Let’s take hops first. Europe is having its second consecutive bad harvest. Those breweries have to source their hops somewhere – so they come to the US. The situation was exacerbated by a couple of warehouse fires in the US hop production areas in the last 12 months which only served to degrade an already bad situation. The old supply and demand curve has kicked in with a vengeance! Almost every variety of hops we use has increased in price at least 50%. And to make matters worse, the hop supply is so tight that breweries that do not have contractual arrangements with their suppliers may find themselves completely out of luck sourcing hops at all, no matter what the price!
The situation is not likely to get better anytime really soon. I am told it takes at least 3 years before newly planted hop vines can begin producing usable hops. And the amount of acreage devoted to hop production in the US has declined by almost 50% over the last 20 years as farmers look for other ways to increase their income. Can’t blame the farmers – they have families to feed. But the next few years hop wise are certainly going to be challenging.
The malt situation is also adversely effected by the poor European harvest of the last few years. But here the situation is accelerated by the foolish (in my opinion) demand for corn for ethanol production. Quite frankly, producing cheap corn for ethanol is often less costly and significantly more profitable than producing malting grade barley. Consequently, as acreage for barley declines, and demand (thanks Europe, China, and South America) goes up, malt prices have just about doubled from the levels we saw in late 2006. Again, I don’t think it will change much soon.