The last post was wholly dedicated to Napa Cabernet Sauvignon and was quite bullish for the future. I do want to reiterate that those are very basic projections and I would strongly recommend you have VFA customize projections for you, instead of using those. At the very least, use the lower limits of probability that I provided. Even in today's market, Napa cabernet is already very expensive. One of the strategies used for controlling Napa cabernet costs is to blend in cheaper wines, such as Lake County cabernet, which can substitute well for bulk Napa cabernet. Before I take this post into a dry, mathematical direction, I'll share a joke heard around Sonoma County:
What's the difference between a Napa Cabernet and an Alexander Valley Cabernet?
A whole lot of Lake County Cabernet!
Anyways, the whole purpose of this segue is to introduce the topic of this post: 2014 Lake County Cabernet Sauvignon prices. This projection took me some time. Lake County Cabernet prices are considerably more volatile than Sonoma and Napa prices. I had to develop a new model that used some different variables. The model is strong, but not nearly as strong as VFA's one year models for Napa and Sonoma. In particular, Lake County Cabernet responds to macroeconomic shifts in an idiosyncratic manner.
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 typically 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 Lake County price of between $1709.90 and $1730.20 depending on the specific way I run the calculation. There is an approximately two out of three chance that prices will fall somewhere between $1600 and $1800. The chance that prices will be higher than last year’s price of $1725.79 is about 50%, essentially indicating that the market should be about where it was last year.
The Nitty Gritty
First a caveat: 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 $109.26, if you need that. The model’s correlation is my weakest one yet, with an r-squared of about .92 and a correlation of 95.7%. I have included a p-value table below, with the variables obscured. I strongly believe that all of the variables are valid. Even the highest p-value is low enough to be considered valid in most business applications. It would typically be discarded by VFA, but for qualitative reasons that are confidential, I believe it to be valid.
Variable P-Value (0 = 100% certainty the variable has an effect, 1 = the opposite)
Generic Variable 1 .007936
Market Variable 1 .001223
Market Variable 2 .000959
Macroeconomic variable 1 .195739
Unemployment rate .018535
If you are looking for customized projections or strategies to get the most out of this type of information, call VFA to see what we can do for you. Click here to contact Vineyard Financial Associates>>>