Down on the farm and down at the tavern

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The strong demand for corn by American ethanol producers, the slumping value of the U.S. dollar, and poor growing conditions in major agricultural producing regions of the world are conspiring against beer drinkers and their brewers at the start of 2008.

Throw in a few other external influences while you are at it. The cost of transporting and refrigerating beer is pushing up prices in Minnesota and throughout the country. The rapidly growing middle class in countries such as China and India is adding pressure on global beer making supplies. And then there is the uncertainty of how Northern Tier-state farmers will respond to market signals in making spring planting decisions this winter.

No matter how these farm planting questions get resolved, consumer beer prices are expected to increase later this month or early in February, warn brewers and their associations. “I think some of the large brewers have held back (and) delayed raising prices as long as they could,” said Ted Marti, president of the August School Brewing Co. in New Ulm.

“That is about to change,” he said.

The beer industry is only one part of the massive American food and agriculture industry. The pressures on that beverage industry, however, are indicative of the strain this winter on the entire food chain. Further, it shows that even your neighborhood pub is a player in the global agro markets.

Brewers are paying more for their barley and hop supplies – the two main ingredients used in beer making by most breweries. Prices for both have more than doubled in little more than a year. One of these primary ingredients, barley, has been a significant segment of the Minnesota and North Dakota farm economy until recent years. The other, hops, are a specialty crop grown primarily in Washington, Oregon and Idaho and is in short supply from global buying after hop crop failures in Australia and Europe.

Some small beer markers, such as the beer pubs and small volume craft beer brewers, are having problems securing supplies to keep their beer kettles brewing. Yakima Valley newspapers in Washington report that some area hop traders and wholesalers have stopped making deliveries to these smaller brewers because supplies are too low.

A wild hop does grow in Minnesota. But it hasn’t been bred by scientists over time to be useful for commercial hop production. Furthermore, hop farming takes special capital intensive equipment and is labor intensive work, precluding anyone from trying to adapt hop production to our Upper Midwest climate based on one or two years of short hop supplies.

That hop supply problem is the result of global market forces, said Schell’s Marti. Two consecutive crop disasters in Australia and rising global demand for beer have turned maltsters and brewers to the U.S. to secure supplies. On top of that, the crop had problems in Europe as well this past year, which has some European malting companies and brewers looking for supplies from the Pacific Northwest.

The weak U.S. dollar against other world currencies also has global buyers hopping on American hops. It’s the same market influence that is partly responsible for pushing up American grain prices to record and near-record highs, said Rob Rynning, a Kennedy, Minn., farmer and long-time leader of the Minnesota Barley Growers Association and National Barley Growers Association.

Export demand for wheat, corn, soybeans and specialty small grains such as barley increased during the past while commodity prices rose to new levels in the U.S. domestic market. While these higher commodity prices threaten inflation at home at the same time the faltering U.S. economy appears posed on the edge of recession, the higher U.S. prices aren’t as noticeable to importers converting stronger currencies into dollars to make their purchases.

For the same reason, the high cost of oil that has topped $100 a barrel in some recent trading is not taking the same toll on European manufacturers, truckers and heating oil users. But here at home, said Schell’s Marti, groups such as the Minnesota Beer Wholesalers Association and its truckers are watching fuel prices carefully and need to pass along higher distribution costs to brewers and, ultimately, consumers.

Barley farmer Rynning, meanwhile, said farmers will need to read all these market forces to make planting decisions in time for spring planting. Barley prices are strengthening, which might hold some acreage in barley during the 2008 growing year, he said. At the same time, small grain farmers like him must weight agronomic benefits of growing both wheat and barley crops against strong price signals for wheat. And some farmers may also be looking at diverting some of the acres into corn or soybeans, inspired by futures contract prices for the new crop, even though barley is a crop on the northern and western edges of what is corn country.

Compare these average prices paid to farmers in December, as reported by the Minnesota Field Office, National Agricultural Statistics Service:

The average price paid in December for barley, for both feed and malting purposes, was $4.81 a bushel across the nation and $3.94 in Minnesota. (Rynning said the Minnesota price is now at or above $4.80 in northwestern Minnesota and as high as $6 a bushel in parts of Idaho and western Montana.)

In contrast, the national average barley price in December 2006 was $2.64 per bushel.

But it remains to be seen if these higher prices will prompt more barley planting this year.

While corn futures contracts have topped $4 a bushel in recent weeks, NASS found the average price paid for corn across the nation was $3.88 per bushel in December, up from $2.81 the previous year, and Minnesota’s average corn price was $3.70 pr bushel – a 50-cent gain from the average November price.

Soybean prices rose to $10.40 per bushel across the nation in December, up from $5.94 the year earlier, while Minnesota soybean prices averaged $9.90 in December, up 93 cents in one month.

The average price paid for wheat crops across America rose to $9.41 per bushel in December, more than doubling from $4.44 per bushel in the same month of 2006. Minnesota’s average wheat price, which is primarily for hard red spring wheat, was $9.36 per bushel – a jump of $2.08 from November.

Such market signals are sending a clear message to New Ulm. Schell’s Marti said it is clear that maltsters and brewers will need to pay more for supplies or farmers won’t plant barley. And, he added, “We better hope for better weather in Australia and Europe.”

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