Thursday, May 14, 2015

Bourbon producers are over a barrel...

Excellent article to use for a lesson on the basics of demand and supply and the variables that contribute to the respective curve shifting.  Several graphs can spring forth from it!

The overall market demand for bourbon (the final output) has increased significantly over the past few years and that has had an impact on the supply side (the inputs) of producing bourbon.

This article focuses on bourbon barrels, an obvious vital input that goes into making this spirit. One businesses input is another businesses output and here we see how interdependent each participant in a market is on each other.

It also serves as a reminder of how complicated it is to get a final product in the hands of the end user--the consumer---at the lowest price/cost that the consumer can bear.  Notice the lengths certain suppliers go to in order to secure the raw materials to fulfil their part in the supply chain.

Bourbon Feels the Burn of a Barrel Shortage: Surge in popularity coincided with downturn in white oak logging

"...Bourbon production levels surged more than 50% between 2010 and 2013, according to the Kentucky Distillers’ Association. In 2013, Kentucky’s bourbon distilleries filled 1.2 million barrels, an increase of about 200,000 barrels from 2012. Compounding the problem is an emerging craft-distilling movement that doubled to 600 distillers over the past three years, of which about 300 are whiskey producers needing barrels, according to the American Distilling Institute. 
All the growth might have been intoxicating except for a sobering fact: The demand for more barrels coincided with a massive contraction in the lumber industry. As the housing market crashed in 2007, sawmills shut down and loggers abandoned the market. Lumber production shriveled to about 5.9 billion board feet in 2009 from 11.7 billion board feet in 2005, according to the Hardwood Market Report, which tracks the forestry industry...."

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