Capped bottles of Dead Pony Pale Ale travel along the bottling section of the production line at the Brewdog Plc brewery and headquarters near Aberdeen, U.K. (Photographer: Matthew Lloyd/Bloomberg)

Your Craft Beer Is About to Get More Expensive

(Bloomberg) -- Miserable weather for Canada’s barley crop means the price of a pint of craft beer is poised to rise.

A blast of rain and snow that damaged the malting barley crop in Canada, one of the world’s top exporters, isn’t just crimping output. It’s squeezing margins for brewers that rely on malt to flavor their beer.

Barley prices surged as wet, cold weather followed a drought, damaging a big portion of the crop favored by brewers. Those woes emerged just as global stockpiles are poised to tumble to a 35-year low after dry conditions cut production from Europe to Australia, boosting costs for brewers and distillers who use the malted grain to make whiskey and other beverages.

“It impacts the price of the beer on the shelf, that’s what it boils down to,” said Brett Ireland, the chief executive officer of Bearhill Brewing, which runs four microbreweries in Alberta. “The margin gets thinner and thinner.”

While farmers in Canada sowed more barley acres this year, the lousy weather that delayed harvests in parts of the Prairies is expected to erode the quality of crops suitable to be turned into malt. A chunk of the crop was downgraded to feed after the snow damage, said Kevin Sich, the supply chain director at Rahr Malting in Alix, Alberta, one of Canada’s biggest processors.

When barley gets too wet, it starts to germinate in the field, making it more difficult to convert into malt.

Price Jump

“For the most part, any of the barley that was taken off in October will be feed,” said Brent Johnson, vice chairman of SaskBarley Development Commission. Spot prices north of Regina, Saskatchewan, have jumped 12 percent and may climb by an additional 9 percent to C$6 ($4.01) a bushel, he said.

Elsewhere, the harvest in the European Union fell to a six-year low because of heat and dryness, pushing up the cost of feed barley in places including Germany by more than 30 percent since April. A shortfall of beer ingredients may linger in France and other countries in 2019 following the drought in Europe.

That leaves brewers and consumers in Brazil, the world’s largest malting barley importer, at risk of shortages and higher prices, Bloomberg Intelligence analysts Alvin Tai and Ashley Kim said in an Oct. 29 report. Beverage companies can absorb the costs or pass them onto consumers with higher prices, according to the report.

Premium Climbs

Barley prices in Canada may rise as high as C$275 a metric ton this season, up as much as 21 percent from a year earlier, the government said last month in a report. Feed barley in Alberta, the nation’s top grower, has gained 8.6 percent this year, according to data from Farmco. Malting barley’s premium to feed quality has climbed as high as C$25 a ton, Rahr’s Sich said.

“There’s no question that the situation has pushed prices up,” said Peter Watts, managing director at the Winnipeg, Manitoba-based Canadian Malting Barley Technical Centre. “Certainly it is going to mean some higher costs for the brewing companies as a result.”

Craft brewers, which use as much as four times more malt than traditional brewers, may be hit the hardest because they don’t use supplements, Watts said. While traditional brewers may spend about 5 cents on malt for a 12-ounce bottle of beer, craft makers face costs of at least 25 cents, depending on the process and variety, he said.

Brew Pubs

For Bearhill Brewing’s Ireland, the cost of buying malt in bags to make everything from India pale ale to stouts is poised to rise about 5 percent. The brew pubs may have to raise the cost of pints to cover the price increase, though the change probably won’t be too dramatic, he said.

“We’re certainly inefficient on the malt side,” Ireland said. Much of the brewing process at smaller craft operations is done by hand, and other niche beer makers will have to absorb the cost or pass it to drinkers.

“For the small guys like us, you do what you can,” he said.

©2018 Bloomberg L.P.