http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/ Out of the crooked timber of humanity, no straight thing was ever made Sun, 12 Feb 2012 17:54:31 +0000 hourly 1 http://wordpress.org/?v=3.3.1 http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9871 mark Mon, 05 Jan 2004 17:36:15 +0000 http://crookedtimber.org/wp/?p=679#comment-9871 For a distllery, the cost price of production of a litre of pure alcohol of 'new spirit' is between .85 pence and £1.50. I think this might change the IRR somewhat. For a distllery, the cost price of production of a litre of pure alcohol of ‘new spirit’ is between .85 pence and £1.50. I think this might change the IRR somewhat.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9870 al Fri, 12 Dec 2003 13:35:55 +0000 http://crookedtimber.org/wp/?p=679#comment-9870 Having thought about this some more, I suspect there are a few more niggles here (sorry for the pedantry!): 1. The assumption that the SMWS prices reflect a standard 75cl bottle at cask strength (50%) is flawed. SMWS cask strength is cask strength. Most are over 55% by volume, many are over 60%. 2. SMWS outturn is generally approx 300 or 600 bottles, depending on the cask. Since they are single cask bottlings, each one is automatically going to be 'rare' (although, I guess, not necessarily 'good'). Unusual finishes are even more rare and unusual malts are mainly what SMWS is about. At least one bottling from a cask formerly used to store chillis for tabasco sauce has been done by them. 3. I am a little cautious of the Whisky Web dataset. Rough-and-ready calculations based on the date of distilling don't tell you how long the whisky has been in wood. From what I can see there are at least some entries which are 'younger' than the distillation date would suggest. As Nick Sweeney points out further up in the comments, a malt ages in wood, not in the bottle. 4. There is a tendency for some malt drinkers to believe that the old days were better and some of the distilleries had (still have in many cases) some pretty weird practices. New stills are often deliberately dented to match the knocks on those they replace. Because of this, whisky distilled way-back-when has a degree of premium attached regardless of how long it was in wood. It's difficult to estimate how this affects price. Having thought about this some more, I suspect there are a few more niggles here (sorry for the pedantry!): 1. The assumption that the SMWS prices reflect a standard 75cl bottle at cask strength (50%) is flawed. SMWS cask strength is cask strength. Most are over 55% by volume, many are over 60%. 2. SMWS outturn is generally approx 300 or 600 bottles, depending on the cask. Since they are single cask bottlings, each one is automatically going to be ‘rare’ (although, I guess, not necessarily ‘good’). Unusual finishes are even more rare and unusual malts are mainly what SMWS is about. At least one bottling from a cask formerly used to store chillis for tabasco sauce has been done by them. 3. I am a little cautious of the Whisky Web dataset. Rough-and-ready calculations based on the date of distilling don’t tell you how long the whisky has been in wood. From what I can see there are at least some entries which are ‘younger’ than the distillation date would suggest. As Nick Sweeney points out further up in the comments, a malt ages in wood, not in the bottle. 4. There is a tendency for some malt drinkers to believe that the old days were better and some of the distilleries had (still have in many cases) some pretty weird practices. New stills are often deliberately dented to match the knocks on those they replace. Because of this, whisky distilled way-back-when has a degree of premium attached regardless of how long it was in wood. It’s difficult to estimate how this affects price.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9869 al Thu, 11 Dec 2003 17:19:48 +0000 http://crookedtimber.org/wp/?p=679#comment-9869 I remembered that my whisky books are in a bookcase in the Welsh Borders and I am in London. These links might interest you in the meantime although they don't really answer your question. Another thing I forgot was the "Angel's Share" - approx 2% loss in alcohol by volume per year when whisky is aging in wood. Presume you left that out deliberately though. Those links: http://www.dcs.ed.ac.uk/home/jhb/whisky/swa/cask1.html http://www.scotchwhisky.com/invest/ I remembered that my whisky books are in a bookcase in the Welsh Borders and I am in London. These links might interest you in the meantime although they don’t really answer your question. Another thing I forgot was the “Angel’s Share” – approx 2% loss in alcohol by volume per year when whisky is aging in wood. Presume you left that out deliberately though. Those links: http://www.dcs.ed.ac.uk/home/jhb/whisky/swa/cask1.html http://www.scotchwhisky.com/invest/

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9868 al Thu, 11 Dec 2003 15:52:59 +0000 http://crookedtimber.org/wp/?p=679#comment-9868 Very interesting! Had you decoded the number references SMWS uses to label their bottles? The first number denotes distillery, second is a bottling code. There are some very big names among the distilleries the society bottles. It might also be worth pointing out that the SMWS whiskys are single cask malt bottlings (rather than single malt) and are often atypical of the distilleries they come from (partly why they don't use the names). Two whiskies from the same distillery and of equivalent ages can have very different characters due to the woods of the casks and may be priced differently as a result. Prices at SMWS are likely to be quite varied and not necessarily reflecting the price you might expect for an equivalent bottling under the name of whichever distillery the spirit originally came from. I'll look into the price of unaged spirit for you - pretty sure I have some info about it somewhere. Very interesting! Had you decoded the number references SMWS uses to label their bottles? The first number denotes distillery, second is a bottling code. There are some very big names among the distilleries the society bottles. It might also be worth pointing out that the SMWS whiskys are single cask malt bottlings (rather than single malt) and are often atypical of the distilleries they come from (partly why they don’t use the names). Two whiskies from the same distillery and of equivalent ages can have very different characters due to the woods of the casks and may be priced differently as a result. Prices at SMWS are likely to be quite varied and not necessarily reflecting the price you might expect for an equivalent bottling under the name of whichever distillery the spirit originally came from. I’ll look into the price of unaged spirit for you – pretty sure I have some info about it somewhere.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9867 Jay Currie Sat, 06 Dec 2003 06:38:16 +0000 http://crookedtimber.org/wp/?p=679#comment-9867 All of which suggests that there is a crying need for whiskey futures. If you can do it with lame years in France, there is surely a way for a Scot to make a quid discounting the sure thing of whiskey in the cask. In principle a cask of whiskey,discounting the rarity premium and charging a mild risk premium for the possibilty of VAT and excise increases, should have a present value at which it could be sold. Or, better still, drunk when you are seventy. All of which suggests that there is a crying need for whiskey futures. If you can do it with lame years in France, there is surely a way for a Scot to make a quid discounting the sure thing of whiskey in the cask. In principle a cask of whiskey,discounting the rarity premium and charging a mild risk premium for the possibilty of VAT and excise increases, should have a present value at which it could be sold. Or, better still, drunk when you are seventy.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9866 Ashok V Desai Fri, 05 Dec 2003 12:44:08 +0000 http://crookedtimber.org/wp/?p=679#comment-9866 I think that 4% you got was the current interest rate on a liquid asset such as a bank deposit. It would vary, and so should the whisky prices. The whole vintage price curve should go up and down with the interest rate. I think that 4% you got was the current interest rate on a liquid asset such as a bank deposit. It would vary, and so should the whisky prices. The whole vintage price curve should go up and down with the interest rate.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9865 Doug Muir Fri, 05 Dec 2003 12:22:19 +0000 http://crookedtimber.org/wp/?p=679#comment-9865 Credit where it's due; a lovely piece of work. Why aren't you publishing this stuff? Pretty strictly beer and wine, with the very occasional finger of Balkan brandy. -- Damn, it'd be fun to try this for slivovitz -- more like whiskey than wine, but the price structure is distorted by massive government intervention. And always has been; moonshining and smuggling have been regional specialties for a long, long time. Doug M. Credit where it’s due; a lovely piece of work. Why aren’t you publishing this stuff? Pretty strictly beer and wine, with the very occasional finger of Balkan brandy. —Damn, it’d be fun to try this for slivovitz—more like whiskey than wine, but the price structure is distorted by massive government intervention. And always has been; moonshining and smuggling have been regional specialties for a long, long time. Doug M.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9864 dsquared Fri, 05 Dec 2003 08:21:40 +0000 http://crookedtimber.org/wp/?p=679#comment-9864 <i>see, the IRR on whisky should be more like cash than a bond, since once it’s old enough to bottle and sell, you can do so at any time</i> Give that man a dram! absolutely correct. see, the IRR on whisky should be more like cash than a bond, since once it’s old enough to bottle and sell, you can do so at any time Give that man a dram! absolutely correct.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9863 wcw Thu, 04 Dec 2003 23:01:25 +0000 http://crookedtimber.org/wp/?p=679#comment-9863 as an occasionally disturbed aficionado, I enjoyed this. it all mostly makes sense, too, except for the intercept. see, the IRR on whisky should be more like cash than a bond, since once it's old enough to bottle and sell, you can do so at any time. sure, the old stuff goes for more, but the new stuff can be sold now. in the aggregate, that'll behave like a bunch of commercial paper. it's just that I don't think a bottle measure of spirit is worth $30 out of the distillery, even accounting for the higher proof of cask strength. but that's a question for the whiskymakers, not me. I can't pick just one. I'm a huge fan of almost anything Ardbeg, Glenfarclas, Highland Park or Springbank. especially those pricey bastards at Springbank. the Sub Pop of the scotch world, sure, but did you get any of that 12/100 they exported to the US some years back. drool, drool, drool... as an occasionally disturbed aficionado, I enjoyed this. it all mostly makes sense, too, except for the intercept. see, the IRR on whisky should be more like cash than a bond, since once it’s old enough to bottle and sell, you can do so at any time. sure, the old stuff goes for more, but the new stuff can be sold now. in the aggregate, that’ll behave like a bunch of commercial paper. it’s just that I don’t think a bottle measure of spirit is worth $30 out of the distillery, even accounting for the higher proof of cask strength. but that’s a question for the whiskymakers, not me. I can’t pick just one. I’m a huge fan of almost anything Ardbeg, Glenfarclas, Highland Park or Springbank. especially those pricey bastards at Springbank. the Sub Pop of the scotch world, sure, but did you get any of that 12/100 they exported to the US some years back. drool, drool, drool…

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9862 nick sweeney Thu, 04 Dec 2003 22:50:20 +0000 http://crookedtimber.org/wp/?p=679#comment-9862 One last thing: the 'pure malt' thing isn't Diageo's invention: most supermarkets in the UK offer own-label malts for each region, and while the Highland, Lowland, Island and Speysides are usually labelled 'single malt', the Islays are almost all labelled 'pure malt', suggesting (though never stating outright) that they're vatted malts. Which is understandable, given that all the remaining Islay distilleries have such strong brand identities. The only own-brand Islays that are definitely single malts are sold by M&S and Oddbins (Bowmore and Bruichladdich respectively, if you believe the rumours). One last thing: the ‘pure malt’ thing isn’t Diageo’s invention: most supermarkets in the UK offer own-label malts for each region, and while the Highland, Lowland, Island and Speysides are usually labelled ‘single malt’, the Islays are almost all labelled ‘pure malt’, suggesting (though never stating outright) that they’re vatted malts. Which is understandable, given that all the remaining Islay distilleries have such strong brand identities. The only own-brand Islays that are definitely single malts are sold by M&S and Oddbins (Bowmore and Bruichladdich respectively, if you believe the rumours).

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9861 nick sweeney Thu, 04 Dec 2003 22:13:34 +0000 http://crookedtimber.org/wp/?p=679#comment-9861 One first thought: the big difference between the age/rarity premium of whisky and that of wine is that malt doesn't age in the bottle. Meaning that it's not just a question of taking a bottle of 1924 Sandemans and keeping it well-cellared for 80 years, as is the common practice with most Oxford colleges. You have to have a distillery that's confident enough of its long-term future to keep casks aside, and in good condition, rather than choosing to bottle at an earlier age, or flog off the casks to a blender. So, I suppose the main economic distinction between a bottle of 1960s Petrus and a 40-y-o Macallan is that the distiller bears the burden of sitting on his hands while the casks take up space, where as the winemaker gains a premium, if any, from giving buyers the right to take the wine <i>en primeur</i> and sit on <i>their</i> hands for 40 years. The Cardhu scandal is interesting, I suppose, because it directly addresses dsquared's 'distillery-specific premium', and points to another phenomenon: the transition from distillery-specific branding to more modern, advertising-driven branding in whisky sales: think 'duty-free shop' or <i>Lost In Translation</i> if you need that distinction clarifying. So, Diageo's saying 'sod the composition, we've spent millions pushing the name'. Personally, I'm amazed that <a href="http://www.epinions.com/fddk-review-4B6B-2037CAA4-39EC884B-prod3">'premium' versions of Johnny Walker</a> sell for such ridiculous prices around the world: I suppose that it has the advantage of being ubiquitous for foreign travellers, just as Jack Daniels is the preferred drink of the Formula One crews. The same curious position also applies to those blended Scotches which dominate the US/world market -- Black & White, Dewar's, Vat 69, Cutty Sark, Ballantine's -- none of which really register to most Brits, accustomed to Bell's, Famous Grouse and Whyte & Mackay. (Or, if you're discriminating, Black Bottle, which is very very good for a blended.) I do wonder what the yield curve is on Johnny Walker, though? I suspect it's higher than single malts; or at least, those malts which haven't received the big marketing push along the lines of Talisker, Laguvulin et al. However, I'd be open to an analysis which compared the yield curve of a blend to those of its component parts. Not that I'm asking the management to perform such a task. Mine would be a Port Ellen if I could afford to buy it and find justification to drink it. (Sigh.) So I'll content myself with an Ardbeg 17. One first thought: the big difference between the age/rarity premium of whisky and that of wine is that malt doesn’t age in the bottle. Meaning that it’s not just a question of taking a bottle of 1924 Sandemans and keeping it well-cellared for 80 years, as is the common practice with most Oxford colleges. You have to have a distillery that’s confident enough of its long-term future to keep casks aside, and in good condition, rather than choosing to bottle at an earlier age, or flog off the casks to a blender. So, I suppose the main economic distinction between a bottle of 1960s Petrus and a 40-y-o Macallan is that the distiller bears the burden of sitting on his hands while the casks take up space, where as the winemaker gains a premium, if any, from giving buyers the right to take the wine en primeur and sit on their hands for 40 years. The Cardhu scandal is interesting, I suppose, because it directly addresses dsquared’s ‘distillery-specific premium’, and points to another phenomenon: the transition from distillery-specific branding to more modern, advertising-driven branding in whisky sales: think ‘duty-free shop’ or Lost In Translation if you need that distinction clarifying. So, Diageo’s saying ‘sod the composition, we’ve spent millions pushing the name’. Personally, I’m amazed that ‘premium’ versions of Johnny Walker sell for such ridiculous prices around the world: I suppose that it has the advantage of being ubiquitous for foreign travellers, just as Jack Daniels is the preferred drink of the Formula One crews. The same curious position also applies to those blended Scotches which dominate the US/world market—Black & White, Dewar’s, Vat 69, Cutty Sark, Ballantine’s—none of which really register to most Brits, accustomed to Bell’s, Famous Grouse and Whyte & Mackay. (Or, if you’re discriminating, Black Bottle, which is very very good for a blended.) I do wonder what the yield curve is on Johnny Walker, though? I suspect it’s higher than single malts; or at least, those malts which haven’t received the big marketing push along the lines of Talisker, Laguvulin et al. However, I’d be open to an analysis which compared the yield curve of a blend to those of its component parts. Not that I’m asking the management to perform such a task. Mine would be a Port Ellen if I could afford to buy it and find justification to drink it. (Sigh.) So I’ll content myself with an Ardbeg 17.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9860 Tom Runnacles Thu, 04 Dec 2003 21:06:25 +0000 http://crookedtimber.org/wp/?p=679#comment-9860 Glenmorangie, please. Glenmorangie, please.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9859 Mrs Tilton Thu, 04 Dec 2003 20:38:28 +0000 http://crookedtimber.org/wp/?p=679#comment-9859 Brad DeLong writes: <i>“Uisquebah”</i> Close enough, for a Sasanach. 'Vodka', while we're at it, is a diminutive for water, 'whiskeen' as it were. Brad DeLong writes: “Uisquebah” Close enough, for a Sasanach. ‘Vodka’, while we’re at it, is a diminutive for water, ‘whiskeen’ as it were.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9858 Mrs Tilton Thu, 04 Dec 2003 20:34:32 +0000 http://crookedtimber.org/wp/?p=679#comment-9858 It's your prerogative, of course, to edit the piece ex postfacto. Those who control the past control the future, or something. Now you'll excuse me as I pour myself a wee dram of Talisker before retiring. It’s your prerogative, of course, to edit the piece ex postfacto. Those who control the past control the future, or something. Now you’ll excuse me as I pour myself a wee dram of Talisker before retiring.

]]> http://crookedtimber.org/2003/12/04/the-malt-whisky-yield-curve/comment-page-1/#comment-9857 Ted Barlow Thu, 04 Dec 2003 20:04:02 +0000 http://crookedtimber.org/wp/?p=679#comment-9857 What is the effective definition of "neutral spirit"? What is the effective definition of “neutral spirit”?

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