June 01, 2008

Is Ethanol The Reason Beer Prices Are Going Up?

Hops fieldThe old argument goes that the demand for corn for ethanol production has caused farmers to switch from growing other crops to grow corn. And it seems that any and all price increases can be explained this way without anyone questioning it. Not even when all the numbers suggest that it is incorrect. Take this recent article on why beer prices are going up.

A worldwide shortage of hops has depleted the supplies available to brewers, particularly for some of the specific blends that craft brewers have made their specialties. The shortage is the result of recent drought in Australia and flooding in Europe that destroyed much of their crops, forcing brewers overseas to turn to U.S. hops supplies that already were strained by a movement to plant more profitable crops like corn.

This all seems logical doesn't it? But the next sentence in the article should have raised a red flag.

Coupled with rising fuel costs, the shortage has hops prices skyrocketing from $5 per pound to as much as $45.

It is hard to see how corn that is currently selling for around $6 per bushel could be more profitable than hops that sell for even the lower number of $5 per pound.

So lets look at how much a farmer could expect to make raising corn. Last year the average corn yield was 151 bushels per acre and the average price was $4.00 per bushel. So a corn farmer would make $604 per acre.

Last year the average hops yield was 1,949 pounds per acre and the average price was $2.81 per pound. So a hops farmer would make $5,477 per acre.

Something tells me that the reporter didn't do their homework on this issue. A quick look at the USDA website provided that information.

A little more study would have told the reporter that hops are perennial plants that grow on upright structures. So to say that farmers have switched from growing them to grow corn would be like saying that farmers switched from growing grapes to grow corn.

The primary region for growing hops is Pacific Northwest, with Washington state being the top producer. That region isn't really known for it's corn production.

Then of course there is the small matter of hops farmers not having the proper equipment to plant and harvest corn.

And one last thing, according to the USDA the amount of hops acres were up last year by about 1,500 acres or about 5% over 2006.

To be fair the author never mentioned ethanol in the article but I think he followed the same general mindset that many have in blaming corn. It seems that someone will try to link any and all price increases to ethanol in some way or another these days. But as a member of the general public being fed this information, I think we should be able to expect that it at least be a little more realistic.

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