Updates on the 'wine economy'

Oil prices continue to decline and the stock market had a tough week. China appears to no longer be growing, and much of Europe remains in the economic doldrums. As wine is a worldwide product in both supply and demand, it seems a good time to update wine consumers on the current economics of wine.

Much of the decline in oil has been due to the strength of the U.S. dollar. While supply of oil has also greatly increased (mainly from the United States ramping up production), the strong dollar puts downward pressure on commodity prices, as oil and all other worldwide commodity transactions are settled in dollars. A strong dollar lowers commodity prices if all else is held neutral. Similarly, a strong dollar makes imported wines from Europe less expensive, and increases the price of our own domestic wines abroad. This is the primary cause of the price inversion we have seen between domestic and imported wines for the last several years.

Factor in the weak economies in much of Europe, and their desire to move wine at any cost, and we have the current situation. Domestically-produced wines increasingly command much higher prices than some of the great Old World wines from Europe. We have felt for a long time that this model is not sustainable for U.S. wine producers. At some point, the pressure to bring prices more in line with international wineries will become overwhelming.

Of course there are exceptions to all things, which in the case of wine remains the super-premium categories of the world's appellations. Wines priced over $100 are still being driven by production levels, quality of the wine and the demand for these very sought-after and hard to come by bottles. The biggest names from Napa, France, Italy and other locations still command the attention and pricing we have come to expect.

The one exception is wineries which have seen dramatic increases in production. For these-ultra premium wines, you can't expect to garner the same price when you quadruple production. For collectors, once wines are too available, and seen in too many places all year long, the same prices will not be paid.

Another negative trend that can be partially traced to the Old World/New World price inversion (and partially to the rapid growth of wineries here in the U.S.) is the advent of financial buyers and managers making the ever-important pricing and production decisions for wineries.

Their approach goes something like this: "We need to charge this amount and make this many cases in order for the winery to be viable financially." Of course, this leaves out the vital subject of the quality of the wine, the level of demand for it, and competition in the marketplace. This phenomenon is resulting in bad pricing and production decisions, especially in the mid-price ranges ($20 to $50). This ultimately leads to some wineries foundering, and in some cases, their closure. The ones that figure it out and survive this flirtation with pure financial management are the ones who quickly learn that they need to produce good wine priced in line with their competitors.

Overall, in the coming years we see price stability and good supply and quality. Vintages currently in release (and those in the pipe) were all of decent size. 2012 was a very large crop, and 2013 and 2014 were large as well, if not quite as big as 2012. 2015 is expected to be a bit smaller still, but with enough grape stock to "keep the wheels turning." In Europe, there have been no years with tiny crops that would create a supply problem. We expect the current pricing inversion to continue until the world economies once again grow robust.

Correction In last week's column the autocorrect got the best of me, replacing Saignee with Soignee. Of course, Saignee is the process for making dry ros by bleeding off some of the unfinished wine, before it takes full color from contact with the skins. Soignee is not a word in any language as far as I can tell, making the switch confounding. We apologize for the error.

If there is a topic you would like to read about or 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 table top 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. You can learn more about the dinner party at www.thedinnerpartyshop.com. You can get all of these articles as well as other great wine tips by friending us on Facebook http://www.facebook.com/#!/dinnerpartyshop.