Proof Positive: Grain Farmers Distill Crops into Premium Spirits for Retail

January 27, 2016 08:00 AM
 
WhiteDog

The biker pulled his Harley down a dusty road south of DeKalb, Ill., and parked his ride outside a small rural tasting room. He sauntered inside, took a seat at the bar and cleared his throat.

"I'm here for the free whiskey," he announced. The server smiled and poured three small, ¼-oz. samples. The biker grunted. "That's all?"

“That’s the size of the samples,” the server offered apologetically.

The biker grunted once more, downed his samples in quick succession and ambled back outside without saying another word.

"When you turn it into a finished product, you start looking at your crop differently."

Jamie Walter, CEO and president of Whiskey Acres, laughs about it.

“That was one of the few customers who didn’t get what we are trying to do here,” Walter says.

Ever since 1998, when Jamie returned to the family farm to work with his father, Jim, after an off-farm career as a lawyer, he began investigating ways to diversify their 2,000-acre corn and soybean operation. He shipped corn direct to Japan, grew specialty corn and even dabbled in vegetables. None stuck.

Yet another idea kept creeping into the picture: What if they used their grain as a feature ingredient in premium spirits such as vodka, whiskey and bourbon? In 2011, they decided to see if they could make an on-farm distillery work.

Seed To Spirit

The bold idea aligned well with consumer trends. Sales of microspirits companies rose 42% from 2013 to 2014, according to a recent Rabobank report, while sales of major spirits companies increased only 3%.

“Growing your own grains and producing spirits that are local really resonates with people,” says Stephen Rannekleiv, Rabobank senior analyst for beverages. “What craft distillers are looking to create is something unique that tells a story, and consumers are looking for local and authentic stories.”

Whiskey Acres Staff

Oak barrels store bourbon and whiskey at Whiskey Acres, led by CEO Jamie Walter (center); his father, Jim (left); and partner Nick Nagele. © Matthew Gilson

Farm distilleries represent a fraction of the marketplace. At most, 200 farm distilleries dot the country-side, says Bill Owens, founder and president of the American Distilling Institute, a trade organization for craft distillers. Yet the number stood at zero a decade ago.

“It’s not a big industry, but for farmers who are tired of selling their grain to the elevator and getting pennies, farm distilling is a real opportunity,” Owens says. The explosive growth of the industry is creating new grain markets for farmers ready to connect with local distillers and brewers.

Jumping Hurdles

The Walters began attending weeklong classes and conferences about distilling. Yet when it came time to develop a profitable business plan, they took their first leap of faith. That’s because it’s against federal and state laws for would-be distillers to practice the craft before they finalize paperwork, permits and equipment.

Distiller’s Dictionary

Farmer-distillers must learn a new lingo as they master their craft. Here are a few common terms they use.

Mash: The fermenting, starchy grain mixture from which alcohol can be distilled.

Grain Bill: The recipe for a particular batch of spirits. For example, the Walter family of DeKalb, Ill., distills bourbon with a grain bill of 75% corn, 15% winter wheat and 10% malted barley.

Heads, Tails And Hearts: The alcohol that is collected during the distilling process. Heads and tails are usually dis-carded or recycled back into the still. They contain impurities. The hearts are collected to bottle or age.

Proof: The amount of alcohol in a given spirit. For example, 80-proof whiskey is 40% alcohol. Virtually all spirits have water added to them to get to either barrel or bottle proof. For example, bourbon typically comes off the still between 140 and 159 proof, but it legally has to go into a barrel at or below 125 proof. To reduce the proof, it is cut with water.

Moonshine: Unaged spirits sometimes associated with low quality.

Wheater: A bourbon with mostly wheat as its second ingredient. (By law, bourbon must have at least 51% corn.)

Cask Strength: Undiluted bourbon, straight out of the barrel.

Working capital requirements are monumental. New distillery costs surpass $1 million in some instances, Rabobank estimates. Yet farmers are good at retooling equipment, Owens points out, which can reduce costs. He’s seen farm distilleries convert former milk creamery tanks and give new life to former livestock barns.

There is a lot of back-end work to setting up a distillery, admits Mike Swanson, a fourth-generation grain farmer who began his own distiller business in northwest Minnesota. Like Jamie Walter, Swanson had off-farm business experience before returning to his family’s farm to set up his business, Far North Spirits.

“What surprised me was that the governmental part was the easy part,” Swanson says. “The distribution was the tricky part. It can be a pain to figure out why distributors do what they do. You have to learn as you go—it’s not spelled out.”

The Walters say distribution has been a bit of a grind, but they are finally making real traction. More than 200 retail, bar and restaurant locations across Illinois carry Whiskey Acres spirits, and more are added every week. At 1 year old, the venture is “ahead of its business plan,” Jamie Walter says, though he stresses it will require multiple years of operation to profit above the initial capital expenditures.

Another potential impediment is production volume. For the licensed hobby distiller, this is a non-issue, Jim Walter says. A surprising number of people seem happy to get the required permits to run a 50-gal. distillery, which produces approximately 300 to 400 bottles monthly for family, friends and a few local accounts. For a full-time commercial enterprise, though, that’s simply not enough product to be viable.

Volume proved to be the first big hurdle Whiskey Acres ran up against. State law allowed maximum production of 5,000 gal., not an ideal quantity for an operation with big ambitions in Illinois and beyond.

“Fortunately, legislation has increased that number to 35,000 gal. per year,” Jamie Walter says.

Once spirits are ready, farmer-distillers must convince distributors their products are worth selling, Swanson says. By law, producers can only sell to distributors who, in turn, can only sell to retailers. In an early meeting with distributors, Swanson found authenticity is key.

“I brought alcohol samples, grain samples and even a bag of dirt to our meeting,” recalls Swanson, whose operation in the Red River Valley contains rich black earth. “The representatives were fascinated with the dirt. It helped underscore what we were doing was unique and we were crafting a premium product.”

Once red tape is mastered, there’s still much work to be done, starting with growing grain. Spirits requires a recipe known as a grain bill—bourbon must be at least 51% corn, rye whiskey at least 51% rye and so on.

Far North Spirits

Distillers come from many backgrounds. Producers have key skills for distilling, including work ethic and machinery experience. © Far North Spirits

 

The Process

The type of grains a farmer grows depends on the operation. The Walters grow corn, rye and wheat for their spirits. Swanson grows rye and corn. Joe and John Myer, owners of Myer Farm Distillers in upstate New York, grow wheat, corn, barley and rye.

“It’s something unique,” says Joe Myer, a tinkerer at heart who also has experimented with flavored vodkas, cinnamon whiskey, ginger-infused rye whiskey and other libations. “We have trials for all sorts of products, and my brother John grows whatever we need.”

Since his spirits business opened in 2012, Myer has continually gauged return on investment.

"Branding and image is super significant. For example, 70% of people buy wine based on the label."

“You have to be certain you have the quality in place to build a consumer base, since spirits are a bigger investment for customers,” he points out.

The Walters conduct trials among No. 2 dent corn hybrids, trying to pinpoint those with the best whiskey and bourbon flavor profiles. They’ve also experimented with crops such as popcorn, sweet corn and a green Mexican heirloom hybrid.

“It’s very much a work in progress, but we’re thrilled with our results so far,” Jim Walter says.

The flavor of spirits is affected by more variables than just grain type, Swanson adds, including soil type, climate and much more. “Grain quality makes a difference,” he says.

Once distiller-farmers harvest grain, they clean seeds and prepare them for fermentation by milling them to “grit texture” to expose their underlying starches.

Barrels

Three to five years is often needed to age bourbon in 53-gal. barrels before it is ready. © Eirik Nilssen Bratli

Most mornings at Whiskey Acres, partner Nick Nagele can be found mixing 1,000-lb. grain mixtures with 400 gal. of water. The grain is then cooked into an oatmeal-textured mixture in huge stainless steel vessels. As the mixture cools down, he adds yeast, which begins to consume the grain’s sugar and expel alcohol and carbon dioxide.

Half a week later, the “cook” is complete and Nagele can transfer the mash into the still, where impurities are separated out. These are called the heads and the tails or, as Nagele calls them, “the yuck and the ugh.” Nagele keeps the middle, known as the “hearts,” and deposits it into oak barrels. The hearts must be aged between 18 months and five years. The process is not for the impatient. “Everything has been a big chal-lenge,” Nagele says. “Nothing has been turn-key. Time management is always a challenge, too. We still run a farm and a seed business.”

Producer’s Pride

After a hard day’s work—or a few hundred—the finished product reminds farmer-distillers they can be proud.

“Commodity corn goes down the river and gets fed to cows or turned into ethanol,” Nagele says. “This gives us a real sense of satisfaction.”

Distiller's Grain

Corn, rye and wheat go into Whiskey Acres spirits. © Megan Sugden

A visit to a local winery changed Swanson’s view of his crops. The care and craft the winery used to turn crops into something artisanal impressed him. “When you turn it into a finished product, you start looking at your crop differently.”

That pride can be traced through the marketing of spirits right down to the design of the bottles in which they’re housed. At Far North, spirits boast names such as Gustaf and Røknar, which pay tribute to the Swanson family’s Scandinavian roots. The Whiskey Acres logo features a bottle made up of corn kernels.

Myer employed a designer. “Branding and image is super significant,” he says. “For example, 70% of people buy wine based on the label.” Although farmer-distillers dabble in advertising, Myer says word-of-mouth remains the strongest avenue to sales.

Each of these distilleries has won multiple national and international double-blind taste tests, which producers say goes a long way to validate all of their hard work.

What success really takes, though, is a passion for the process and a pride in the work. “We want people to know our products are deeply considered and skillfully made,” Swanson says.

Screen_Shot_2016-01-22_at_10.04.24_AM

Myer Farm Distillers of Ovid, N.Y., produces a variety of flavored vodkas. © Sara Schafer

 

By the Numbers: How the Craft Spirits Industry Stacks Up

Although only about farming 200 operations grow and distill crops into alcoholic beverages, by one estimate, these businesses serve a competitive marketplace made popular by a thirst for craft spirits, beers and other libations.

$1M

Estimated 
construction
costs for a
single distillery

35K

Total gallons of spirits distillers may produce annually in Illinois

42%

Increase in sales microspirits manufacturers
saw in 2014

$13.50

Federal excise tax collected per proof gallon on all U.S. distilled spirits 

 

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Comments

 
Spell Check

PullMyFinger
Chappell, NE
1/27/2016 08:46 PM
 

  This is the best article on Ag-Web for a long, long time. Good job!

 
 
Kevin
Peoria, IL
2/3/2016 11:13 AM
 

  My wife and I visited Whiskey Acres this past summer. Awesome place and great whiskey/vodka! LOVED this article. Really interesting and great photos too!

 
 
Ed Kuypers
Omaha, NE
2/9/2016 07:45 AM
 

  Very interesting article. Nice to read about the ways farmers are diversifying their operations in what may become trying times.

 
 

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