Estimated Costs of Producing Hops in Michigan (E3236)
This bulletin discusses the reasons behind the revival of the state’s hop growing industry and offers Michigan-specific information on the costs involved in establishing and operating a commercial hop farm.
Before 2008, there hadn’t been a commercial hop growing operation in Michigan for more than a century. By 2014, however, Michigan was ranked fourth in the nation among hop growing states. “Estimating Costs” lists sample hop yard preparation and establishment costs per acre and typical annual operating costs and potential returns per acre for the first five years of production. Potential hop growers (and their lenders) can use the information to calculate whether they could produce hops at a profit.
Hops are an essential ingredient in beer production. Brewers use hops for aroma and bittering, which counters the sweetness of malt, another main ingredient. Hops also have preservative qualities.
Commercial hop production began in the United States along the East Coast in the early 1800s, but eventually moved west – first to California, then to the Pacific Northwest. In 2013, more than 35,000 acres of hops were being grown in the United States. Washington State (more than 27,000 acres and 77% of U.S. production), Oregon (more than 4,700 acres and 14%) and Idaho (more than 3,400 acres and 9%) were the leading producers (George, 2014).
Michigan hadn’t had a commercial hop yard from sometime in the 1800s until early in the 21st century, when several factors led agricultural producers in Michigan and elsewhere to reconsider hops as a commercial crop (Sirrine, Rothwell, Lizotte, Goldy, Marquie, & Brown-Rytlewski, 2010):
- The dramatic growth in the number of craft breweries
- Increased interest in locally sourced agricultural products
- Years of abundant crops and low prices that led farmers to remove land from hop production, then poor hop yields in 2007 that created a worldwide shortage and caused a price spike
The revival of the Michigan hop industry began in 2008 on the Old Mission Peninsula near Traverse City, where the soil and climate are well-suited to hop production. Since 2008 hop acreage in the state has increased steadily. Michigan is currently ranked fourth in the nation among hop growing states, with more than 400 acres in hop production and eight processing plants in operation.
This increase has been paralleled by tremendous growth in Michigan’s craft brewing sector, which contributed more than $1 billion to the state’s economy in 2012 (Brewers Association, 2014). The number of breweries in Michigan increased from three in 1991 to more than 140 in 2013. This increase and brewers’ desire to purchase locally grown ingredients have helped drive demand for Michigan-grown hops.
If you’re considering setting up a hop yard, you (and possibly any agricultural lender you’re working with) will need some idea of the potential:
- Costs to prepare and establish an acre of land for hop production
- Annual hop yard operating costs
- Annual return per acre of hop-producing land
This information is readily available for the major hopproducing states. The 2010 Estimated Cost of Producing Hops in the Yakima Valley, Washington (Galinator, George, & Hinman, 2011) is one such resource. There are significant differences, however, between hop yard infrastructure costs and returns in those states and in Michigan. This fact sheet provides Michigan-specific information.
In preparing this bulletin we consulted leaders in the Michigan hop-growing industry, hop plant propagators, processors, brewers, and home-brew supply stores. The hop yard establishment costs and annual operating expenses were based on typical quantities and materials reported by the operators of conventional hop yards in 2013. Hourly machine rates were based on those in Custom Machine and Work Rate Estimates: 2012–2013 Production Season Costs (Stein, 2012) and on Michigan hop growers’ estimates.
Assumptions and Caveats
Because of the variability in land costs in Michigan, this analysis does not include land prices. We assume the productive life of a hop yard is 20 years based on the longevity of the plant itself, although that number may decrease due to factors such as changing market conditions, cultivars falling out of favor, and development and increasing demand for new cultivars. The analysis includes an hourly rate for labor and management that would be charged if growers didn’t do the work themselves. Annual costs don’t include overhead such as loan interest, taxes, and hop yard depreciation.
A Representative Michigan Hop Yard
It takes 1.1 acres of land to establish 1 acre of hops because of the standard trellis design. Michigan hop yard designs vary, but they’re typically laid out on a 14-foot by 3.5-foot grid, which equates to roughly 1,000 plants and 80 poles per acre. Drip irrigation is recommended and commonplace in Michigan hop yards.