Where are Grape Prices Going this Year?

May 1, 2014

Welcome to UpTack Vineyard Consulting’s blog! The topic of conversation: “Where are grape prices going?” My goal is to regularly post predictions as to what grape prices will look like when the next harvest reports come out and to find some less dry topics related to grape prices.

 

 

What I’m Hearing on the Ground this Year

 

So far, this year, I’m hearing two different stories. The first story comes from the grower reps from the big wineries and from Silicon Valley Bank. The story goes something like this: “High grape prices are compressing our margins and with two big harvests leading to a lot of product to go through our sales channels, grape prices have to come down.”

 

All the farmers I’ve spoken to, however, are reporting that they do not intend to reduce prices. Allied Grape Growers has put out a chart showing that bearing acreage growth will not exceed the long-term average trend line until around 2018.

 

Now, I’m a big fan of SVB and I’d be hard-pressed to identify a better source of information on the market, but they, like the grower reps, have a vested interest in signaling to the market that winegrape prices need to drop. They back a lot of wineries. Why is it that when the going is good for growers and the wineries are still profiting that we hear about the need for a correction, but when vineyard owners can’t pay their bills we just hear that times are tough for everyone? But I digress. And I’ll admit growers have their own biases.

 

So where does the truth lie?

 

 

My Data

 

I use my own proprietary methods to project prices. I have two methods: one is used for long-term projections and attempts to predict cyclical effects. It is meant for long-term planning and must be adjusted annually, since the data that correlate to cycles is not available until the industry is already feeling the effects of the cycle. The other method predicts only that year’s prices, with a projection made in January and updated in April. The latter method is the one I used for this projection.

 

Drumroll please!  The average price per ton for winegrapes from California are estimated to be: $740.64, a decrease from $746.49. That’s less than a 1% decrease. Basically, look for prices to remain steady.

 

 

The Nitty Gritty

 

A few caveats here: First, I know there to be a rounding error in my formula that would adjust the predicted price downward by about 20 cents. No big deal there, just wanted to let you know.

 

Caveat Number 2: This is just an estimate and it’s for all California winegrapes. So, it’s just a market indicator. This number would be of little use for predicting your own prices. If you were to have a strong interest in using the number, because you have a porfolio of vineyards that seems similar to the grape landscape as a whole in California, then you should come up with a price range. The standard error is $27.15, so you could assume about a 70% chance that grape prices will be between $710 and $770 (that’s just an off-the-cuff number.) For stat heads out there, the p-values for the various variables I use are miniscule, with the highest one being .003, indicating a high level of reliability. The model works well.

 

 

High End Grapes

 

I’ve done some preliminary analysis of high end grapes, like Sonoma County Chardonnay. I’m getting the feeling that these grapes will actually see their value rise slightly. That means that Central Valley fruit is likely to see more than the 1% decrease predicted above. I’ll get back to you as I work on those results.

 

 

The Takeaway for Vineyards

 

Try to be firm on prices, especially if you’re growing high end grapes. Every vineyard’s situation is different. UpTack can create projections for your specific situation and integrate those projections into your financial planning and business strategy. Click here to contact UpTack Vineyard Consulting>>>

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