Agaves/tequila: finish of spike fortifies excessive plains snifter

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Wine connoisseurs are usually not the one ones who earnestly talk about the influence of “terroir”. The relative deserves of tequila distilled from highland and lowland agaves now passes for dinner-party dialog between the spirit’s devotees.

Tequila’s rising recognition has pushed the worth of the spiky vegetation up tenfold over the previous decade. However there are indicators that the agave growth could also be turning to a bust. 

It’s not troublesome to see why the worth of agaves jumped from 2.7 pesos/kg in 2012 to over 30 in 2022. Tequila has undergone a reinvention, from occasion shot to posh tipple.

Because of this, US tequila gross sales rose by 20 per cent yearly between 2018 and 2021, in line with Bernstein evaluation, outpacing the broader drinks market. Excessive-end, 100 per cent agave tequila is outperforming the decrease rated 51 per cent mixes.

Agave manufacturing, concentrated within the Mexican state of Jalisco, is singularly rigid. Vegetation take seven years to mature. Harvesting the fats central stem kills them off. Which means provide is lumpy and takes a very long time to reply to value indicators. 

An agave downcycle could already be underneath manner. The beginning of the tequila growth dates again to the mid 2010s. Demand is now moderating. Quantity development, which peaked above 20 per cent in 2021, has fallen to mid to excessive single teenagers.

This mixture of things has already halved agave spot costs to 16 pesos per kg. In a glut, additional falls can be inevitable. 

Bar chart, Becle/Jose Cuervo ($ mn) title Secure returns

That adjustments the economics of tequila. It takes 7kg of agaves to make a litre of spirit. By this reckoning, the reported value decline would add $6 to the margin for every litre.

Excellent news for tequila producers. The most important, Jose Cuervo, managed by Mexico-listed Becle, accounts for some 30 per cent of volumes. Diageo can also be uncovered to the development. Its premium Don Julio and Casamigo tequilas have been rising quickly, and now account for 9 per cent of complete gross sales. A sustained fall in agave costs warrants a tequila toast for distillers.

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