Is it possible to create a whisky futures market?

Whisky is currently much in demand. The integration of India and China into the world economy brings more than 2 billion new consumers to global product markets. Of course, whisky producers, like producers of any other product, hope that at least some of these 2 billion consumers will choose to consume whisky - and to that end, they are reopening old mothballed distilleries and building new ones. And not only in Scotland - they are being built in Japan, Ireland, England and very likely in India and China too, perhaps in the not too distant future.

Unfortunately, whisky distilling is a long term game. Whisky can't be called whisky under the rules of the Scotch Whisky Association until it has been aged for 3 years in a barrel, and obviously more if one wants a decent product. The time taken from distillation to sales is therefore fraught with financial risk. One needs to cover the operating costs of the distillery for 3 to 15 years before one has sales to generate cash flow. Whisky distilleries therefore offset their costs in the following ways:

1. Cask sales to independent bottlers.

The distillery can sell off casks of their distillate before they mature fully to independent bottlers (IBs). The IBs then take some of the risk on each cask (even single malt whiskies are vatted from several casks in order to maintain consistent quality), and therefore would only be prepared to pay a low price.

2. Diversify their product range.

Other spirits, like vodka and brandy, have shorter maturation times. A whisky distiller could divert capital into setting up a vodka sales operation, say, or make liqueurs using ready distilled spirits, building up a brand in the process, and cross-subsidising the distillery and its costs. This runs the risk of diverting consumer attention away from the whisky product however.

3. Sell futures.

Some distilleries already offer this. One buys futures on a cask of whisky, essentially buying the cask forward, to be bottled either at a date of one's choice or at the discretion of the distillery manager. All very well and good for the whisky connoisseur, but what would he do if he changed his mind. Nope he can't sell it - this sort of product is non-tradeable.


Would it therefore be possible to set up a tradeable market in whisky futures? Futures markets depend on several factors: standardised contracts, liquidity and few restrictions on price discovery (usually no restrictions on short sales) are the more important ones. Taking these 3 pre-requisites as necessary and sufficient conditions it's easy to see that the third helps create the second, and the first is a tough one to meet.

Because each distillery's output is different, there is no easy way of categorising whiskies neatly enough such that standardised contracts can be created with sufficient liquidity. There would certainly be insufficient liquidity to trade outputs of individual distilleries. Larger groupings along geographical lines might work, but would be difficult to categorise because the concept of terroir doesn't apply to whisky. A contract for a case of Islay whisky to be delivered in 10 years time would be confusing - which Islay did you want? Ardbeg, Laphroaig or Bunnahabhain? Peated or unpeated? Still, this might work - after all, government bond futures settle using the "cheapest to deliver" bond, and perhaps something similar could be created.

Now for some Fermi estimation. What's the size of a whisky futures market?

• The size of a whisky futures market could be supported by potentially up to 200m litres of production a year. Most annual whisky production would go into blends, but 200m litres of single malt distilled and sold is a reachable target within the next decade, if one believes the China and India story.
• If one assumes average open interest of 10 times contracts held to delivery, then there could be contracts with value of up to 2 billion litres traded a year (not including possible futures for blends and grain whisky...).
• Say average price is 100 sterling a cask (a guesstimated figure), then the market is worth 200 billion pounds sterling, or $400bn. Definitely a market that could achieve reasonably good liquidity!

So a whisky futures market is possible and feasible, if producers decided to band together and spread their financial risk around.

10 members of Proboscidea

Elephants are incredible creatures. They are probably as intelligent as dolphins, and communicate in a similar way, using infrasound (low frequency sound waves) instead of ultrasonic clicks. Unlike dolphins and other members of the order Cetacea however, there are only 3 species extant today. In no particular order, 10 interesting members of the order that elephants belong to - Proboscidea:

1. Gomphotherium

This elephant ancestor lived during the Miocene and Pliocene. It is considered to be a member of the gomphotheres, a group of proboscids directly ancestral to mammoths and modern day elephants. It stood about 3m tall, and had 4 tusks, two upper incisors and 2 lower incisors. Conjecture has it that Gomphotherium used the bottom tusks to dig up aquatic vegetation.

2. Platybelodon

This is another gomphothere. The upper two tusks were reasonably small compared to the size of the animal, and were probably used for defensive purposes. The bottom 2 tusks were fused, forming a kind of shovel, which helped the animal dig up more solid vegetation than aquatic plants. It also let the animal scrape bark off trees, as modern-day elephants do. Platybelodon lived during the Miocene.

3. African elephants

The African elephants are members of the genus Loxodonta, and there are thought to be 2 extant species, the African bush elephant (familiar to everyone) and the African forest elephant, a smaller species that inhabits the African jungles, has more toenails, and shorter tusks. There are probably around 10,000 elephants of both species left in the wild.

4. Mastodons

Mastodons were members of the genus Mammut (no, not mammoths, although we'll come to those). Although some species were furry like woolly mammoths, they had larger heads and differently shaped teeth compared to mammoths, and had a differently curved spine. Their tusks were up to 5m long, and they may possibly have been hunted to extinction by humans in North America 4 million years ago.

5. Mammoths

Mammoths were members of the genus Mammuthus (confusing? Yes, I know). They survived till relatively recently, up to 4,500 years ago. Some species were up to 5m at the shoulder, and there were some furry ones (see, for example, woolly mammoth). They have been found to be more closely related to Asian elephants than to African elephants. They lived mostly in the northern hemisphere, and some examples have been preserved in permafrost till excavated by scientists (and the occasional hungry hunter). Pygmy woolly mammoths were found to have lived on several islands off the coast of California and in Siberia.

6. Asian elephants

Asian elephants belong to a genus all their own, Elephas. They split from the African elephant lineage about 5 million years ago in North Africa, and then migrated across to East Asia and the sub-continent. There are several extant subspecies, the most famous one living in India and Sri Lanka. There are also populations in Malaysia, Thailand, Indonesia and Vietnam. The Chinese one however, is extinct.

7. Palaeomastodon

Palaeomastodon was a member of an eponymous genus. It lived about 38 million years ago, and was fairly small at 1 to 2m. They had 2 short tusks in the upper jaws, and flat broad protruding teeth (not quite tusks) in the lower (also protruding) jaws to scoop swamp vegetation out of the water. It did have a trunk, although it was short and probably not as flexible as those of later proboscids.

8. Moeritherium

This is an extremely basal member of Proboscidea, so basal, in fact, that it doesn't have a trunk. It lived about 50m years ago, and is regarded as the common ancestor for all members of Proboscidea so far discovered. As with many of the others it was a swamp creature than subsisted on vegetation. It looked like a tapir, and was less than a metre high. It already had slightly protruding incisors on both the upper and lower jaws, the forerunners of tusks.

9. Stegodon

Stegodon is another proboscid that may have survived into historical times. A dwarf species was present on the island of Flores (part of Indonesia) till about 12,000 years ago. The first member of the genus however stood about 4m high, and had straight tusks that were up to 10m long. These tusks were so close together that the trunk would not have been able to hang down between them, and must have been been supported by them. Intriguingly, some may still survive today.

10. Anancus

As with most of the creatures described here, Anancus refers to both a genus and the first discovered member of that genus. This proboscid died out around the same time as the mastodons did, and looked very much like modern day elephants, and was about 4m high. However, it had shorter legs and much longer tusks in proportion to its size. These tusks jutted out straight ahead, and helped the animal push trees and shrubs over in its forest habitat.


While googling around for images for this post, I discovered a creationist website claiming to "disprove" evolution using elephants as an example. The counterproof was photographic evidence of the stegodont-like elephants in Nepal (and a page that claimed that mammoths were not extinct, but showed a rather rheumatic Asian elephant). How sad - there are so many pieces of evidence to support the existence of evolution, but some people still insist in sticking their heads into the ground and denying reality. Why? Aren't these creatures amazing enough to admire without bringing ideology (I won't dignify such claptrap with the word "religion") into it?

I don't like to end on that sour note, so I'll add one more fantastic proboscid:

11. Deinotherium

According to Wikipedia, the 3rd largest land mammal to have existed - up to 5m tall and 12 tonnes in weight. It also lived during the Miocene and the Pleistocene, and had recurved tusks in the lower jaw and no tusks in the upper jaw. The shape of the tusks is puzzling - what did the animal use them for? Digging for roots is a possibility, but the animal's size and weight suggests that it also used its lower jaw as a bark stripper, or a bulldozer to push trees down.

10 literary epics of mythic proportions

I really enjoy great sweeping historical epics that become the stuff of legend. Here are a selection of the best and most readable.

1. Romance of the Three Kingdoms (三国演义).

Written in the 14th century AD by 罗贯中 (Luo Guanzhong), this epic describe the events in China at the end of the Han dynasty and during the Three Kingdoms era. Three warlords, Liu Bei, Cao Cao and Sun Jian lead the kingdoms of Shu, Wei and Wu, allying and betraying each other as they vie to unify China once more. Each kingdom has many generals and strategists, and vast numbers of men under arms. It was highly Machiavellian before the word was even invented.

2. The Arthurian cycle.

Britain's national epic. It tells of Arthur Pendragon, his rise to the kingship of the British Isles, his founding of the chivalric order of the Knights of the Round Table, his court's search for the Holy Grail, his betrayal by his wife Guinevere and his death at the hands of his son Mordred, around about the 5th century AD. All around good clean fun, with just enough soap opera naughtiness to make it interesting. The definitive version is by Thomas Malory.


3. The Lord of the Rings.

Completely fictional - but then, some of the other ones on this list probably are too. Written by JRR Tolkien over 15 or so years, and published in 3 volumes in 1954 and 1955. It was meant to be a single book. It tells of Middle Earth and the struggle to defeat evil personified in Sauron ans his One Ring. Frodo, hobbit and Ringbearer, is tasked to carry the Ring to Mount Doom and drop it into the depths of a volcano. Obviously he succeeds, but not without cost. Tolkien's world appears particularly well-realised and detailed, probably because he made up a whole supporting mythology before he actually set pen to paper to write a word of the trilogy.

4. The Kalevala.

This is the Finnish national epic, and was compiled by Elias Lonnrot in the 19th century in verse form. It follows the adventures of Vainamoinen, a warrior-bard who is looking for a wife, Lemminkainen, a handsome rake who holds the source of all good fortune (something called the Sampo), and Ilmarinen, a blacksmith who can make anything (including the Sampo). The 3 heroes have to quest for the Sampo when Lemminkainen loses it. The story ends with a Christian allegory - a virgin birth occurs, and the baby judges Vainamoinen, causing him to leave the earthly world. The baby is then declared king of Karelia.

5. Beowulf.

Classic story of hero kills monster, and helped win Seamus Heaney a Nobel Prize in Literature. Beowulf is a thane of the Geats who helps King Hrothgar, king of the Spear Danes kill a monster called Grendel, for making a habit of eating Hrothgar's men. Beowulf battles Grendel alone, ripping off one of the monster's arms. Grendel flees back to the lake where he lives, and dies at his mother's feet. She then attempts to take revenge, but fails, and flees. Beowulf follows shortly after, and kills Grendel's mother. He then returns to Geatland, where he becomes a king, and after long life, fights and kills a third monster, a dragon. However, he dies of his injuries. Heaney provided a page of the epic in Old Anglo Saxon in his translation - it must have been some song when sung.

6. The Mahabharata.

This "poem" is 1.8 million words long, written in Sanskrit, in both verse and prose. It is divided into 18 parts, or parvas. Broadly, they describe a battle for the throne of Hastinapura between 2 branches (the Kaurava and the Pandava) of one family. The struggle takes the form of a vendetta initially, with the Kauravas trying to assassinate the Pandavas, and then escalates into a huge battle between 2 armies. The Pandavas win, and try to ascend to heaven, but fail, all except one, the purest in heart and mind.

7. The Ulster Cycle.

Describes the adventures of Cuchulainn, hero of Ulster. Cuchulainn is the son of two gods, and is the defender of Ulster. He's the forerunner of Superman (and perhaps Achilles), as he is invincible and goes into a battle frenzy when roused. His finest hour is when Medb, queen of Connacht, attacks Ulster to steal a prize bull. Cuchulainn enters the most severe battle frenzy of his life, and slaughters Medb's army singlehandedly. Cuchulainn is eventually betrayed by his enemies and killed (along with his horse and chariot driver) by 3 magic spears.

8. The Iliad and the Odyssey.

Written by Homer around the 7th or 8th century BC. The Iliad is about the re-entry of Achilles into the Trojan war, the conquest of Troy by the Greeks, after Menelaus King of Sparta is cuckolded by Paris, prince of Troy. Many Greek and Trojan heroes die during the decade-long war, but eventually the Trojans are defeated by the Trojan horse stratagem (although most of these events are not in the Iliad). The Odyssey is about one of the survivors, Odysseus, and his trials and travails during his (also) decade-long journey home to Ithaca and his wife, Penelope.

9. The Epic of Sundiata.

Got to have some cultural diversity - let's look for an African epic. This one is the national epic of Mali. Full disclaimer - I haven't read this one, only a couple of summaries, but it seems to fit all the criteria for inclusion into this list. It tells of the birth of Sundiata Keita, the Muslim founder of the Mali empire, how he was born crippled and learned to walk, how he was exiled from his kingdom by the dowager, and how he returned with an army to retake it. If it sounds a bit like The Lion King, that's because the movie and the musical are based on this story.

10. The Water Margin (水浒传).

Written by Shi Naian (施耐庵), whom some believe to be Luo Guanzhong, or at the very least a student or a teacher thereof, the Water Margin tells of a band of outlaws that slowly grows to number 108 heroes and leaders. These men are in revolt against the Emperor, but the Emperor offers an amnesty if the band will put down revolts within the kingdom, fighting in both the North and the South of China. The band succeeds, at the cost of most of its members. At the end, few survive.

Jin Kichi

London doesn't have many places that serve good yakitori. Yakitori (usually bits of chicken meat) is usually available in most Japanese restaurants, but I am aware of only 2 London restaurants that make it a specialty. There is a new hip place in the Oxo Tower called Bincho Yakitori (of which more later), and there is the old Hampstead faithful, Jin Kichi.

Jin Kichi
73 Heath Street
London NW3 6UG
020 7794 6158

Situated a couple of minutes' walk from Hampstead tube station, Jin Kichi is something of an izakaya (at least, as close as one gets in London), a Japanese pub. There are a number of interesting selections on the drinks menu, including a hot shochu and water with a salted ume in it. This particular drink is fantastic in winter, especially if one has been caught in the rain and is sitting down slightly damp at the yakitori bar.

The restaurant has 2 floors, seating perhaps 30 people both on the ground floor and in the basement. The ground floor is where the yakitori grill is, surrounded by a bar, around which are arranged 10 or so seats. This is a great place to sit, as one can place orders for individual yakitori and receive them as hot from the grill as possible.

The yakitori are the stars on the menu. There are about 20 selections, ranging from chicken, ox tongue and duck to mushrooms. There are 2 sets available, of which Set B is particularly good value for money, if you like chicken offal. Highly recommended skewers include chicken gizzard, chicken liver, salted ox tongue, duck and spring onion, pork and shiso maki, and shiitake mushrooms.

The kitchen downstairs serves sushi and sashimi (which is run of the mill), and also does great tempura. Vegetable tempura is particularly good, with octopus tentacles a close second. Deep fried baby shrimp are also available (they come in a heaped pile), along with grilled fish head (labelled on the menu as fish bones). The occasional special makes its appearance on the menu, ranging from fried calamari to several types of chazuke (Japanese rice drowned in stock and flavoured with fish flakes).

The service is perfectly adequate, and as I usually sit at the bar, as prompt as it is anywhere else. Prices are reasonable for a restaurant that is the best at its specialty in London. Well worth a visit, but don't sit in my place at the bar.

Scores:

22 Nov 2007: TFQ = 25, CS = 26, S = 15, AD = 6, VfM = 8. Total = 80 points.

What does this mean?

Yakitori

Cutting up meat into small pieces, skewering them on a long thin stick and roasting the kebab over an open flame is a universal dish. All cultures discover it eventually, and incorporate it into their respective cuisines. Some later than others, and some in more ways than others, but everyone has their own version. Japanese cuisine has its own version, and has extended the use of the technique to more than just any available protein. In fact, it's almost a genre on its own.

Grilled foods on skewers are referred to as yakitori in Japan, literally "grilled chicken". All parts of the chicken are used, however - gizzard (shown left), liver, hearts, wings, breast, thigh, skin etc. The chicken pieces are threaded onto bamboo skewers and dipped in a mixture of soya sauce, mirin vinegar and honey prior to grilling. The skewers may also simply be salted. Once grilled to moist doneness, the skewers are served, plain, or with plain sansho pepper or shichimi pepper (sansho mixed with chili flakes and sesame). The genre's repertoire has expanded to include other meats as well - beef, pork, duck, seafood, occasionally married to vegetables, with different marinades.

In Japan, yakitori is eaten at specialist yakitori shops or stalls (known as yakitori-ya) which may have a capacity of less than 10. Red lanterns are traditional signs of yakitori-ya, usually wreathed in a cloud of smoke from the charcoal grill. Skewers are also served at izakaya, or the Japanese version of a pub. Once inside either a yakitori-ya, one draws up one's stool, orders several skewers (they usually come in orders of two), and a cold beer. Once replete with grilled chicken, the traditional way to finish the meal is with chazuke, a bowl of rice drenched in stock and tea, flavoured with fish or fruit. Meals at izakaya tend to be more focused on the alcohol, with the yakitori taking the role of stomach padding.

Yakitori dates from around 1700, where it was first developed as a technique for quickly cooking the meat of wild birds, which were relatively rare at the time. The meat was first taken off the skewers prior to serving, but this soon became confined to the nobility. Farmers and peasants found it much easier to eat the skewers on the move, while walking or working (the very definition of street food!). Nevertheless, the scarcity of wildfowl kept consumption limited to whatever the lucky farmer or noble could trap. In the 20th century however, the dish found its metier with the introduction of the chicken.

Yakitori encapsulates not only chicken skewers, but combinations of meat and vegetables which are extremely varied, yet unmistakably Japanese due to the ingredients, the marinade and spices, and the grilling style. The traditional Japanese respect for food and their insistence on using the freshest and most appropriate ingredients have created many different types of yakitori, making their style the most flexible among all the styles of grilled skewered meat that have arisen in cuisines around the world.