a contract for hops, you’d have to do so I presume with a major distributor, and I presume they would only be interested in contracting with large volume customers.

I wanted to know where can I hedge some hops. And that’s where I began to descend into Dante’s depths of devilish missing data. At first glance, I couldn’t see where there was significantly, any shortage in the size of the U.S. hop crop, though stores looked to be down somewhat. Looking at corn as a culprit, it did appear that more corn was being grown in Washington State, the leading hops producer, but that seemed to be offset more by wheat. With hops prices being what they are, growers are beginning to, quite sadly I might add, rip out apple orchards. Hops grows more like grapes and apples, than wheat or corn, and overall it’s a small crop compared to other grains, so corn, as golden as it may be, does not appear to be displacing hops.

So why then have hops become so expensive? Is it demand from the big box brew pubs? Is it because Samuel Adams uses more hops than any other beer maker? Have hedge funds managed to find a way to get in on the game? Thus far all signs are pointing to exports as the culprit. With the once all mighty dollar being what it is today, foreign beer makers would have wanted to import US hops, at least up until the price got to where it was cheaper and easier to buy locally. But it’s all still quite nefarious.

The case of the missing hops, to be continued…