District 3 Chardonnay Update
For someone in Sonoma County and/or the wine industry, Sonoma County means Dry Creek Zinfandel, Alexander Valley Cab and great Pinot Noir and Chardonnay from the Russian River Valley and the Sonoma Coast. But to most of the country, Sonoma County means Chardonnay. Chardonnay accounts for three-quarters of the county’s white winegrapes and one-third of all the county's winegrapes. In 2013, District 3 (Sonomarin) Chardonnay sold for an average of $1940.41 per ton. I had predicted that the average price per ton would rise to $1998.32 in 2014. Prices actually rose to $1990.38, an increase of 2.58%. Total yield and average Brix remained flat, seemingly unaffected by the drought or the stress of the previous two large harvests. This is curious, but may stem from more acreage coming on, something I will look into at some point. It may also be explained by crop thinning that restrained yields in 2012 and 2013, but was done less aggressively in 2014.
This is the best prediction of mine I’ve reviewed yet this year. I’m happy about that, as I once did a presentation to a class at Santa Rosa Junior College about the cyclical nature of the wine industry, using District 3 Chardonnay as a case study and would feel foolish if I was far off. Coincidentally, I was just discussing where Sonoma Chardonnay prices are going with David Ashcraft of the vineyard-focused real estate firm Vintroux.
David spoke about how he sees Sonoma County Chardonnay prices starting to slowly pull away from the cyclical pricing pattern, as seems to have happened with Napa Cabernet. I told him that my research shows that to be a mostly true statement and shared with him the following points:
- Napa Cab still looks to be influenced by cyclical factors, but these factors are no longer the primary driver of pricing. They are taking a back seat to the continual rise in price.
- Sonoma County Chardonnay still has a largely cyclical pricing dynamic, but the cycles are becoming markedly milder over time.
- Unlike with Napa Cab, District 3 Chardonnay prices, when adjusted for inflation, are basically flat.
- I would model the two grapes differently. I believe Napa Cabernet to be best modeled as a range that increases through straight-line growth. With proper sensitivity analysis, one can produce a range that will capture actual prices and be narrow enough to use. Sonoma County Chardonnay, however, should be modeled using a cyclical model, with a reduced strength of the cyclical factor.
So, back to 2014: how did my price prediction fare?
How Close Was the Prediction?
Actual average price was 0.40% lower than VFA’s predicted price. I like to see my predictions fall within 2% and worry about the model if the prediction is more than 2.5% off, so this one definitely makes the cut. I actually have been using two different, but very similar models for every prediction and the second one got just a bit closer, like a final bocce ball thrown by a skilled player. But the prediction of my main model is plenty good for me.
Where Did Actual Numbers Fall in VFA’s Probability Distribution?
As you know if you read this blog regularly, 68% of predictions should fall within one standard deviation of the prediction. This prediction was off by 0.10 standard deviations, a great number. That means that my model predicted a 54% chance that prices would be at this level or higher and a 46% chance they would be at this level or lower. The model also predicted a roughly 78% chance that prices would rise, which they did. As with the other predictions I’ve reviewed, if these numbers were used for scenario analysis, they would have fallen well within the 60% probability range that I use as my narrowest range estimate.
Anyways, I am very satisfied with this model and its predictions. I’ll plan to check back in tomorrow with a look at another variety-district analysis. Cheers.
Oh, and I keep forgetting to do this, but if you want help forecasting grape prices, estimating sub-appellation prices, making use of data for operational purposes, doing market or competitive research or with an AVA appraisal and amortization, please feel free to get in touch.
Music played during the creation of this blog post:
“Take Me to Church,” Hozier
“My Love Took Me Down to the River to Silence Me,” Little Green Cars
“Left for America,” Ciaran Lavery
“Swords,” Liza Flume
“Come With Me,” Inni-K
“Waiting for You,” Isobel Anderson
“My Favorite Faded Fantasy,” Damien Rice
“The 6th Day,” J Ralph
“One Million Miles Away,” J Ralph