1. No barrels, big problems
It’s simple market dynamics: demand for ex-bourbon barrels is outstripping supply and as a result, the price of casks is soaring. Challenges in the bourbon market, combined with whiskey production booming in global markets, old and new, are further fuelling this challenge. The issue of whisk(e)y’s current success being driven by value, not volume, as people buy less but better, makes new and first fill cask shortage even more urgent for premium producers. Also, without the wood to put their whisk(e)y in, demand for grain could reduce, ultimately leading farmers to plant less barley for malting. So, whilst malted barley prices are tipped to dip slightly over the coming months, these market forces may push the price back up in the longer term.
2. A creative response to the cask challenge
As you’d expect for an industry that has endured for centuries, whisk(e)y makers are taking none of this lying down! There’s little appetite amongst larger producers to compromise on the maturation profiles of their core ranges, so expect them to exert more pressure on suppliers to snap up the cask volumes they need, not just in US but with their sherry cask suppliers too. Joint ventures or distribution deals that involve selling bourbon in return for access to barrels are being explored. In Ireland, Distillers are filling more virgin American oak. Smaller whisk(e)y producers are looking to do direct deals with smaller bourbon producers (with a note of caution about cask quality). These strategies will evolve across the year. Also, look out for a deeper re-evaluation across the industry in response to this issue: from casting a broader net across the world for different cask types, to heavier use of cooperages to get more value from a single cask, to the potential tweaking of industry regulations.
3. Alternatives to (high cost) energy
It’s not just distilleries that have faced higher energy tariffs – fuel costs for farmers and maltsters have soared too, baking higher prices throughout the supply chain into the final cost of whisk(e)y. Distillers will continue to look at alternatives to natural gas and kerosene during 2024, but high electricity prices could limit progress. At current prices, hydrogen - or electric-fired stills are only economical if distilleries can generate their own hydrogen or electricity onsite using wind turbines, hydro-electric schemes or other renewable energy devices. Companies are waiting for the results from government-backed hydrogen pilot projects to assess their economics. Many are also eyeing new heat pump powered distilleries like Ahascragh in Galway. And there’s an acknowledgment that this takes time, effort and a bit of trial and error.
4. Freight prices continue to fall as consumer demand eases
Freight prices are at their lowest in years, as consumer demand for goods across the board has fallen post-lockdown. As a result, waiting times for shipping are falling too, with delivery times for casks dropping from between 12 and 15 weeks a year ago to just five or six weeks currently. While shipping owners are feeling the pinch from lower prices, many freight forwarding companies haven’t yet passed on savings to customers. Will this feed through the supply chain to reduce prices for the consumer? (Or perhaps the ongoing disruption in the Red Sea will keep prices higher for longer).
5. Returns on green technology
Globally, distillers will invest more cash into innovative technology to further their shift towards green distilling, in line with SWA and political frameworks. But they’ll also want to maximise their return. And as energy and wood prices remain high, recovering heat from the stills to provide power for distillation will be a key focus. And innovative companies will be pushing for new, higher-value uses for by-products including pot ale and draff beyond traditional uses in agriculture - or more recent uses as fuel for anaerobic digestors
6. Technology: your best friend in 2024
There are countless ways in which technology will change the way businesses operate and grow in 2024: from using blockchain to store and trace the increasingly important data linked to a brand’s environmental credentials; to deploying Chat GPT software to give staff some time back in their day. So, if any business isn’t up and running with their digital transformation progamme yet - don’t delay! A good example comes from the Ferovinum team. Their technology is enabling more flexible and efficient funding for businesses, but also delivers efficiencies right across the supply chain. They expect users to start relying more on actionable data throughout the capital cycle, rather than traditional spreadsheets and reports, to get a dynamic read on what’s happening to product in market.
