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Bulk Wine Price Volatility vs. Grape Price Volatility

I have an article coming out in Wines & Vines, if it’s not already out. In the article, I look into growers turning to bulk wine production. One of the issues I look at it is the comparative volatility in the bulk wine market, versus the grape market. I wanted to make sure that anyone who is interested can see how I compared volatility between the two product types. As in the article, let’s use Sonoma County Chardonnay as an example. First, take a look at the data below, summarizing the volatility of Chardonnay bulk wine listing prices on Wines & Vines.

Now bear with me for a few minutes as I walk you through my work. Looking above the thin, dark line, you see average price per gallon for the year. One column shows the average price across all listings (unweighted) and the other shows the prices when weighted by the number of tons on offer. The column to the left of the years 2011-2014 shows the absolute change in price over the year prior. The bolded numbers at the bottom of those numbers, to the left of 2010, is just the sum of the numbers above it in the column. It’s an arbitrary but useful metric for comparisons. On the face of it, prices look to be highly volatile, though the market seems to be steadying.

Now look below the dark line. You’ll see the average price over the five-year period, followed by the highest and lowest annual, average price. MaxDev is the difference between the average of annual average prices and the highest annual price (ie for unweighted, it is 24.20 – 19.69). MinDev is calculated similarly, but uses the lowest annual average price. AvgDev is the average of MaxDev and MinDev. The two leftmost columns convert the nominal numbers into a percentage of the average prices (19.69 and 21.24.) Whatever measure you use, you see significant volatility.

Now, look at the chart below for advertised grape prices. The bottom summary cells are shifted to the right, for some reason. Sorry about that. As you can see, every measure of volatility is much lower for grapes.

Out of curiosity, I did the same calculations, using Crush Report data, which shows the same dynamics as the Wines and Vines Data:

In summary, bulk Sonoma County Chardonnay grape prices are far more volatile from year-to-year. As the article explains, you should see if this is the dynamic for any grapes you are thinking of crushing for bulk wine. Volatility is typically undesirable. However, if annual price movement of bulk wine prices are inversely correlated to grape prices, high volatility can be beneficial. It means that a relatively low proportion of your grapes can be crushed and sold as bulk wine to serve as a powerful hedge against fluctuations in the grape market. Give the article a read for more information. Or, if you’re seriously considering going down this road, give me a call and let’s see if I can help you out with your analysis.

Listened to while writing this:

Sabotage, by The Beastie Boys

Ride of the Valkyries, by Wagner

Ante Up, by MOP

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