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February 22, 2014

Howard Hewitt: Drought to raw materials affect future wine prices

News from the world’s wine regions can affect even the average wine drinker. There is a lot going on, particularly in California, which can affect future wine prices.

The biggest news and fear from the west coast is the on-going drought. The 2013 harvest was huge but vineyard owners and managers are concerned about the future.

Northern California had a heavy five days of rain recently but it was not nearly enough to offset dry conditions. The extended rainfall certainly brought about some sighs of relief but long-term weather predictions call for dryer than normal conditions until at least early summer.

Anyone in the Midwest knows what happens with agriculture when things dry up. There are smaller crops and less quality product. That is doubly true with fruit, or in this case grapes. No one is predicting a catastrophic 2014, particularly on the heels of a strong 2013 crop, but it bears following.

Each year the USDA’s National Agricultural Statistics Service provides a harvest report and it’s always interesting reading. California’s 2013 crop was up six percent over the previous year. That means more than four million tons of wine grapes were harvested.

What’s the top grape in California? Well, most people would probably guess its Cabernet Sauvignon but actually there is more Chardonnay being harvested each year. Chardonnay accounts for 16 percent of the harvest to Cabernet’s 11 percent. Zinfandel comes in at 10 percent of harvest followed by Merlot, Pinot Noir, and Pinot Gris.

And to understand wine prices, or the price of any consumer good, you have to have an appreciation for raw material costs. Everyone learned that in basic Economics, right? California is best known for its big, expensive Cabernet wines. Well, the average price for a ton of grapes in California was $706.29 a ton. But if you have Cabernet on those acres the average cost is $5,500 per ton.

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