Earlier this decade, investors were betting big on tequila—a different celebrity seemed to be launching a new premium brand weekly. Now, Mexico is swimming in 525 million liters of surplus tequila, enough to fill 200 Olympic-size swimming pools and more than the total volume that Mexico exports annually.
This sobering reversal reveals critical lessons about commodity cycles, changing consumer tastes, and why following the crowd can leave your portfolio with a hangover.
Key Takeaways
- The shift from predicted shortages of tequila to a massive surplus shows how quickly commodity markets can reverse, affecting everything from exchange-traded funds to consumer goods stocks.
- Many younger consumers are moving away from alcohol, part of a broader change in consumption patterns that’s reshaping many markets.
- The tequila boom-and-bust cycle offers warnings about chasing “sure thing” investment trends.
Tequila and the Classic Commodity Trap
In recent years, headlines have warned of a global tequila shortage. The agave plants used to make the spirit take years to mature, and a surge in demand meant distilleries struggled to get enough blue Weber agave. Meanwhile, a parade of celebrities like George Clooney, Kendall Jenner, and Dwayne “The Rock” Johnson were all pitching their own high-end bottles. Prices for premium tequila shot up.
By 2023, agave farmers were commanding about 30 pesos (about $1.70) per kilo for their blue Weber agave plants. Today, those same farmers are lucky to get 2 pesos ($0.10) on the spot market—a 93% collapse that’s caused thousands of Mexican farmers to abandon their fields, which could mean a future agave shortage and spiking prices again if and when demand picks up again.
This is a classic commodity trap: producers rush to increase supply when prices spike because of shortages, and the new supply arrives right when demand begins to cool.
This can affect investors far beyond the spirits industry:
- Agricultural commodity exchange-traded funds whose share prices can swing widely given vast changes in supply and demand
- Consumer goods companies whose profits are tied to the cost of raw materials
- Banks holding significant amounts of agricultural loans that might move into default
- Companies throughout the supply chain, from farm equipment manufacturers to distributors
The “Sober Curious” and Changing Consumer Habits
Mexico’s tequila surplus partly derives from changing consumer behaviors that many investors are watching closely. Consumers worldwide, particularly younger generations, are drinking less. Gallup found that the number of adults aged 18 to 34 who say they never drink has dropped more than 15% since the early 2000s, and of those who do, they are less likely to have done so recently. Meanwhile, among underage drinkers, the drop is even more dramatic.
This is helping to reshape the beverage markets:
- Premium non-alcoholic beverage companies are seeing double-digit growth
- Restaurant chains are expanding alcohol-free cocktail menus
- Major beverage manufacturers are investing heavily in zero-proof alternatives
The tequila industry’s challenges could multiply if the Trump administration makes good on campaign promises of 25% tariffs on Mexican goods. With the U.S. accounting for 83% of Mexico’s tequila exports, Mexico’s agave farmers and tequila producers would face a far worse crisis.
Lessons for Investing
- Watch commodity cycles carefully—today’s shortages often lead to tomorrow’s surpluses, affecting everything from ETFs to consumer goods stocks.
- Pay attention to changing consumer preferences, especially among younger demographics.
- Watch for spreading effects among interconnected markets. Regional industry challenges and trade risks can ripple through global markets—from agricultural lending to international trade flows to retail sales.
The Bottom Line
The tequila lake serves as a reminder that even the hottest market trends can quickly reverse—and prudent investors watch for these shifts before they become obvious to everyone else.