*Where are Sonoma County Zin Prices Headed?*

*Where are Sonoma County Zin Prices Headed?*

May 6, 2014

In the last blog post, we took a look at where statewide winegrape prices are going. That analysis requires looking at many different grape types, across varieties and appellations. In this post, we’ll look at a specific case: Sonoma County zinfandel. In fact, we’ll look at a specific vineyard that I’ll use as an example (everything is kept anonymous, of course, so pardon the bad, fake names.) The projections that are used as a basis for this analysis are valid for Sonoma County, in general.

UpTack Vineyard Consulting Zinfandel Price Projections for Mountain Man Vineyards

Purpose:

The purpose of this projection is to briefly explore alternative price terms for contracts between Mountain Man Vineyards (MMV) and Guitariste Winery (GW) or other buyers. This specific report is very limited in scope, aiming to answer only one question: If MMV were to have indexed the price of its Zinfandel to the District 3 average, would that have resulted in greater revenue? Many other facets of the relationship between MMV and GW, such as a mutual preference for price stability, are not considered in this evaluation.

Note:This report uses District 3 prices as a basis for discussion of grape prices. County prices would serve as a slightly better basis, but are not made available until later in the year.

Current Pricing Model and Context:

Currently, the contract between MMV and GW specifies payments of $3500 per ton of zinfandel. The 2013 price for District 3 Zinfandel, according to Table 6 of the relevant NASS report was $2498.88. MMV is, therefore, receiving roughly $1000 more per ton than District 3’s most recent average.Predicted Price for 2014 District 3 Zinfandel:UpTack Vineyard Consulting (UTVC) uses two different proprietary models to estimate grape prices. Model 1 currently predicts a price of $2601.31 for 2014, while Model 2 predicts $2586.23. The latter number is the recommended projection for 2014.

Probability of a Price Rise for 2014:

UTVC’s modeling estimates an 89.44% chance of prices rising for next year. While the price projection above significantly exceeds 2013 prices, nothing is certain and UTVC can only present data in term of probabilities. There is a 10.56% chance that prices will actually fall.

Summary:

UTVC’s predictions indicate that, were MMV’s contract with GW to have been indexed to the price of District 3 zinfandel, in the form of District 3 price plus $1000, that revenue per ton would be approximately $3600, or $100 more per ton, with only a 10% chance of receiving less revenue.

Statistical Summary:

2014 predicted price: $2600 (approx.)

Marginal revenue difference per ton: $100 (approx.)

Chance of prices going down: 10% (approx.)

Correlation of model to past data (1991-2013): 99.3%

Maximum deviation in that period: -16.7% in 1993 (indicating that actual prices came in lower than estimated prices.)

Maximum deviation over past 10 harvests: 6.67% (indicating actual prices came in higher than estimates.)

Standard deviation: $89.15

Range of p-values of factors used (smaller numbers mean greater reliability of model, range = 0 to 1): .00008 to .05824.

R-squared (correlation squared, higher number means better fit, range = 0 to 1): .98620

Adjusted R-squared: .98188

The Takeaway for My Blog Readers:

Got SoCo Zin? Good, push for $100/T more than you received last year. Depending on how your contracts are structured, this could be achievable by indexing to County or District prices. Yes, your grower reps will howl that with two huge crops, and limited room in their marketing channels and, and… don’t go for it. There is a 90% prices will go up. $2600 is UpTack’s prediction for average price in District 3. Some growers will get more and some will get less. Contact me if you want to talk about where you should be on that spectrum.