Craft brewers raise glass to U.S. farmers, growing record hops crop

By Rod Nickel

(Reuters) - U.S. farmers plan to harvest their largest-ever hops crop, giving craft brewers who are struggling to match surging demand for beers with more aroma and bitterness reason to cheer.

Farmers expect to harvest 51,115 acres of hops in 2016, up 17 percent, the U.S. Department of Agriculture (USDA) said on Friday.

"That is certainly good news for us," said Benjamin Li Yu, chief executive of British Columbia-based Russell Breweries Inc. "I hope the increase is giving everyone room to breathe."

The United States and Germany are the world's top growers of hops.

In 2015, sales volume of U.S. craft beer rose 12.8 percent domestically and 16.3 percent for exports, while overall U.S. beer sales eased 0.2 percent, according to Brewers Association in Boulder, Colorado.

Small brewers have feared a hops shortage after adverse weather blighted last summer's European harvest. Lager producers such as Anheuser-Busch InBev also use hops, but in smaller amounts.

Craft beer premiums cover rising hops prices, but Li Yu said finding enough supplies has been the biggest challenge.

MillerCoors, owned by SABMiller and Molson Coors Brewing Co, has absorbed higher hops costs for some beers, like Blue Moon, said Warren Quilliam, senior director of brewing, malting and materials. But those costs are offset by low aluminum and fuel prices, and long-term contracts smooth out highs and lows, he said.

It is likely that small breweries, who buy hops on the spot market, are paying the highest prices, said Viv Jones, brewmaster at Saskatchewan-based Great Western Brewing Company. The company has hops supplies secured for the next three harvests at price increases in line with inflation.

U.S. average prices have climbed four straight years, hitting a record $4.38 per pound last year, up 19 percent, according to USDA. The U.S. vine-growing crop, which produces small green cones, is mainly grown in Washington, Oregon and Idaho.

While U.S. farmers have fretted about sagging incomes, Idaho hop grower Nate Jackson is enjoying the high prices.

He bought a 60-acre hop farm in 2008 and has expanded plantings tenfold.

"(I'm) definitely lucky," Jackson said. "I'm not sure anybody saw that (price hike) coming."

Even so, hops farming is an expensive business, and prone to busts due to over-supply, said Tom Marsh, a professor of agricultural and resource economics at Washington State University.

Unlike hops, malting barley prices are flat this year, due to ample global supplies, according to Rod Green, a malt barley broker at Central Ag Marketing in Alberta.

(Reporting by Rod Nickel in Winnipeg, Manitoba; editing by Diane Craft)