Over a Barrel

For all the endless marketing around wood finishes, typically some exotic sherry cask, the vast majority of Scotch is aged in hand-me-down bourbon barrels. The Americans once almost gave them away, but not anymore as Tom Bruce-Gardyne discovers …  

The price of an ex-bourbon barrel, the cask of choice for a good 90% of malt whisky and virtually every drop of grain whisky maturing in Scotland, has rocketed. Gordon Doctor, operations director at Ian Macleod Distillers (IMD), talks of: "Increases of between £50 and £100 per cask compared to 2023 which was already an historic high."

"The most recent price I was quoted was US$300 (£237) ex-Kentucky," he continues. "Four or five years ago, the price would have been around US$100 ex-Kentucky." Luckily, his main source of wood in the States is not quite as expensive as that, but it seems the supplier cannot fulfil all IMD's needs, forcing the company to top up from elsewhere.

As for the reasons for the price hike: "It's certainly not the cost of timber as our US oak sherry casks have only gone up marginally," he says. "Lack of demand for bourbon means fewer casks emptied and there's definitely more demand from other spirit producers." On that first point, there is certainly an air of caution within the American whiskey industry about future growth.

Speaking to analysts in March, Lawson Whiting, president and CEO of Jack Daniel's owner - Brown-Forman, didn't mince his words. "Christmas stunk," he declared in a refreshing change from the usual boardroom platitudes about sales 'normalising' after the Covid super-cycle. The company's sales and profit forecasts were duly cut for the second time in three months.

Domestic demand for American whiskey as tracked by the Distilled Spirits Council of the US has doubled since 2010 to 31 million cases last year, but 2023 marked the end of a decade of uninterrupted growth, albeit by a fall of less than 0.5%. As such, it seems that a bigger reason for the rising cost of wood for the Scotch industry is the surge in demand from all those other aged spirits.

This year, the Great Northern Distillery in Dundalk, the second largest distilling complex in Ireland, will hoover up 124,000 ex-bourbon barrels. According to its founder and chairman, John Teeling, the price leapt from €100 in 2022 to €180 last year and is now at €280.

As well as there being less Jack Daniels disgorged, "American single malts are growing and they don't have to use new oak, Tequila maturation is growing very fast, and there are new malt distilleries all over the world," says Teeling. "There's a huge and growing demand for oak to the extent there's talk they may relax in some way, the law about using fresh oak for bourbon."

The rule dates from 1938 and Franklin Roosevelt's 'New Deal', and was apparently due to lobbying by the lumber industry. Allowing bourbon distillers to re-use barrels would save them a pile of money and simultaneously stuff the competition, particularly Scotch. So, you can see the appeal.   

However, Glenmorangie's CEO, Caspar MacRae, doesn't sound unduly terrified. "Even if they changed the laws. I don't think that would suddenly cut off the supply of casks altogether," he says. "But it would mean we'd need to establish very different procurement strategies and relationships."

Not that he's anticipating such a move, for as he says: "Bourbon doesn't want to change the signature taste of bourbon that comes from using first-fill casks in new oak. Big brands with established reputations are always going to be very cautious about fundamentally changing that." 

Asked if such a scenario keeps him awake at night, Gordon Doctor shakes his head. "No! Our industry is already adapting by filling some Scotch straight into new oak. The impact is easily blended out or left in to give marketeers something else to prattle on about – Appalachian Virgin Oak finishes are very popular! We already get coopers in Spain to make new oak casks and then pay for them to be seasoned with sherry, so something similar might happen in the US."

Joanne Perrott, Whyte & Mackay's procurement category manager, concedes that "any change [in the rules] would have a big knock-on effect on our industry, but we haven't been able to substantiate any of these claims so it's just 'business as usual' for us." And she accepts that: "We like everyone are very much at the mercy of the bourbon industry so any slowdown in the US immediately impacts our supply chain."

Some of the big Scotch players have a foot in the bourbon camp, notably Beam Suntory whose malts like Bowmore and Laphroaig undoubtedly benefit from having easy access to old Jim Beam barrels. Everyone of any size has contracts in place, leaving all the new, independent distillers to scrabble around for what it can get. As Joanne says: "Demand is currently outstripping supply and brokers are not securing the volumes they require to keep smaller customers supplied. This has led to a rise in speculative buyers and sellers."

As for passing on these price hikes to the consumer, Glenmorangie's Caspar MacRae explains: "The thing with whisky is that annual variations in the cost of supply tend to get averaged out over the twelve years of maturation." Not that all Scotch is aged for that long, but distillers have time to spread costs. And they also have ways of extending the life of a cask beyond its fourth or fifth use, by scraping off the inner layer to expose fresher oak, and then toasting it over a fire – a process known as dechar / rechar.

Supply and demand for wood may well settle down causing prices to soften, but right now the Scotch whisky industry is having to dig deep for its cask of choice. Perhaps it's just payback for the past. During the whisky slump of the mid-1980s you could apparently pick up an ex-bourbon barrel for just US$3!