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Cost of Making Beer
Last Post 02-15-2008 12:45 PM byjaimetown. 4 Replies.
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DukeRiley  Send Private Message
McMinnville, OR
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02-14-2008 05:03 PM  
I just finished contracting for my hops for the Fall of 2008 and the Fall of 2009, and I thought that you might be interested in seeing what's happening to the cost of ingredients. 
 
Just to give you the scope of this, I use about a pound of hops to make a barrel (31 gallons) of beer.  Brewers making hoppier beer might use as much as 6 or 7 pounds of hops per barrel. For hops from the 2006 harvest, I paid around $5.00/pound for hops.   For 2007, I paid $5.65/pounds for hops - a 10% increase.  For 2008, I will pay $12.55/ pounds for hops, a 110% increase over the previous year.  In 2009, my cost will drop to around $11.60/pound - double what I paid two years earlier.  
 
In addition, my average cost of malt in the last year has gone from $30/sack (55 pounds) to $44/sack.  The increase in malt prices is actually more important to me because I use about a sack per barrel.  For big hops users, hop prices are more of an issue.  Yeast prices seem to be holding steady, while energy cost are increasing as well.

Will prices go up?  Well, my cost of the ingredients in a six pack, excluding labor, is around $1.75, up from $1.20 six months ago.  Big hop users will have higher costs than that, with a larger increase.  Given all that, I wouldn't be surprised to see the price of a six pack go up a dollar.
Heater Allen Brewing - www.heaterallen.com
jaimetown  Send Private Message
DC area
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02-14-2008 05:43 PM  
Duke, is there any word on why the prices doubled? Was it a bad year for hops, or is it somehow related to how ethanol production is having a rippling affect on all agricultural production?
Seamus Campbell  Send Private Message
Portland, Oregon
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02-14-2008 06:05 PM  
There was a large surplus of hops on the market for several years, pushing prices down. So acreage of hops declined. The demand for craft beer over that period rose, so when the surplus ran through, there was suddenly a major kink in the supply/demand curve.
DukeRiley  Send Private Message
McMinnville, OR
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02-14-2008 06:32 PM  
Jaimetown,
The increase in malt prices was related to the ethanol issue. Barley ends up being a substitute for corn as feed.

Seamus has the answer for the change in hop prices. Part of the issue is that there was a large surplus of hops from previous years in cold storage (hops are age-sensitive, but less so if stored in a vacuum at very low temperatures). So even though demand had out-stripped current production, hop prices stayed low and farmers still were pulling out hop fields. Another part of the issue is that the hop market has been driven by the big brewers up until now, and they were less concerned about the type and quality of the hops they got - they were just looking for (and paying for) bittering units. So as more bitter hops came into the market, farmers ripped out their less bitter hops to plant the new varieties. This eventually hurt the craft brewers who were looking for the high quality, low bittering aroma hops. Cascade hops, one of the oldest and most popular American hybrids used to sell for less than $2/pound! This year I'm paying $6 on contract and the spot market is around $15. As craft brewers started grabbing any hops they could find, the price of even the bittering hops took off.

I expect to see more long term relationships develop between craft brewers and hop farmers. I can see where we would contract with the farmers to grow the hops we want to use, not just take the left-overs from Budweiser. Hopefully we will then get some price stability and farmers get to make a reasonable and stable living.
Heater Allen Brewing - www.heaterallen.com
jaimetown  Send Private Message
DC area
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02-15-2008 12:45 PM  
Thanks for the explanations - Duke, best of luck to you in making the economics of brewing work.
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