Wednesday, February 27, 2008

Beeronomics: Hops and Barley

Andrew Helm, a graduate student in the OSU Economics Department, grew up on a farm in North Dakota. Among the many crops his family farm produces regularly is barley. Andrew told me a very interesting story about barley prices. Apparently barley can be sold as malting barley and feed barley and usually malting barley (which is a bit more selective) fetches a much higher price than feed barley. But these days the prices are as close together as he can remember. What gives? One reason is that barley malters are constrained somewhat by the supply of hops, if there are no hops there is little demand for malted barley. Thus the price of malting barley has not risen as fast. On the other side, as corn has displaced a lot of wheat and barley, feed barley prices have risen in response (also, apparently you can write longer forward contracts on malt than you can on feed barley because they are traded in different commodity markets). Spiritwood is the place they sell theirs.

So the point is that the hops shortage might actually be helping to keep the barley price from rising as much as it otherwise would because the two are such strong complements in the production of beer.

Follow up (2/28/08), an e-mail from Andrew:


If you want to look at the spread between malting and feed barly, the following sites are the "local" sites in NE North Dakota and NW Minnesota. --Alvarado- malting barly terminal ---Drayton- feed barly terminal

Between these terminals- over 30 million bushels of wheat, barly, soybeans, and corn are transfered in a year.

I have not followed these prices recently, the malting price has increases from the last time I saw it quoted. Moreover, since the last time I looked, the spread is indeed widening for longer term contracts; this was not the case 6 months ago. However, the spread percentage between malting and feed is still much lower than now than it was 2 or more years ago. But wide enough, that from Drayton it is worth the cost to haul, if the barly meets malting quality.

H. Andrew Helm

1 comment:

Jeff Alworth said...

It seems like there's some larger lesson here about unintended consequences, or unexpected ones, or the complexity of markets--something. Fascinating stuff to us beery types, though.