The White Oak Shortage That Could Ruin the Bourbon Industry

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1:27Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, in a new studio today. I know. Isn't it great? If you're just listening to the podcast on the audio, I guess nothing has changed. But if you're checking it out on video, on YouTube, on QuickTake, etc., streaming. It looks different. You should check it out. Yeah, for sure. I think we're leaning into the sort of 90s Nickelodeon Spongebob vibe, maybe. That is a very interesting, I like that aesthetic a lot. After school special. This is an after school special, except today's topic is not like really, well, it kind of is.

2:08It's kind of an after school special vibe because today we're going to be talking about alcohol. Yes. Okay. But not just alcohol. We're doing a supply chain episode. Classic odd lot supply chain episode. Yes. And so, you know, we've I don't have we ever talked about the alcohol industry before? I don't think we have. I don't think we have either. But, you know, like one, it's one of those things where it's like, OK, like you go, you ask for a drink, et cetera. And you probably do not think too much unless you're like a true connoisseur of something about what it took to get there. Yeah, I think that's right.

2:41And I mean, And to be fair, that is the case with almost all the supply chain episodes that we do, which is people use these final products and goods. They don't always necessarily realize what goes into them until something happens. There's a disruption of some sort. And then suddenly everyone realizes, oh, actually, you need this component in order to make this thing that I really like. The other thing that I've been thinking a lot about with respect to supply chains is that there seem to be some issues that arise that I don't know if mechanical is the right word, but where it's like you can change something and maybe fixing it.

3:12Like capacity at the ports, for example. Like in theory, that seems like a sort of like human solvable problem, whereas we talk about other issues that arise in which we're sort of like dependent on natural phenomenon or at the mercy of natural phenomenon, such as drought and say the level of the water level of the Mississippi River. Like there is very little that like humans can do, certainly in a short period of time to sort of like make water levels higher when that becomes a problem. Yeah, and I think for this episode, the time frame is really key. And if I think back to an episode that is perhaps most relevant to what we're about to discuss, it's some of the ones we did with Stinson Dean where we talked about lumber supply and just how long it takes to actually grow the trees that we use for all sorts of things from housing construction being the most important one.

4:03Well, and so there is this supply chain tension that maybe we're going to see within alcohol, specifically the world of bourbon. And there are many aspects of it that are just slow moving, particularly barrels, building them or the trees required to make the barrels, the aging process, etc. It's sort of like this slow moving supply chain that probably many people don't really think about, but there could be issues in the future, at least according to our guest who will have on. Right. A slow moving supply chain crisis is the theme of this particular episode. But I think it is true that when you think about bourbon, most people think bourbon, oh, it comes from corn and, you know, fermenting corn.

4:45Not everyone immediately thinks about the barrels that it's aged in and where those actually come from. Are you a bourbon fan, by the way? No, I'm the worst alcohol drinker. I drink almost exclusively light beer. I try to get into dark, sort of like brown, like heavy alcohol, like, I don't know, like once every few years, like, because I think it would be nice or relaxing. Hasn't happened yet. But I am aware and I respect people for whom that is like, you know, I'm aware that that's a popular. Maybe this will give us both a newfound appreciation for bourbon. Exactly. All right. Well, I am very excited about our guest.

5:19We are going to be speaking with Kelvin Norman. He is an assistant teaching professor of forestry at Penn State. and he says there is a looming under the radar supply chain, maybe crisis is the right word, problem coming for the bourbon industry thanks to the wood that's needed for the barrels. So we're going to learn about something. You know what I'm excited about too? This is not like a crisis in the public view yet. So maybe we can like help get ahead of something and maybe it'll never become a crisis as opposed to saying like, oh, how did this happen? Bunch of people are going to plant trees because of this episode.

5:53Let's hope so. All right, Kelvin, Kevin, thank you so much for coming on Odd Lots. Thank you for having me on. I'm super excited to talk about trees. I love talking about trees. This is an after-school special. I would hope that an assistant teaching professor of forestry likes to talk about trees, but I am excited about talking trees as well. Well, let's just start with like, can you explain the role of the barrel specifically within the bourbon making process? Yeah. So this is where it gets really fun. bourbon is an American liquor, it's like our true native liquor it's 51 % corn that's distilled three times and put into barrels at 80 proof and then it has to sit in white oak once charred white oak barrels for a couple of years the reason you have to use white oak you can use a lot of wood to make barrels, it's a really old art but it has to sit for a couple of years so you have to use white oak because white oak, wood fibers are just like long straws.

6:52And if you put liquids in those straws, you can actually drink through the straws. When you're doing your forestry degree, we do this really fun thing where you drink water through white oak and red oak. So red oak works just like a straw, really fun, kind of nerdy. But if you try to use white oak as a straw, it doesn't work because white oak has these little bubbles in the wood that just develop after the tree is done using those straws to move water up and down the tree. And so those bubbles prevent liquid from escaping from the barrel itself, which is really handy when you're trying to age something for like 10 or 12 years or three or four years.

7:29So there are only three woods that you can really use to make barrels that age things for a long time. There's French oak, Hungarian oak, and white oak. If you want to get botanicals, Quirkus alba, for those of you following along at home. So we use white oak here in America. you legally have to use it and you can only use that barrel once. After they use the bourbon barrel, they usually sell it off to other liquor distillers because those barrels are expensive and very good. This is already one of those episodes that I can tell is going to produce a lot of facts that I'm going to mention at parties and be very popular.

8:03Just bringing up random things to people from that. Just randomly saying Corcus Alba all the time. Okay. Well, on that note, White Oak has this special property that you were just describing. What's the actual distribution of white oak in America? How common is it? It depends on where you are. White oak is an eastern U.S. species. You can find it from New England, Connecticut area, all the way over to Minnesota, down to Tennessee and Florida. To make a barrel, and this is going to sound really silly, you have to have a really high quality piece of wood. If you have a branch or a hole in that barrel, it's not going to make a good barrel.

8:42So you need really high quality white oak. So we really only get, we call them stave quality because that's the piece of wood you use to make a barrel is a stave. You only really get stave quality wood from like New York down into Georgia. I've heard of staves coming from like Southern Minnesota, but like not really. So you're, you're looking really central, like the apps, the Appalachians. Just a real quick question before a longer question, but you mentioned like, how much is a barrel like if i wanted to not not you know just the wood itself how much is that that is a really great question and i can't get that information out of barrel makers i can tell you if you try to buy it there's a distillerator me and they will sell used barrels for like 120 bucks so i couldn't tell you what it what a barrel costs right right off the block cooperage you know are making barrels it's like a it's like a dark art you know they have a lot of Secrets.

9:36Every cooperage does their barrel making a little bit differently. They age wood differently for various distillers. This is a market structure episode. Yeah. We got to get a cooper on next time. Oh, there's not many of them. There's not many of them, but you can find them. Why should we be concerned about the supply of white oak? Okay. So we have one tree. We have one tree species. It's technically a commodity, but unlike pine lumber, it's not spruce and fir are not interchangeable. You can only get it from white oak. White oak has very specific growing requirements. We're looking for the superstar white oak.

10:15You have to have white oak on good sites growing well. We have a lot right now, but when we look to the next generation of white oak, there's very little. We're looking at a 77 % population decline if nothing changes today. If we take all of our seedling and saplings, So our little oaks that we have on the ground, when we put those up in the overstory, 77 % of the trees that we have today are going to be population decline. So maybe just to back up, to illustrate that point, can you walk us through the process of where a barrel actually comes from? So who owns the white oak trees? When do they decide to cut them down?

10:54And then how does that whole process of creating the barrel actually happen? Yeah. So Tracy, follow me on this one. what what can you say about an acorn it's small but it grows a large tree yeah in a nutshell it's an oak tree very good so we don't get a lot of forester jokes but they grow on you slowly so um oh that was good too i i try um so you start with to to start with a white oak we got to go back like a hundred years you start with an acorn or a stump sprout from a tree. Slowly that recruits so it grows from an acorn into a sapling, into a pole-sized tree, into a stave quality tree. That takes 100 years and you have incredible mortality.

11:41So we'll start with like a couple of thousand seedlings and we'll end with like 200 trees. And those trees are there for a long time. So the odds of a seedling and acorn becoming a tree, super low and then to become a barrel so if you have a forest of really wonderful white oak there's a stave buyer it's one person for the mill they'll go around they have some of them even have specific counties and like specific areas that they know good wood comes from because you're looking for super quality trees like we're again we're talking the nfl of trees it's got to be super straight there can't be any turn in that tree at all um so they'll go around they'll cruise the entire stand looking for trees that they want.

12:23They'll select those trees. And then when a harvest comes through, those trees get treated differently and they get taken out and sent right to the stave mill. Sometimes they'll get cut up at a sawmill and the stave mill buys them there, but usually they're out there, they're picking trees on woodlots.

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14:18In terms of the sort of acreage, the volume of these white oak trees right now, how much was that, I don't know if the word is like planned or active decisions that were made decades and decades and decades in the past versus sort of like a more emergent phenomenon, and were blessed with something that was sort of emerged over time, but that now at this point needs more active management? Oh, Joe, that's a great question. It's a really fun discussion that we have at the bar after forestry conferences. So we have a glut of white oak right now, following farm abandonment in the Great Depression.

14:54For those of you who are not foresters, when you're a forester, you have to think really long term because what you're doing today impacts the landscape for the next 100 years. So when we look back 100 years, So we're looking at Great Depression is when most of these forests start. You get farm field abandonment. White Oak really likes that sun and the semi-shade that came with that, as well as back in the 20s, people ran. They did a lot of fire. They're out there cutting down trees. And we had this dappled shade condition that was really great for White Oak. So I would say the amount of White Oak that we have today is probably a little bit extra than we would expect.

15:28But the decline that we're seeing is not a result of, you know, there was just too much. It's the management has changed and we're not managing it correctly to get that white oak back. So it's a totally an emergent phenomenon, but it sounds like it was came from things that were not necessarily intentional, but in a way we owe this abundance to the Great Depression. Yeah. And then we also have to look back even farther back because this continent has been peopled for a couple of thousands and thousands of years. And so those peoples managed this landscape for a really long time using fire and harvesting timber and deer and all kinds of stuff.

16:08and they helped, you know, they liked white oak because white oak has a tasty acorn. If you like to eat acorns, I'm not a huge fan of it. I think it's kind of a cultural thing, but you know, the peoples who lived here before Europeans liked white oak and they managed landscapes for white oak and those, the trees in the white oak family. And so they helped shape the landscape and the trees for white, you know, to be more white oak friendly. So this is something I wanted to ask you about, because this is something that I learned from buying that house in Connecticut, which is a lot of those sort of eastern states used to look very park-like because Native Americans, I see you shaking your head, but you know, like more park-like than they look now because Native Americans would burn some of the scrub and brush in order to manage the land.

16:53Talk to us about a little bit more about that component of it. Like what does fire actually mean to the White Oak and why has that process changed since the Great Depression? So, you know, a lot of people think trees, trees don't like fire. Actually, it's not true. Some trees really love fire. So white oak is kind of, it's not fire dependent, which is when a tree only regenerates after a fire, but it likes fire. So what white oak does is when it grows, it starts putting nutrients down into the root system and then it grows up. a lot of other trees will just go straight up because you know when you're a tree you need sunlight and so you to get something you got to go up but white oak goes down and then it goes up so if you get a couple of fires in there that kills out trees that can't take fire so you've your maples don't like fire you know kind of your um ash and that kind of stuff don't like fire so you get a couple of burns through and then the white oak comes up white oak is pretty fire resistant when it gets to you know a smaller you know a smaller size so after it gets top kill it's probably going to survive most surface fires.

17:54And then you get these beautiful white oak stands. We, you know, recently in management have suppressed fire because we're like, fire bad, don't like fire. In the Southeast, they never really stopped burning. They had a culture of burning. But here in the Northeast, it's very difficult to get prescribed fire in the ground, which makes white oak regeneration very difficult. But there are other things that are, there are other problems. It's not just a lack of fire in the landscape. You know, this is one of Because all unhappy families are different in their own way and all happy families are the same.

18:26So this kind of leads to my next question, but I wanted to pick up on something that Tracy already asked about. But further to the current economics of this acreage, who owns this acreage? And for them, I have to imagine the bourbon or the Cooper market leading into the bourbon market, I'm assuming it's not a massive slice of like their own economics. And so can you talk a little bit about like, who are these companies that sort of like own a lot of this acreage? And what are they, what are most of them optimizing for? Because I assume it's not optimizing for the bourbon market specifically. Yeah.

19:05So most of the land that you see in the United States is owned not by companies, but private landowners. So like the three of us, we represented like in Pennsylvania, that's 70 % of land ownership. is just like random people in their backyards, which is why, you know, doing very good force management is difficult. It takes money up front and then you're not going to see financial return for a hundred years. So the odds of like, that's the really fun thing when you do force, it's like, I'll never see this stand again. I'm doing this not for me, not for the person after me, but three people after me.

19:37This is kind of like, I think why endowments like, don't they like trees, like the Yale endowment? Because these are assets that are really not on typical market cycles. Yeah, there are some large timber investment companies and real estate investment companies. Timo's and Rita own forest land. But the East Coast has been people by Europeans for a long time. So it's difficult to get that land. There's not a lot of it out there that large companies can buy up. And when you get into the Southeast, they buy main... There's a lot of softwood. So Southern Yellow Pine is the biggest agricultural export of the Southeast.

20:13and they grew a lot of pine down there. That's very easy to manage. White oak is difficult to manage. You have to put a lot of time, thought, and effort and money into it. And then you see that return way down the line. So the economics from the system that we have don't make a lot of sense. Because if you go out and you do invasive species management, which you have to do to regenerate white oak, it costs you$80 an acre today. And then you don't get to recruit that value financially for 100 years. You might get to recruit it in that you're harvesting deer or you're out there walking your dog or you and your family are having a good time on the landscape, but there's not really a financial value for that.

20:51Whereas doing the management costs money today. Yeah. So just on this note, I mean, you walked us through how the economics don't really work, but I have to imagine the people that have the biggest stakeholders in growing white oaks should be the bourbon makers. Are bourbon makers able to do anything about this? Can they plant their own forest, for instance? Yeah. So the bourbon makers are definitely, they've definitely taken notice of this. There's a thing called the White Oak Initiative, which is a partnership of the Forest Service, you know, various state governments. They own land and the bourbon makers, Cooperages, and they're helping to, you know, try to raise the profile of this issue and, you know, teach people how to manage their land correctly and, you know, for oak species.

21:35So they're taking steps. They also fund a lot of research and they're funding nurseries and their funding efforts to plant white oak out on the landscape. The problem is you can't really plant white oak just in straight lines like it's corn or southern yellow pine because when you make a barrel, you need nice, tight grains and you need competition. And when you do a plantation, you don't really get that. And they don't like plantations. So you can put them out there, you can plant them in lines, and you're not really going to make barrels out of that. You need the natural region. You need a good, well-managed forest.

22:09Can you explain, what do you mean by competition in this context? How does that work and how does that natural form of competition create better wood? So when trees grow, I'm actually teaching my students this lesson shortly. So you have competition for sunlight. Trees need three main resources. They need sunlight, they need water, they need space, and they need nutrients. Nutrients isn't really a problem. So they need that competition for sunlight. If, you know, a tree gets all the sunlight it ever wants, you have these really wide growth rings. Actually, I have a tree cookie here. So you have these other growth rings.

22:47If you're listening to this on the audio, you got to watch the video because Kelvin has propped. This is awesome. Well, again, my students are going to see this in an hour. So if my students are listening to this, you already learned this lesson. So you have these growth rings here, which is how much this this tree grows every year. When they're very big, that's really good for liquid moving through it, which if you are trying to hold a product for a long time in a barrel is bad. So you need trees that are kind of stressed and they're really having to compete. And so the growth is it's good, but it's not huge.

23:22This is the opposite of like, if we're growing like two by fours, when we're growing two by fours, we want big growth because then you can make a lot of two by force really fast. So you need the sort of the dappled sunlight with some shade, basically the forest environment with lots of trees crowding in that makes them compete to grow up towards the sunlight. To what degree can you, I guess, you know, replicate that environment? Like how easy would it be to start a commercial white oak farm and just create your own little natural looking forest? Setting aside the hundred years that you have to wait for getting your financial return.

23:55The timeline is an issue, but if you're really motivated to try to start solving this problem now, how difficult would it be? It's not impossible. It is difficult. You do have to have, that's why forestry is a profession. You've got to have folks who know how to manage these trees to encourage growth. This is a solvable problem. It just takes time, thought, effort, and money. so you have to know that you have the correct physical ground your soil and nutrients have to be right so you have to have the right ground and then you have to have the right trees on site already if you don't have white oak on site you're probably never going to grow white oak you can plant it in but deer love white oak so they'll just come through and buzz down anything you plant so you have to have it on site you can manage it correctly we were just out the other day in class in a white oak stand and there we could easily manage that forest for white oak in stands that aren't that like perfect.

24:53So you can do white oak regeneration very well in Kentucky and Missouri and the Ozarks. But then as you expand out, you run into invasive species that require management. And again, we can control those species, you know, through the application of herbicides or prescribed fire. You know, sometimes goats work for some species. So if you can control those species, you do management with deer. Sometimes we have to fence forests now to keep deer out so that way the trees can grow high enough. The deer aren't a problem. So you keep the deer out. You can get white oak back. It just takes, you know, effort.

25:26There's been a lot of changes to the forest. I'm really fascinated by this point that this idea of like the best type of trees for, say, lumber for housing, which seems like it's probably, you know, a much not seems like a much bigger industry than barrels is very different than the optimal trees for barrels. So how much does this inherent like economic tension create stress in terms of like the planning that you needed in terms of like, I don't know, I feel like the housing is a bigger market and that's where people are going to like sort of like think about their forestry efforts. I mean, it does to some extent.

26:04So Pennsylvania, we call ourselves the, you know, we're the largest export of hardwood in the nation, the high value hardwood. Then if you go down to like Georgia, they export a lot of really high value pine. The pine species they have down here don't grow in Pennsylvania, so we don't have that competition for space because you just can't grow them. If you put them in the ground today, they'll be dead in a couple of years. They don't make it to the winter. They don't like our soil types. There's a little bit of competition when it comes to species, but you're working with nature. You could try to fight nature, but you usually lose.