Let’s burn it all to the ground

I was in Jalisco, Mexico, this week. The liquid for our ​Altea​ Tequila SPV was getting barrelled, and I wanted to be present for the process. Today’s notes are insights from the trip.

It’s just the two items today because I’m short on time and writing this from a red-eye flight.

Please let me know if you prefer/hate fewer items that go more in depth.

Today, we’ve got:

  1. Dry Agave. Hot profits?
  2. Time to get salty

Let’s go.

Dry Agave. Hot profits?

Driving around Jalisco this week, I was struck by how dry everything was. It’s a desert, so it’s meant to be arid. But it was dry. Like really, really dry. And hot.

The last five Mays in Mexico have each been the hottest on record, and Mexico City has only 12% of its water reserves left.

These two conditions combine to create a dicey situation for agave plants–used to produce tequila–in the area.

First, agave plants don’t need much water, but they do need some. In hyperdrought conditions, the plants don’t grow to full maturity, meaning the kg/plant yield is less than expected.

Second, while agave plants won’t burn on their own — they hold a lot of moisture — weeds and tinder grasses amongst the plants will. While prudent agave farmers are fastidious about keeping weeds and other flammable material out from between their crops, not all are.

Asking for trouble

I saw at least a dozen fires and countless rows of agave plants scorched into the ground.

One of the smaller fires I saw

The country is about to come into its rainy season, but people there are worried. If the country doesn’t get a proper dumping on, crops will fail.

Not all, and not completely, but some.

And because you can only call it tequila if the agave plants are grown in this specific region, farmers and distillers can’t look to grow or source agave plants elsewhere.

There are a couple interesting opportunities here.

First, if you’re a farmer in the region who keeps fields tidy and has access to some irrigation, you’re in great shape should things continue to get worse. There’s probably going to be a supply shock, leading to a sharp uptick in the price of agave plants.

We’re considering investing in a project like this. ​Let me know​ if you’re interested.

Second, there’s talk of creating an agave futures market, which would present an eaiser entry point into this trade for non-farmers.

Our 80 barrels of 100% blue agave tequila are tucked away safely in two warehouses and fully insured.

Safe and Sound

Would you like to know more?

  1. Desert Wisdom/Agaves and Cacti: CO2, Water, Climate Change
    • Author: Park Nobel
    • Description: Discusses the impact of carbon dioxide, water availability, and climate change on agave and cacti.
    • ​UCLA Faculty Books​
  2. Highlights for Agave Productivity
  3. The Agave Industry Faces Sustainability Challenges
    • Summary: Explores environmental consequences and sustainability challenges within the agave industry.
    • ​FoodPrint​
  4. Climate Change is Coming for Your Agaves
    • Summary: Discusses how agaves thrive in arid environments and the potential threats posed by climate change.
    • ​Mezcalistas​

Time to get salty

One solution being discussed in Mexico to solve the water issues I mentioned above is building out desalinization plants along the coasts. With nearly 6,000 miles of coast line, there’s no shortage of space, and both the energy per cubic meter and the price of energy have come down drastically over the last 20 years.

Today, it costs around $0.03 per cubic meter to desalinate water. That sounds very cheap.

The challenges now are twofold:

First, Mexico needs to build the infrastructure to get the water from the coast to the parts of the country that need it.

Both Mexico City and Jalisco (where agave is grown for tequila) are under super high stress, and they’re not particularly close to each other. Jalicso borders the sea, but agaves are grown in the mountains, and Mexico City is the eigth highest capital city in the world at nearly a mile and a half above sea level.

So the country needs to build a lot of pipes to get the water uphill.

The second problem is brine. Brine is the sludge left over after the fresh water has been extracted from seawater. For every cubic meter of water produced, there’s around 1.5 cubic meters of brine remaining.

This brine is usually pumped back into the sea, which can cause all sorts of problems with salinity.

But there’s an ​opportunity​ here as well.

In recent years, there has been considerable discussion about the possibility of recovering minerals from discharged brine. There are various types of minerals in the brine. These could be of four different types: high concentration but low value (such as salt), very low concentration but high value (gold, silver), low concentration but intermediate value (lithium, copper), and relatively high value and concentration (magnesium, potassium and bromine). If salt is extracted from the brine from all desalination plants that are currently in operation, and this is practiced universally, it would mean that the current global production of salt will rise by over 10 times. This will undoubtedly decimate the global salt market, and its price would encounter a free fall. Lithium and potassium may have a market, but separation technology for recovering them economically is not available at present.

Right now it ​costs​ around $1.50 per kg to extract salt from brine, which isn’t economically viable. That’s set to decrease to perhaps $0.50 per kg by 2030, which is roughly the price of a ​giant bag of salt on Alibaba.​

So I don’t think Big Salt has anything to worry about for awhile, but there are potentially some opportunities around the extraction of more valuable minerals like magnesium, potassium, and bromine.

Magnesium is one of those ​elements​ produced almost exclusively in China that’s absoultely essential to lots of stuff. So even if it’s not quite economically viable vis-a-vis buying from China, there might be an opportunity here from a national security point of view.

​Potassium​ is essential to producing fertilizers, and there are futures markets for that (potash).

Finally, bromine is already primarily produced by extracting it from brine, so this is perhaps the lowest-hanging fruit for desalinizers. There’s also a ​futures​ market if you want to short the mineral.

Would you like to know more?

​Salt: A World History​: The only rock we eat, salt has shaped civilization from the very beginning, and its story is a glittering, often surprising part of the history of humankind.

​Marine Impacts of Seawater Desalination:​ Science, Management, and Policy: This book examines seawater desalination’s environmental impacts, highlights knowledge gaps, recommends future research, and covers relevant policies and regulations.

That’s all for this week; I hope you enjoyed it.

Cheers,

Wyatt

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Wyatt Cavalier

With a background in finance & intelligence analysis, Wyatt has an unhealthy obsession with finding the best blue chip investment opportunities. His previous newsletter, Fractional, resonated deeply with subscribers, bringing actionable insights and unconventional trading strategies. His rare book collection specializes in banned editions. He currently lives in Spain with his beautiful wife, three young boys, and dog Monty.

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