Earlier this decade, traders had been betting large on tequila—a distinct celeb gave the impression to be launching a brand new premium model weekly. Now, Mexico is swimming in 525 million liters of surplus tequila, sufficient to fill 200 Olympic-size swimming swimming pools and greater than the overall quantity that Mexico exports yearly.

This sobering reversal reveals vital classes about commodity cycles, altering client tastes, and why following the group can depart your portfolio with a hangover.

Tequila and the Basic Commodity Lure

Lately, headlines have warned of a worldwide tequila scarcity. The agave crops used to make the spirit take years to mature, and a surge in demand meant distilleries struggled to get sufficient blue Weber agave. In the meantime, a parade of celebrities like George Clooney, Kendall Jenner, and Dwayne «The Rock» Johnson had been all pitching their very own high-end bottles. Costs for premium tequila shot up.

By 2023, agave farmers had been commanding about 30 pesos (about $1.70) per kilo for his or her blue Weber agave crops. In the present day, those self same farmers are fortunate to get 2 pesos ($0.10) on the spot market—a 93% collapse that is brought on 1000’s of Mexican farmers to desert their fields, which might imply a future agave scarcity and spiking costs once more if and when demand picks up once more.

This can be a basic commodity entice: producers rush to extend provide when costs spike due to shortages, and the brand new provide arrives proper when demand begins to chill.

This will have an effect on traders far past the spirits business:

• Agricultural commodity exchange-traded funds whose share costs can swing broadly given huge modifications in provide and demand
• Shopper items corporations whose income are tied to the price of uncooked supplies
• Banks holding important quantities of agricultural loans which may transfer into default
• Firms all through the availability chain, from farm gear producers to distributors

The «Sober Curious» and Altering Shopper Habits

Mexico’s tequila surplus partly derives from altering client behaviors that many traders are watching carefully. Customers worldwide, notably youthful generations, are ingesting much less. Gallup discovered that the variety of adults aged 18 to 34 who say they by no means drink has dropped greater than 15% because the early 2000s, and of those that do, they’re much less prone to have finished so just lately. In the meantime, amongst underage drinkers, the drop is much more dramatic.

That is serving to to reshape the beverage markets:

• Premium non-alcoholic beverage corporations are seeing double-digit progress
• Restaurant chains are increasing alcohol-free cocktail menus
• Main beverage producers are investing closely in zero-proof alternate options

Classes for Investing

1. Watch commodity cycles rigorously—right now’s shortages usually result in tomorrow’s surpluses, affecting every little thing from ETFs to client items shares.
2. Take note of altering client preferences, particularly amongst youthful demographics.
3. Look ahead to spreading results amongst interconnected markets. Regional business challenges and commerce dangers can ripple via international markets—from agricultural lending to worldwide commerce flows to retail gross sales. 

The Backside Line

The tequila lake serves as a reminder that even the most popular market traits can shortly reverse—and prudent traders look ahead to these shifts earlier than they develop into apparent to everybody else.