Sonoma Chardonnay Update: Price Recovery Accelerates - Still Looks Cyclical

February 25, 2015

Though I’m waiting for the final crush report numbers to assess my projections’ accuracy, I wanted to go back to one projection, in particular.  District 3 (Sonomarin) Chardonnay was a bit of a question for me, though not as enigmatic as Anderson Valley Pinot and Lake County Cab.  In the case of Sonomarin Chard I got it right, predicting a price of $1998.32.  The preliminary numbers show an average price of $1987.15, for difference of $11.17, meaning I was about half a percentage point off.

 

Chart: Sonomarin / District 3 Chardonnay Prices 1991-2013, in 2013 Dollars

 

More importantly to me, however, is whether my modeling works as a predictor on a going-forward basis.  If you look at historical, inflation-adjusted Sonomarin (District 3) County Chardonnay prices you see a nearly perfect sine wave pattern over the past two or three decades, indicating that the market price for the grapes is determined by the cyclical nature of the industry.  Over time, however, the upswings and downswings have become milder.  At the same time, the inflation-adjusted prices have trended down slightly.  So, prices have been falling gradually, but supply and demand have been in better long-term balance reducing volatility.

 

Since the price trough in 2011, non-inflation adjusted price increases have been only about 1% of price per year, around $20 per ton.  My model, however, was predicting an acceleration in price growth to about 2.5%.  The issue here was whether Sonomarin Chard was going to break from historical precedent and start to exhibit more linear growth patterns.  The follow up question would then be, how will it respond to cyclical downturns?  My model for Sonomarin Chardonnay predicts a continuation in its historical patterns and so another 1% increase would bring into question my model’s validity.

 

In actuality, the price increase was about 2%.  This was a happy finding for my model and for Sonomarin Chardonnay growers.  Looks like they’ve got greater revenue on the horizon, my model is safe and the market is still cyclical.  Cheers!

 

What I listened to while writing this blog:

“Sing,” Dresden Dolls

“House of the Rising Son,” The Animals

“I Melt With You,” Nouvelle Vague

“Hallelujah,” Jeff Buckley

“Jolene,” Dolly Parton

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