Breaking news

It seems like the disorderly exit that I semi-predicted has begun.

L just called me.  He said that there have been news that he heard that the markets in Kunming and in Guangzhou have started the big decline… and nobody is asking for Dayi (Menghai) goods at this point.  Makes a lot of market sense, really, since as soon as the prices start dropping, everybody who wanted to buy will wait till the prices stabilize a bit before jumping into the fray again.  All the tea investors who’ve been buying will want to let go of their goods very quickly.  One of L’s customers in Tianshan Tea City told him that the biggest Dayi distributors in Shanghai has already called him a few times, asking him to help sell stuff for prices that you could only dream of a month or two ago.

This is welcomed news, really.  The prices for a lot of these younger cakes has reached astronomical levels, with new, fresh off the mountain cakes selling for things like 250 RMB each, and a lot of these are cheap plantation teas that aren’t really worth that much.  Many people I know who are the end customers for such things — tea drinkers like you and me, think that prices are simply far too high to buy any more new cakes.

I had thought that given the fact that much of the country still has to tap into the puerh craze, that there might be enough future customers to sustain the run for a little longer.  However, once a fall happens it is hard to stop if everybody wants to exit the market, or at least withdraw from active buying.  I think it started with Xiaguan teas — it briefly reached 220 RMB for a stick of 5 tuochas.  That price was about 7x what I could’ve bought the same tea when I first arrived in Beijing.  Somebody made a lot of money from investing in Xiaguan tea in the short term, but more people have now lost a lot of money.  Xiaguan prices already fell a bit when I left Beijing for Shanghai.  I wondered, at the time, whether it will cause a drop in Dayi teas too.  Seems like people have woken up to the fact that investing in puerh is a risky business, and are no longer willing to take that risk.

We’ll have to see what happens in the next few weeks, but I think it will be hard for prices to pick up anytime soon.  Hopefully this will usher in an era of more rational purchasing, as well as more sustainable development of products and farming techniques.

I am going to go to the Tea Expo in Shanghai this Friday.  If what I’m hearing is actually true — this will definitely make it a very, very interesting experience.


Comments

Breaking news — 8 Comments

  1. Do you think this is going to contribute to the decline of quality as well, or will the quality tea manufacturers “survive” the fall? While lower prices are good news I would hate to have lower prices and lower quality as well.

  2. Well, this is definitely developing news. We don’t know if this is just a temporary adjustment, or if it’s going to be more permanent. I have a feeling it’s more permanent, as the market is already quite full of Dayi and Xiaguan stuff (as well as some of the other bigger factories). Ultimately, the only people who will permanently keep their tea are the drinkers who buy for themselves. People who purchase whole jians of tea will eventually want to resell them (you can only drink so much in a lifetime). Thus… if prices drop significantly, which it is starting to do, then if there is a next wave when the prices pick up a bit, I think we will immediately see a lot of the people with a stash trying to get rid of the teas, thus driving prices down again. It will take something big to keep prices going up, if what is happening is true. Also, people who have a big stash of Dayi teas in their store right now will want to get rid of them… and are unlikely to want to jump back into the fray by buying more Dayi teas, not at high prices anyway.

    As for lower quality.. I don’t think so. If anything, this will stop the overproduction that is rampant, and also stop some of the less respectable merchants from selling fake teas (such as bad green tea pressed into cakes, etc). Hopefully, it’ll be win win for everybody.

  3. If you look for small factory stuff, they can be quite cheap, in fact, relative to Menghai/Xiaguan, even now.

    Prices for maocha has dropped slightly, according to my sources, although only for things like Banzhang, which was way overpriced anyway.

    But you’re going there as a foreign tourist who speaks little Chinese… you’ll get the “foreigner premium”…..

  4. Well, well… fascinating news indeed.

    Something similar happened in the wine industry, a while back. The parallels between the pu’er market and the Bordeaux red wine market are striking.

    Just prior to 1972, Bordeaux was riding high on a crest of demand. Prices were increasing, and quality was declining. In 1972, the producers got exceptionally greedy: they arbitrarily decided to increase production by a large percentage. Sound familiar? Quality sharply dropped, and they combined this with a sharp rise in prices – purely out of greed, combined with the arrogance that assumed the market would take it. People were (up to that point) investing in Bordeaux as a commodity.

    The reaction to the 1972 vintage was classical: the market simply refused to buy such lowered quality at such arrogant prices. The prices collapsed, drastically. Quality over the following years which were vintages gradually increased. By the late 70s (most agree on 1978), they were back to classic vintage standards and making seriously good wine.

    It’s extremely interesting to compare this with pu’er, because it’s almost precisely following in its footsteps.

    I’m looking forward to the market downturn, as the dumping of invested stocks is going to be very pleasant for those, like you and me, that actually drink tea for enjoyment.

    The key brands in the 72 vintage were the top chateaux. Their actions, and their consequent collapse in prices, largely dictated the market’s new prices. It really is uncanny to see tea’s “premiers cru chateaux” (Menghai and Xiaguan) turning that corner into falling prices. If, as in so many other ways, tea follows Bordeaux, then we are in for a interesting era…

    Thanks again for the great post.

    Toodlepip,

    Hobbes

  5. I think right now it has gotten to the point where the consumers, people like you and me, are no longer willing to pay the high prices for new teas. A Menghai 7542 from 2007 (701 batch) is selling for something like $30 USD a cake. Translated to Western retail terms, this means the cake will have to go for something like $70-90 USD (and possibly higher, if you buy from one of those expensive vendors). That’s an insane price.

    What I worry is that there is enough of a new crop of drinkers to keep demand up. Those of us who have already gotten into the habit, however, are most likely going to have built up a collection already and don’t really feel the pinch to buy so much tea anymore.

  6. >But you’re going there as a foreign tourist who speaks little Chinese…
    >you’ll get the “foreigner premium”…..

    Oh, I think I have that covered. I intend to pose as a member of a tiny upland minority whose members have sandy hair and blue eyes. That way, my ineptitude in Mandarin should work to my advantage…

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