Does Pu’erh Increase in Value? Part 2. Landmark Years & Dayi Special Productions: A Look at Price

To some extent all pu’erh moves together in the market. When the pu’erh bust hit in 2007, teas across the board were hit. Raw tea, ripe tea, Dayi, Changtai, Lao Banzhang, Yiwu.. Of course this is only part of the picture. In the bust’s case, not everything was hit equally and teas definitely didn’t all recover at the same rate.. Some teas rebounded in a year or two, far more quickly than others. Others slowly creeped back up in five or six years and some teas and brands have never recovered.

Concept: Similar Teas Move in Similar Patterns

One naive assumption is the idea that all teas (and their batches) are independent of one another and don’t move up and down in the market together. Under this guise, a tea could go up in price because someone gave it a positive review but that it wouldn’t have any impact on any other teas. This is flawed thinking and teas that are similar to one another tend to move in tandem and are likely affected by the same market forces. If 2012 7542 201 goes down 25% in price, there’s an extremely strong chance that 2012 7542 202 and also 2011 7542 will fall in price. It’s less likely that 2003 8582 goes down and even less likely that a 2017 Xiaguan production would go down in price. Things like odd batches can add some noisiness to this but shouldn’t distract from the overall pattern. A 2005 8582 504 batch sells for considerably more (~2x) than the 501 or 502 batch and correlates less than the other 2005 8582 batches.

  • A political example of positive correlation would be that some states tend to vote similarly to other states with similar demographics. For instance, there is a higher correlation in the way Wisconsin and Minnesota tend to vote than New York and Alabama (two states with very different demographics).

Similar Teas Tend to Move Up & Down in Price in Conjunction. 1.0 indicates a a high correlation, -1.0 indicates a negative correlation, and 0.0 indicates no correlation.

Dayi Correlation Table

Methodology

In order to get some idea about which teas tend to move in the market in tandem, I used Donghe’s pricing data twice a year since the latter half of 2013 and compared seventeen different teas. The data is limited due to the timeframe and because I didn’t want to spend an outrageous amount of time crunching numbers in a spreadsheet.

I calculated the correlation between the pricing data. From here we can see what teas correlated most closely with one another.. It’s an intentionally mish-mashed mix of teas, but I tried to include a few special productions as well as cover a range of common recipes.

  • 2011 Jindayi
  • 2003 Jindayi
  • 2012 Bulang Kongque
  • 2006 Bulang Kongque
  • 2012 Longteng Shengshi
  • 2008 Da Jingdian
  • 2006 Jinse Yunxiang
  • 2012 7572
  • 2008 7572
  • 2006 7572
  • 2012 7542
  • 2008 7542
  • 2006 7542
  • 2004 7542 (Red)
  • 2006 8582
  • 2004 8582

Correlation Between Teas Supports the Idea that 2004 is Probably a Landmark Year

They just don’t make em like they used to. A popular belief amongst pu’erh nerds is that Menghai Tea Factory productions shifted for the worst around 2004. This purportedly comes from significant management changes and a need to raise their supply (consequently lowering quality) to meet the rising pu’erh hype..

In the previous article we observed that earlier versions of recipes (7542, 7572, 8582) were all more expensive, with big spikes occurring in the early to mid 2000s. Is this simply a matter of the younger versions needing more time or is something else at work here?

Most similar teas in correlation factor for 2012, 2008, 2006, and Red 2004 7542 Productions

Tea Most Similar Tea 2nd Most Similar Tea 3rd Most Similar Tea
2012 7542 2008 7542 (.97) 2012 Longteng Shengshi (.96) 2006 7542 (.92)
2008 7542 2012 7542 (.97) 2012 Longteng Shengshi (.92) 2006 7542 (.92)
2006 7542 2008 Da Jingdian (.97) 2012 Longteng Shengshi (.94)
2012 7542/2006 7542 (.92)
2004 7542 (Red) 2003 Jin Dayi (.95) 2006 Bulang Kongque (.9) 2011 Jin Dayi (.85)
For 2006, 2008, and 2012 7542 it follows a pretty distinct and intuitive pattern. These three teas that followed the most similar price trajectories are other 7542s and other teas like the 2012 Longteng Shengshi (a special production). However…. The most correlated teas to the 2004 7542 are the 2003 and 2011 Jin Dayi, and the 2006 Bulang Kongque (Peacock). The Jin Dayis and Bulang Kongque are Dayi special productions and it’s worth noting there is still a significant positive correlation between the 2004 7542 (Red) and the other 7542s, it is just much lower, ranging between .54 to .67. In summation, three of the four Dayi 7542s went up and down in very close concert with each other, but the 2004 Dayi did not.

This can be taken as a piece of quantitative evidence that Dayi productions have shifted. They’ve made these recipes for many years, but 2004 and older are acting differently in the market than more recent productions. Are the 2004 and earlier recipes more likely to behave like some of the acclaimed special productions (Jin Dayi or Kongque series) as the 2004 7542 correlation seems to suggest? There’s a few surface-level reasons to think so, such as the total production run. Both special productions and pre-2005 numbered recipes were produced at a lower volume than more modern renditions of numbered recipes. Still I’m pretty hesitant to draw that conclusion armed with just this data.. We don’t know the actual production sizes and as we’ll look at below, it’s important not to extrapolate and assume too much from just our correlation matrix.

We also have one example of a special production made in both 2003 and 2011, the Jin Dayi. Despite being made in two fairly different years of pu’erh and the 2003 version being 10x the price of 2011, their prices are highly correlated (.97).

8582 & False Positives

It’s important to note that similar teas in our correlation matrix are one piece of data in the larger equation. Ideally, we’d have far more detailed pricing data and a larger matrix of teas. You can end up with some pretty weird similarities when working from a fairly limited dataset and timeframe like we are.

Most similar teas in correlation coefficient for Pricing. 2006 and 2008 8582

Tea Most Similar Tea 2nd Most Similar Tea
3rd Most Similar Tea
2006 8582 2008 7542 (.76) 2006 7542 (.76)
2008 Da Jingdian, 2004 7542 (Red) (.71)
2004 8582 2006 7572 (.95) 2011 Jin Dayi (.94) 2008 7572 (.93)
The similar teas to the 2006 8582 make a lot of intuitive sense, and the 2006 and 2008 7542 show more similarities in movement to it than the 2004 8582. However, two of the most similar teas with the 2004 8582 are the 2006 and 2008 7572, a mass-produced ripe recipe that sells for a fraction of the price. Really!? That makes almost no intuitive sense. This represents an important reminder that we are looking at correlation and that there can be spurious correlations (see Redskins rule). If we look at the actual data rising, we can see that 2004 8582, 2006 and 2008 7572 rose steadily from the end of 2013 to now. Did they rise due to some shared market force or were they largely independent forces? In this case, I’d lean towards the latter.

This also represents a potential limitation in our data. Odds are if we had a more extended timeframe with more teas, and more data points different teas would show up as the most similar. Correlation can help to show a piece of the puzzle, but not the whole thing.

Special Productions have Greater Variance but Potentially Greater Reward

Another byproduct of a more modern era of big factory pu’erh production is the special production. There’s strong evidence that the numbered recipes have changed considerably. But what about special productions? How have they fared?

Intuitively, special productions should have a lot of variance. Most of them are intended to be premium teas and the production is often a smaller run, produced less frequently. This gives them more potential upside to grow than something like 2012 7542, but also subjects them to a less stable market. A simple eye test of the data Donghe’s data supports this.

Top productions (by price) from 2013-2017 have fluctuated a lot in a Short Period of Time (blue highlights signify over 50% change)

Premium Productions Price Table

There are significant waves of price movement both upwards and downwards for tea, even though none of these teas really even qualify as semi-aged. This is some evidence of a product which high variance.

If you are hunting for the next Dayi tea that will sell for four digits and are concerned with the relatively stagnant market of modern numbered recipes, this is probably a better bet (a high risk, high reward one) than the numbered recipes that are produced annually or semi-annually. For instance, the 2011 Jin Dayi tracked the prices of older teas more closely than other young raw pu’erh.

Buying special productions also comes with accepting the high risk in the form of fakes, price fluctuations, etc. 2010 and earlier 7542, 8582, and 7572 are all ~$20 still, but there are a number of special productions that are well above this. The barrier to entry is higher — a 2017 Jin Dayi already sells for well over $100/cake. This seems like a lot for a young factory tea, but the starting jian price on Donghe was actually 20% higher!

Tldr:

  • Similar teas go up and down in price in a similar fashion.
  • 2004 was probably a landmark year and correlation data supports this.
  • Special productions are a more variant, higher risk, higher reward bet than your higher-production recipes.
This entry was posted in Aged Pu'erh, Article, Long-form Article, Raw Pu'erh, Ripe Pu'erh, Tea Learning, Tea Musings and tagged . Bookmark the permalink.

8 Responses to Does Pu’erh Increase in Value? Part 2. Landmark Years & Dayi Special Productions: A Look at Price

  1. shah8 says:

    Needs to grapple with the fact that cartel dynamics generally prevail in this market.

  2. Cwyn says:

    I’m glad that your piece recognizes that the “correlations” are more likely due to independent variables and not dependent variables which suggests that these are numerical coincidences. After all tea is not the same as a commodity like corn which is used as a raw material to make other products, such that the futures of corn bushels theoretically affects the price of corn chips and masa down the road. Commodities in their final “sale” prices down the line are often vastly different than the futures estimate. Futures today on corn may be affected by estimates of drought in the Dakotas, but when the Midwest as a whole turns out bumper those futures prices end up far lower in the end. As we know from futures, the “take” price is not the same as the “put.” In other words, selling price ≠ final sale price.

    The biggest mistake puerh collectors make in estimating the value of their collection is using a selling price as the value. They look at some vendors or even the Donghe ticker and say “that’s what my tea is worth because that is what it is selling for.” I can price my teas at whatever I want, but does that actually mean anyone will PAY that price? The reality is the final sale price (the “take”) is far lower than the estimate (the “put”). So if you expect to sell tea, you are likely to accept a much, much lower price than you see on some vendor site. Don’t mistake vendor prices for “worth.” Worth is only what the item will actually sell for in the end.

    • James says:

      Hi Cwyn,

      Thanks for the comment and agreed. The data’s fairly noisy and it’s hard to come up with anything definitive. As a few others have said, for the hobbyists it’s probably a somewhat futile effort trying to predict which horses will go up. Also good point re: reselling. A lot easier said than done.

      For me this is mainly just fun :).

      Cheers,
      -James

  3. toby says:

    Interesting and massive effort!

    Just my $0.02

    1) Don’t buy puerh as an investment if you are not drinking them. Like everything else…there’re risks. The tea price might drop and takes forever to go back to your cost price. How long can you afford to hold on to the tea? There are people who lost lots of money/got into debt because of the Dayi Horse cake few years ago. And recently, the 2017 Golden Dayi is dropping to $30,000 RMB a jian.

    2) Not everyone can resell puerh. As in, if you don’t have a good reputation, no one would buy from you.

    3) The takeaway of this blog post for most regular joe should be:
    Buy the tea that you enjoy drinking before they go up in price. (You know what’s worse? The tea you enjoy drinking is sold out!)

    4) Buy tea than are more than 10 years old (ideally, but try to buy at least 7 years old). Puerh younger than 7 years old ( If they are “Kunming Dry storage”, they better be at least 15 years old LOL.) are unfinished products in my opinion, but everyone has different palate, preference, thickness of stomach linings (hahaha) and definition of “puerh”. Also, the price goes up quicker

    • James says:

      Hi Toby,

      Thanks for the comment and good points.. I mostly. For most pu’erh drinkers, trying to predict the market really isn’t very applicable at all.

      Cheers,
      -James

      • toby says:

        It depends.

        Say, looking back 2015, I really like the 2005 Dayi 501 7542(southern china storage) …It was 1200RMB a cake. I also really liked the 2005 Xiaguan *thick paper Traditional Characters January batch* 8653 *IRON* cake.. it was around 300RMB.

        I ended up bought a tong of the XG. In the (20/20) hindsight… i should have bought the 501 7542 because it would be too expensive to buy now (almost 2000rmb), and the 8653 is less than 450RMB, which I can easily to write off the increase as storage fee.

        So now, in 2017, I am letting go some tea and us the cash flow to buy stuff like 2005 501 7542, 2005 502 7542, 2004 Xiaguan FT Nanzhou Cake, 2001 XG FT 450g iron cakes and 2013 Xiaguan FT Fei Tai Hao “Love Forever” (Paper tong version with date stamped on wrapper).

        • Frankophone says:

          hi toby and friends,

          are you buying teas that you mentioned:2005 501 7542,2004 xiaguan ft nanzhou, etc…. for your own collection? or will you consider selling them, down the road, yourself? (if the price is right ;)

          Also, i am thinking about getting a tong of jin dayi. are the any good theories about why the price is dropping?? is there just too much of it? thanks for your help!

  4. Deven says:

    I couldn’t justify buying a tong or 10 using Cywn’s logic because by that reasoning instead of corn you can look at wine or coffee which in the former’s case a much more prudent example of an item coming into a speculator’s market and blooming. And like all catchy songs they fade or at least acclimate. Now under Toby’s logic I can see myself buying a large(ish) amount so I can enjoy that tea for longer.

    Tea for me is just another hobby and journey for me. I invest in my hobby the further I get into it but I do it because it brings me good feelings.

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