Gnel Gabrielyan and Thomas L. Marsh
Published December, 2023
According to USDA report/data (USDA/NASS) U.S. hop prices have changed dramatically in the last two decades. For example, prices increased by 35% (20% in real terms) from 2007-2008 and decreased by 11% (20% in real terms) from 2009-2010.
The price increase in 2008 coincided with an oversupply of hops in 2008 and 2009, which led to lower prices in 2009. By 2010 the production of hops decreased by 30%. In this paper, our interest is examining domestic and export price formation of hops. To the extent of our knowledge this is a topic that has received almost no attention in the economic literature. It is a surprising observation given that the U.S. is a primary supplier of hops in the world market and hops are a primary ingredient in a favorite beverage of consumers across the world – beer.
Hops are one of the four main ingredients used in the brewing process to add bitterness and keep freshness in production of beer (Tremblay and Tremblay, 2005). Moreover, the U.S. plays a vital role in domestic and international trade of hops. According to Barth report (2011) the U.S. is the second largest producer of hops with 29.7% share of the world market in 2010. Germany was the leader in hop production with 34.27% share of world production of hops in 2010. In the U.S. the three main hops producing states are Washington, Oregon, and Idaho. Washington State is by far the largest producer of hops, growing up to 80% of the total U.S. hop production in 2010 (USDA/NASS). Nearly all hops are raised and sold under a contract with a dealer (Hop Growers of Washington, 2008).
The objective of the current study is to identify and quantify factors that determine domestic and international (i.e., export) hop prices. For example, we hypothesize that stocks, production and lagged variables affect domestic prices, while exported quantities affect U.S. export prices of hops. Understanding the nature of hop pricing may increase efficiency of contracting between growers and dealers, assist growers to define and implement the strategies that mitigate price shocks during periods of under or over supply.