There are several thingies (......that's a technical economic term) that are happening right now that all link together in some form to drive components and the present direction in the wine business. Since this is a blog though, and blogs are generally top of mind and brief, discussing the state of anything is going to either violate the Constitution of the Blogosphere or the tenants of mildly meaningful research. Instead, I'm going to leave out a pantload (......that's another technical economic term) ... of discussion topics such as demand for wine, and go with the top 4 thingies worth pondering at this point in the year.
- The first thingy is water. There isn't any as the video above portrays. That's not good. And it's not just a Central Valley thingy. This water thingy is running throughout the Ag. and wine industry and will only get worse.
- Second is the heat wave from the past week. Early discussions suggest the heat will reduce expected crop size by 10% plus or minus due to sunburn from the recent record heatwave. A related issue vis-à-vis supply is the size of the world harvest in the Southern Hemisphere.
- Third is rising interest rates. That does all kinds of thingies to the wine business.
- Fourth: the world is shrinking and so is the market share for US produced wine.
Even Edyie Gorme Knows it
I'm Channeling Milton Friedman ........
What is clear at present is the US Economy is ahead of world economies in recovering. As our domestic interest rates rise, foreign currencies depreciate unless they increase their own rate structures to attract capital inflows. If they don't they lose in the carry trade translation. The expectation in Europe should be to do nothing and let their currency sink versus the dollar so their exports to the US have a rate advantage. But there are many who expect to see European rates rise "in sympathy." I'm doubting that as of this writing. My guess today is we see the US dollar strengthen across a basket of currencies leading to cheaper imports overall, and that keeps our purchasing power up at the consumer level, and inflation contained. The problem, is a strengthening dollar equals cheaper wine imports, for both bottled and bulk wine.
My Akward First Dance
Turrentine Bulk Volumes
Drought might be a crack in California's Recovery
The Ghosts from Italian Swiss Colony say...
- It looks like harvest is trending to be normal to maybe slightly above normal.
- Long term supply is going to be short with normal harvests in the next few years.
- World supply seems enhanced by good harvests in the Southern Hemisphere.
- Rising interest rates will strengthen the US currencies leading to cheaper imports which does have an impact on our wine growing brothers and sisters in the Central Valley in particular, especially when water - or the lack of it cuts into supply, and the damage from the just passed heat wave is factored in to the equation.
- Grape supply and juice seems adequate if not a taste long for now based on last year's harvest and and expected average to above average return this year, but still should be short-ish going out for the next few years.
- There is every reason to believe imports will continue to get a larger share of the US consumer dollar.