WSJ article on barrel shortage

[dcbt]

http://www.wsj.com/articles/bourbon-makers-feel-the-burn-of-a-barrel-shortage-1431371621?KEYWORDS=Bourbon

"Upstream, barrel makers face a wave of demand because a half dozen established bourbon distilleries and 300 new, craft distilleries are increasing production amid a bourbon boom. Downstream, they face a shortage of white oak wood used in barrels because the lumber industry hasn’t rebounded from the housing market’s collapse."

[Flyfish]

Did I read 70% increase in the price of a barrel? Consider the effect on the cost of bourbon coming out of those barrels. And the distillers will have to pay for the barrels when delivered not when they sell the bourbon that will go into them. Is there anything they can do except recover that cost by increasing the cost of bourbon sold today?

[cowdery]

It's a good article although he wiffed on the definition of bourbon and since 97% of all scotch is aged in used bourbon barrels, his use of 'sometimes' there was a fail. I've long known the problem was not enough loggers but haven't heard it tied to the housing slow down before. All in all an accurate piece.

A lot of barrels are being made and most people have what they need. The people having problems are the ones at the end of the line, so to speak. It you're trying to buy barrels off the shelf and as-needed, you're SOL, for example.

[tanstaafl2]

Did I read 70% increase in the price of a barrel? Consider the effect on the cost of bourbon coming out of those barrels. And the distillers will have to pay for the barrels when delivered not when they sell the bourbon that will go into them. Is there anything they can do except recover that cost by increasing the cost of bourbon sold today?

They recover a good portion of that cost when they resell it to other whisky, tequila and rum distillers once it is emptied. If it cost them more to get them new then there is a good chance the cost of the used barrel is going up too because demand for the used barrels isn't getting any less either.

[The Black Tot]

So barrel making demand is upstream, but the wood supply to make the barrels is downstream?

This is a strange stream.

[jp_stargazer]

I don't know that I've ever seen a cost breakdown of what goes in to distilling, aging, and bottling a bottle of bourbon (not to mention marketing, distribution, etc.). I wonder though, even at a 70% increase in the cost of the barrel, what percentage of the overall cost is that? Especially when the largest "cost" to selling a bottle of bourbon is the tax that the distiller pays the government per proof gallon.

For instance, if the barrel was only 5% of the cost (other variable costs being grains, water supply, energy, facility equipment maintenance, labor, bottles, labels, corks/caps, transportation of barrels to and from the warehouses, etc. and the tax liability on the final product) then a 70% increase in barrel cost is only a 3.5% increase in overall cost. Still not desirable for the distiller or consumer (the government, distributor, and retailer get their piece regardless). Now if the barrel is 20% of the cost, ouch.

Good point about the distillers passing the increase along to those that purchase used barrels for second fills.

*Disclaimer: I remember very little of Econ 100 from my freshmen year of college, circa 2002/2003. I could very well be wrong about all of this.

Jason

[risenc]

I actually thought it was a pretty superficial look at barrels. Most big distillers, and most established craft distillers, have fixed, multiyear contracts for barrels, so the annual fluctuation in price on the open market doesn't matter to them. And as I've heard from multiple distillers, the feared "barrel shortage" is expected to be short lived, because of a few bad years' harvests. They expect prices to drop as the supply increases. Or so I've heard.

[squire]

Wouldn't doubt it Clay, there's no shortage of trees so the rest will sort itself out.

[garbanzobean]

On a related note, I found this blog post to be timely: http://thewhiskeyjug.com/whiskey/why-people-who-cant-use-google-shouldnt-write-about-whiskey/

I don't know if this applies to the WSJ article, since I have apparently exceeded my free views for the month.

[VT Mike]

It's been over a year since Independent Stave put a message on their website stating that they have current customers on allocation and are not taking orders from new customers. It also states that they hope to address New orders in 9 to 12 months. They recently pulled all of the prices off of their barrel description page too. Brown-Forman opened their second cooperage last fall and it is supposed to ramp up to full capacity over 18 months. They have no plans to sell to external customers though.