Where are Napa Cabernet prices going?

May 27, 2014

Cabernet Sauvignon from Napa is the market leader in grape prices and that is not going to change anytime soon.  In fact, it will not surprise many of my readers to hear that prices are almost certainly going up.  But by how much?

 

 

My Projections

 

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.

 

My projections are showing a 2014 average District 4 price of $5818.82.  There is an approximately two out of three chance that prices will fall somewhere between $5500 and $6150.  The chance that prices will be higher than last year’s price of $5498.50 is almost 99%.  It’s a good time to be growing Napa cab.

 

 

An Interesting Note

 

From everything I've seen in my analyses, Napa cab seems to be the most insulated from the Main Street economy.  I cannot go into detail about why I have come to this conclusion, as it would give away part of my methodology, but I use fewer macroeconomic indicators to creat an accurate projection for Napa cab and those that I do use have less immediate effect on Main Street, whereas the indicators I drop would bother Wall Street types less.

 

 

The Nitty Gritty

 

Two caveats here: First, I know there to be a rounding error in my formulae that would adjust the predicted price downward by about $9.31. No big deal there, just wanted to let you know.

 

Caveat Number 2: This is just an estimate.  It’s just a market indicator. This number should be used as a baseline and adjusted for your vineyard and your needs. The standard error is $320.32, if you need that. For stat heads out there, the p-values for the various variables I use are miniscule, with the highest one being .001, indicating a high level of reliability. The model works well, with an r-squared of above .99 and a correlation of 99.6%.  This model came within 1% of actual prices last year.  Its worst performance over the past 22 years - the period from which I draw data - was a prediction of prices 8.4% lower than they actually were in 2008. The data seems to indicate that this was due to contracts taking time to reflect the changed realities of the Great Recession.

 

If you are looking for customized projections or strategies to get the most out of this type of information, call UpTack to see what we can do for you.  Click here to contact Vineyard Financial Associates>>>

 

In the next post, we’ll be looking at Sonoma County chardonnay.

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