Economic considerations before planting hops

WCBN-1-Hops-econ1omicsby Sally Colby
Although Kevin Martin’s primary experience is with the grape industry, he has found that much of what he knows can be applied to growing hops.
“Hops is an interesting market,” said Martin, associate extension educator with the Penn State Extension Lake Erie Regional Grape Program. “It isn’t like any other agricultural commodity. There are a lot of parallels to field crops such as corn because there are a lot of large farms in Oregon and Idaho. At the same time, it’s a value-added product because processing is typically done by the grower or a group of growers.”
Martin says that New York, Pennsylvania and Vermont will likely continue as the primary hop-growing states in the northeast because hops yield well in those states and are in close proximity to craft breweries.
“It isn’t a value-oriented investment,” said Martin. “We’re on the continuum toward a growth investment; nearing speculation. What that means is that hops growers are relying on future growth and development in the hops industry to turn this into a profitable venture.”
The key to growing hops is to start in a manner that will mitigate risks. “On the east coast, anything between 10 and 150 acres is quite large,” said Martin. “Then we have smaller, part-time growers with fewer than 5 acres or even less than one acre. Diversified ag is a great way to grow. If you have some of the tools that are required for growing hops, you’re ahead. Tools such as equipment for construction of trellises, herbicide sprayer, etc. will help spread capital costs over acreage.”
Trellising is one of the major start-up costs, and although there has been some interest in a low trellis design that costs less, that model isn’t economically viable in the long run. Low trellising is probably best for breweries that want to grow a small amount of hops as part of brewery design and promotion.
“I like to see row lengths maximized to the extent that is practical for the site,” said Martin. “Constructing rows becomes cost-prohibitive as the rows get too short because of all the construction that goes into the anchors on the end. You can reduce costs by making rows 200’ to 300’ long.” Average trellis costs determined in Michigan, Vermont and New York is about $11,000 per acre.
With 3-foot plant spacing, target yield should be one half ton per acre. “While we’re targeting that, we aren’t all getting there,” said Martin, adding that yield figure is for the varieties that are easiest to grow. Martin said that low yields in the range of 300 to 400 processed pounds in the fourth or fifth year isn’t unusual, but the industry continues to work on increased yields. These low yields can be due to poor siting, disease, insects, irrigation issues and varieties.
After the initial trellis design, the biggest capital investment is harvest. Hand harvesting is an option, but it’s relatively inefficient and the value of the crop is less than the value of the hand harvest. Growers who have more than one acre will want to consider adding some degree of mechanization. “Some of the small-scale harvesters are newly engineered designs,” said Martin. “They’re improving, and some work fairly well.” Martin says that growers should consider which mechanical harvester to purchase when they’re putting the first plants in the ground, and advises them to watch various harvesters work to determine which will work best for them.
Processing equipment such as dryers, grinders, pelletizers and balers don’t typically fit into the early production model, and those services are usually available in the region. “As we get more acreage, the cost of getting hops pelletized and vacuum sealed should come down to about $1 to $1.50 per pound,” said Martin. “At that point, it may be sustainable for small growers to continue to hire someone else to do that rather than doing it themselves.”
Martin says successful new hops growers should start small. The first crop will be relatively small, and if it’s established early enough, might yield 10 to 15 percent of a full crop. “That’s what you can share with brewers,” said Martin. “We see very small brewers paying a lot for that first crop just because they’re interested in it and want to work with growers.” Martin suggests new growers develop working relationships in the industry as soon as they begin to plan a new hopyard.
Growers should see gross revenue of at least $7,500 per acre before adding additional acreage. “As you get to two to three acres, expect $10,000 to $12,000 per acre gross revenue. This takes low yield out of the equation. If it’s a variety that’s lower yielding, you still need to hit $10,000 to $12,000 per acre to justify the investment. Communication with the brewer is key.”
The other option is to go large from the start, which makes the capital investment far more efficient. “Sometimes the grower price when working through a broker is $2.50/pound,” said Martin. “If you can get 15,000 to 16,000 pounds of dried hops per acre, you might be able to make that work, but we haven’t seen anyone who has done it.”
Regional co-ops are an option for long-term sustainability in growing hops. “Cooperatives are tricky,” said Martin, who has a lot of experience with grape growing cooperatives. “The establishment side is always the most complicated, but the benefits are long-term. It puts the expertise of processing into someone else’s hands, and the grower can just grow.”
By the fourth year, growers should be increasing processing capacity and increase the hopyard size to obtain a positive return. “The best thing to do in the east is to add value,” said Martin. “You’re telling a story about buying local; a story about a reliable supply chain. There are microbreweries that aren’t large enough to sign five or 10 year contracts for hops from the west coast. They play on the spot market, and their pricing structure is a lot different. A lot of money goes to brokers and huge swings in market prices, and it’s as beneficial to them as it is to you to establish a relationship with a local hops grower. In the meantime, they can tell a story about buying local. It’s about the values in their business as they market their local brewery. Buying local ties nicely into those values.”

2016-04-29T13:54:53+00:00April 29th, 2016|Grower Midwest|0 Comments

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