Oil and wine

Right now most of our loyal readers are questioning that headline, what could the two possibly have to do with each other? It turns out that the rapid drop in oil prices - a holiday gift for many of us, resulting in lower fuel costs - will likely moderate wine pricing as well. While supply and demand move the oil markets, a lesser-known cause of falling commodity prices will likely help what consumers pay for wine. All commodity trades around the globe are settled and paid for in U.S. dollars. Right now the dollar is strong versus other major currencies, and when the dollar is strong, the prices of commodities like oil and gold will drop if all else is held constant.

For some time now we have seen an inversion in normal pricing trends of wine. European selections have been falling in price, resulting in many European wines being less expensive than their domestically produced counterparts. Up until the last couple of weeks, this has been driven by the weakness and various financial crises in the countries of the European Union. The economies have had so much trouble that winemakers there are dumping products on the U.S. just to stay afloat.

This trend established over the last couple of years has been so impactful that some U.S. producers have actually bought bulk wine on the European market and bottled it here in the states on a negotiant basis. The recent rise in the dollar will accelerate this trend, especially as world economies remain weak when compared to ours.

For all the likely price reduction - or at least price stability - in wines imported from Europe, the competitive price pressure on domestic wines will be felt by winemakers and seen by wine consumers. Coupled with very healthy domestic grape crops in 2012, 2013 and 2014, and wine consumers should be almost as happy with wine prices as we all are with gas prices.

Longer term though, is this all good news? Like any product category, when prices destabilize there are risks to the industry. The competitive pressure from inexpensive imports, if severe enough, will result in some wineries closing their doors here, or being forced to merge with larger producers to keep things going. The recent story of a favorite winery of ours in California, Qupe, is an illustration of the pressures that are on small producers, even those who make really great wine, as the market gets swamped with more wine from abroad.

Similarly for grape growers, increasing pressure on domestic producers can stem the demand for grapes too. Fewer wineries - or decreased production from domestic wineries adjusting to the new market realities of more available, less expensive drinkable wines from other parts of the world - will leave quality wine grapes wanting for a home come harvest. The biggest risks for growers, though, are still dependent on the caliber of each vintage.

The trends in dollar strength, and therefore falling commodity prices, appear to have some time to go still. While this will continue to influence wine prices, the risks to domestic wineries, while real, are not to the point of being severe. However, we do predict stable to falling prices on imported wines over the next year, especially those from lesser-known producers. This also will result in keeping a lid on domestic prices from all but the highest-end and most sought after producers for as long as the cycle continues.

For wine consumers we see little bad news on the horizon.

If there is a topic you would like to read about or if you have questions on wine, you can email george@thedinnerpartyshop.com, or make suggestions by contacting the Healthy Community section at the Coeur d'Alene Press.

George Balling is co-owner with his wife Mary Lancaster of the Dinner Party, a wine and tabletop decor shop in Coeur d'Alene by Costco. George has also worked as a judge in many wine competitions. His articles are published around the country, and he is the wine editor for Coeur d'Alene Magazine (www.cdamagazine.com).

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