As any parent knows, kids are not always known for their patience, especially on a road trip. “We’re almost there, just a few more minutes,” is the common refrain.
In a way, that’s where we are in the bulk spirits market in 2024. We’re returning to a new normal after three years of rising costs, lack of supply, and increasing demand. In 2019, before the pandemic, the cost of a barrel of new make bourbon was in the $650 to $700 range, and it was plentiful. Coming out of Covid, by 2021, it was nearly impossible to enter into a new contract for new make from Kentucky, Indiana, Tennessee, and beyond. Before we knew it, when you could get it, the cost was closer to $1000 per barrel. By 2022 and into 2023, a good deal was $1250 per barrel. Blame it on the cost of labor, grains, transportation, or the shortages of wood barrels themselves; this was a struggle for smaller producers whose brands had been built on COGS, no longer possible.
Then, something happened as we maneuvered through these challenges, and 2023 became 2024.
Things began to return to normal.
More production capacity began coming online, costs came down, and while year-over-year American whiskey sales dipped, they are still 25-30% higher than they were in 2018 and 2019 when the annual CAGR was running 5.5% (not 13% to 18% in 20, 21, and 22).
It is estimated that an additional 500,000 barrels of production capacity will be available by the end of this year in Kentucky alone.
This is where patience pays off. New fill pricing for Kentucky Bourbon and Ryes is now in the $850 to $900 range, some below $800, and even craft producers can price at under $1000. This is good news for the brands that have seen their COGS kill their margins. It also ensures that investing in whiskey will remain an attractive alternative asset class, even as the rates of appreciation return to normal. Holding barrels a little longer will help offset the higher initial costs. Age matters, and the new fill that is now available doesn’t eliminate the need for mature barrel-aged products today or tomorrow. Suppose a barrel of four-year-old bourbon sells for $2500, not $3200. and the initial cost is well under $1000 today versus the $1500 it had been; that’s still a solid return to bank on.
Are we there yet? Just about.