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Commodity traders watch feed prices and count pork bellies. As for me, I watch what is hanging on grape vines (not much right now) and I study our proprietary data,* especially bulk-wine inventories. Those two data points, plus a good bottle of Sonoma County cabernet sauvignon, can reveal the future.

Let's talk 2012, and let's talk North Coast cab. 

Cabernet sauvignon is the biggest selling red varietal. Sales are growing at a healthy clip. For several years, sales growth has been concentrated at price points below what works for brands utilizing North Coast fruit. But more recently, sales in the over $15 per bottle range have started to rebound. This year was the year, (as we have been predicting, I might modestly add) that demand has started nipping at the heels of supply. 

Many winery folks have been swimming in excess cabernet for several years. (This explains all of the purple-hued winery execs in the North Coast.) Some have now suddenly realized that they have not only finally succeeded in balancing their inventories but that they are on the verge of running short. 

Many were caught by surprise -- but it really was no great surprise. Our data showed decreasing bulk wine inventories, increasing demand and no net increase in bearing acres. Sooner or later, demand was sure to catch supply. The worldwide economic woes slowed the pace of demand at the high end and the banking squeeze made it harder to finance inventories. But nevertheless, vineyard acreage was stable and North Coast sales began to rebound.

Mother Nature, of course, likes to mess with our minds. She threw a series of "lightening strikes" that occurred at just the right (or wrong) times during the 2011 growing season that illuminated the fact that supply was running short. As Warren Buffet has said, "When the tide goes out, you find out who has been skinny-dipping." It was, shall we say, a revealing harvest. 

And 2012? We don't know much yet on the supply side, except that last year had plenty of rain but a light crop. That might up the odds of a bigger harvest in 2012. We also expect a larger crop this year in the Southern hemisphere. Everyone is cautious about the economy, especially since the governments of Greece, Portugal, Ireland, Spain and Italy were all skinny-dipping big time on their national debts -- and the frugal Germans are not that excited about lending them towels.

But we still expect demand to keep inching forward North Coast price points. 

[caption id="attachment_45529" align="alignright" width="300" caption="Six years of Sonoma County cabernet sauvignon bulk-wine inventories in gallons. Click image to enlarge. (Turrentine Brokerage graph)"][/caption]

Let me leave you with a peek at one of our key proprietary data points (usually reserved for our best clients -- but, hey, we're pals, right?). The chart illustrates Sonoma County (District 3) cabernet sauvignon bulk-wine inventories, going back to the massive harvest of 2005. You see that it took two painful years to get inventories back down -- and then large crops in 2008 and 2009, plus the recession, pumped them back up again.

Prices for Sonoma County cabernet sauvignon in bulk fell below cost for most producers -- mostly in the $10 per gallon range -- and much inventory languished on the market. Now, however, inventories are at the lowest level in six years -- and prices are topping $20 per gallon.

It looks to me like the tide is going out. Got your swimsuit? Or can we lend you a towel?•••

Brian Clements is vice president and partner of Turrentine Brokerage (www.turrentinebrokerage.com), a Novato-based marketer of winegrapes and bulk wine in California and abroad. *The company produces proprietary data on global markets, bearing and nonbearing acres, projected tonnage for the next five years, bulk wine inventories, spot market grape prices and collateral value trends.