The declining dollar, through the wine glass
“The weak dollar makes American products cheaper overseas, buoying sales, and makes imports more expensive, encouraging consumers at home to buy American…As the dollar fell, gold reached $1,117.40 an ounce at the stock market’s close on Wednesday, setting another record high as hedge fund managers and wealthy speculators continued to buy the precious metal.” – NYT 11/11/09
Applying this to wine:
1. About two-thirds of wine sold in America is produced in America, by volume. If you’re in the portion that drinks imported wine, what price would it take for you to consider switching to domestic wine? If foreign exchange rates fell to $2 to the euro (a decline of 33% from current levels) would that be enough to make you drink more domestic wines? Or, say, $3 to the euro, double the current rate? [shudder] Bear in mind too that FX moves are often parabolic since wholesalers and retailers seek to maintain the same markup even when the base cost rises. [Update: please see comment below from Matt S.]
2. Will domestic wineries start targeting overseas markets more? Apparently they already have since the Wine Institute reports that exports of US wine have doubled since 2002, when the dollar was at a high. But will American wines exported be more than Blossom Hill and white zinfandel?
3. With the rising price of gold, maybe that gold-encrusted Jerobaum of Champers wasn’t such a bad deal after all?!?
Related: “Why so few tasty American wines under $12? Wine importer Bobby Kacher“
On November 12th, 2009 at 11:30 am ,Tony A wrote:
Regardless of the current stength/weakness of the American dollar , this had little impact on the real matter: do you get real value from American wines? Are they food friendly ? Even with today’s exchange rate, Italy, for example, offers much more versatility , quality and value under $20 that any American wine region.
On November 12th, 2009 at 11:36 am ,Wine Splodge wrote:
Outside the US the main problem with good American wine is finding the stuff.
On November 12th, 2009 at 11:45 am ,Lyman Dally wrote:
I’m still buying south-of-france wines for @ $15/bottle. I still find them the best bargain tastewise. Does this mean with a stronger dollar they should be selling for @ $9 (kind’a like in 2002)? So far I haven’t found any American wines at the same pricepoint that deliver the same kind of taste-surprise as the french ones. Suggestions are welcome.
On November 12th, 2009 at 11:50 am ,Christian G.E. Schiller wrote:
In the center of old Europe, not in the UK, new world wines, in general, also have a bad reputation of being too much an industrial product, manipulated too much during fermentation in the cellar.
On November 12th, 2009 at 11:55 am ,Bob W. wrote:
I think, particularly with many Italian wines, the demand has fallen enough (due to the current economic conditions) to offset the inevitable price increase caused by the lower dollar. Higher prices paid by importers have to be passed along to the consumer unless they decide to eat the exchange factor. The exporter could also take the exchange risk and eliminate the price increase to the importer.
That said, I have read that Italian vineyards are selling their grapes at a fraction of the price from recent years due to lower demand.
I have also found, for example, that many of the 2004 Brunelli are selling at a lower price than the 2001’s. I think it’s more about demand right now and the average wine consumer not willing to part with $50+ for a bottle.
On November 12th, 2009 at 12:23 pm ,J. Boyce wrote:
Interestingly, U.S. wine imports in China are up 63% for the first half of 2009 compared to first half 2008, behind only France (71%) and ahead of Australia (41%) and Chile (37%). The other top-six wine sources, Italy and Spain, saw little or no growth. (The U.S. is now the number three source of wine and trails only France and Australia.) I’m guessing the U.S. dollar – and U.S. producers offering better terms – explain this growth at least in part. We’ll see what the year-end numbers show…
Cheers, Jim Boyce
On November 12th, 2009 at 1:22 pm ,Matt S wrote:
Interesting post, but I don’t follow what you mean in saying that price changes as a result of foreign exchange movements will be “parabolic.” Assuming that the Euro price of a wine and the percentage markups taken by all suppliers are constant, the dollar price is a simple linear function of the exchange rate. The only way you get a dollar price that is not linear to the FX rate is if you assume a supplier somewhere in the chain has a markup that is a fixed number of dollars or Euros — and that assumption would cause the change in the dollar price to vary by *less* than the linear change in the exchange rate, not more.
(In mathematical terms, if E is an ex-chateau price in Euro, M is the aggregate percentage markup taken by all wholesalers/distributors in the chain who buy in euros, x is the Euro-dollar exchange rate and m is the aggregate percentage markup taken by all wholesalers/distributors/retailers in the chain who buy in dollars, then the final dollar price D to the consumer is D = m*x*M*E, a linear function of x. If M or m includes at any point a fixed-value rather than a fixed-percentage markup, then that component of the expression will decrease as x increases.)
On November 12th, 2009 at 1:49 pm ,Greg Roberts wrote:
Even though the French should be thrilled to do Christmas shopping in New York to take advantage of the f/x rate, a weak dollar isn’t favored by the governments or ECB. This hurts not just wine exports but other industries -and companies like Airbus.
I’m not sure how much longer the wine producers from France, Italy and Spain can continue to compete in the under $15 category in the US. For example, at 1.60 euro/USD the export price would need to be around 2.50 eur.
On November 12th, 2009 at 11:23 pm ,The Wine Mule wrote:
You can still find bargains from Europe. Castaño Monastrell is still under $8 in our store. We have wines from Montepulciano d’Abruzzo, Vin de Pays des Côtes de Gascogne, Vin de Pays de l’Hérault, and Côtes de Provence, many producers, many varieties, all under $10. Will these wines remain bargains? In absolute dollar terms, probably not. But they’ll still be good values compared to a lot of domestic wines, regardless of the dollar/euro exchange rate.
On November 13th, 2009 at 5:07 am ,Finkus Bripp wrote:
With Italy and France losing ground as quickly as they are when it comes wine exports, I believe US importers will surely find the right wines at the right prices regardless of the $€ exchange.
On November 14th, 2009 at 10:37 am ,winenxt wrote:
Now i can drink American wines cheap in my country….
On November 14th, 2009 at 10:38 am ,winenxt wrote:
will this effect import of European wines in USA?
On November 14th, 2009 at 11:37 am ,Dylan wrote:
I guess it’s time for me to trade in that life-size 24 karat gold carving of myself.
On November 14th, 2009 at 9:13 pm ,The Wine Mule wrote:
Dylan: Smart move. Don’t blow it all on Bordeaux futures, man.
On November 14th, 2009 at 10:31 pm ,Dr. Vino wrote:
Matt S –
Sorry for the delayed reply; your comment came in while I was out and escaped my attention until now.
Reading your equation, yes, it is, in fact, linear. I stand corrected. Aside from fixed dollar margins, margin compression in the face of a rising cost (worsening FX) could also lead to a non-linear outcome.
Thanks for pointing this out and I will make a notation in the post to see your comment.
Best,
Tyler
On May 5th, 2010 at 1:30 am ,Finance Dollar wrote:
we can still find bargains from Europe. Castaño Monastrell is still under $8 in our store. We have wines from Montepulciano d’Abruzzo, Vin de Pays des Côtes de Gascogne, Vin de Pays de l’Hérault, and Côtes de Provence, many producers, many varieties, all under $10. Will these wines remain bargains? In absolute dollar terms, probably not. But they’ll still be good values compared to a lot of domestic wines, regardless of the dollar/euro exchange rate.
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PINTU