"It's a Crazy, Cards-Stacked-Against-You Industry"

From the blog (any emphasis is mine)

Well yeah. Commercial growers need to know in advance the varieties and amounts to grow. Farmers aren't going to plant their crops "on spec". If the brewer guesses wrong about the hop demand they can change the formula or brew less; if the farmer guesses wrong he could go under.

Maybe he should base those decisions on market analysis rather than relying on a gypsy fortune teller

Seems like a good reason to use the secondary market he's complaining about.

Unless you still have 4 years left at $7/lb on that suddenly hot hop that's more selling for $14/lb, then it's the farmer & wholesaler taking the hit.

hhmm, if only he had renewed the contracts to lock in a guaranteed supply of an ingredient crucial to his most popular product.

I don't have a business degree either, but I’m pretty sure somewhere in the curriculum it says "mage sure you have a steady, reliable source for the essential components of your product".

I sympathize with him, but he took a gamble on the price and availability of Galaxy hops and lost. Sell off some of those "thousands of pounds of hops" on storage to offset the increased cost of the Galaxy.

 

Nailed it. Learn business friend, this isn't a hobby, its a business and one in an extremely competitive industry. Want to make cool beers and not have to worry about profit? Homebrew.

The steps to being a successful business include more than the ability to simply make your product well. You must know your customer, manage your supply chain and plan. Sorry that it isn't sunshine and rainbows. Sorry if I sound super harsh about this, but I see so many dreamers and former hobbyists in this industry trying to make a go at it without knowing what the heck they're doing. You're about 10-15 years late if you're entering this industry as a "former homebrewer trying to make it big".

 

... or, stop using the OSIO inventory management system.

Selling on contract is not uncommon in several agricultural commodities. The farmer is not risk-free here. In addition to "selling low" that @officerbill mentioned, if he has a crop failure, he is still under the contract to supply the amount of product he agreed to.

I'm sorry, but that whole screed reads more like "poor ol' me" whining. Man up and run your business.

 

In terms of risk, without those futures contracts, the farmers have no incentive to plant the fields. In year 1 (link) the yield is zero for a given field. Year 2 its 50%, year 3 -75% with full yield only in year 4 or 5! That's a resource being tied up for 5 years! Meanwhile, the farmer could be growing ::insert cash crop here:: in the same field and have a harvest in year 1.

Farmers can't bear that risk, breweries must as they're the buyers here. This is part of the reason you see consolidation in the industry right now. Access to the best ingredients takes buying power and planning. In my opinion, raw materials are a fraction of the COGS for beer as a product though, with the majority going to labor and energy (plus distribution and packaging of course).

 

Brewers have plenty of ways to mitigate this risk. They can change recipes. They can contract for hops. They can buy hops on the spot market. If the supply chain risk is so great that it puts the brewery's profitability at risk and the brewery does nothing to mitigate that risk, that's simply bad management.

Brewing may be something like art or science, but running a brewing company is an exercise in management and finance.

 

Your last sentence is a big story about the business for many years..

 

If you need to have the sexy hops for your business to be successful, you need to figure out a way to get them at a price that makes sense. Otherwise you have a bad business. I think that status quo is fine.

 

If your business is built around getting sexy hops, and you need to sign 5 year contracts, and you can't predict what the sexy hop will be 5 years out, it sounds like you have a bad business.

 

I don't think the answer is F%* 'em. However - you can't expect to compete in the new hotness of a trend with an under capitalized brewery. The answer on the brewing side is innovation. Can't buy Galaxy hops? Well, find something new and different - maybe its utilizing an older hop varietal in a unique way. Maybe its kettle sours or a novel yeast strain. If their only method of competing in the industry is copying a trend at a higher cost of production, should the company really be around?

Again, harsh, but you have to innovate, plan and be well capitalized in this industry.

 

No, I think it's a bad business to run a brewery that's only successful if it can source sexy hops and you don't have some secret sauce for getting those hops. But most breweries (including TrimTab, I expect) don't actually fit that description--they are perfectly able to make do with what they can get at reasonable prices. Heck, even TrimTab was able to make it work--they just withheld it from distro.

Also, for every loser there's a winner. The winners here are likely other breweries that bought Galaxy futures, so it's not like the industry as a whole is really suffering.

 

From an IPA perspective, what's sexy now (and has been for some time) is haze. I don't think the hops are as critical to haze success as to other qualities such as mouthfeel, haze level, etc. Sure, folks love galaxy and nelson but I don't think not having these hops in a haze is putting a damper on haze sales.