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Thursday, February 15, 2007

Grape Glut or Wine Shortage?

Following the news about grape harvests around the world is a little bit like listening to OPEC or big oil companies. First there is an over supply of grapes that drives down prices and is bad for vineyards. Then there are harsh growing conditions, which cuts supplies and is bad for vineyards.

A case in point is the 2006 harvest in California, the largest wine producing state in America. Headlines screamed: "California Grape Crush Down 20 Percent In 2006," making some think they should run out and grab a couple of bottles of their favorite Cabernet Sauvignon before the price increased. Not so fast.

California's grape crop was 3.5 million tons, a pretty decent year. It was off from the 4.3 million ton record set in 2005. Average prices paid for red wine grapes were up a fraction to $634 a ton, while white wine grapes dropped slight to $502 a ton. In the U.S. new vineyards are popping up in places like North Carolina and Illinois, adding to the supply.

Other news that has been reported lately includes the drop in the Australian harvest, because of a very hot and dry growing season. This one year trend does nothing to reverse the fact that Australia vineyards have rapidly grown during the last 10 years, flooding the market with some pretty decent wines at very consumer friendly prices.

In Europe, there still is about a year's worth of wine grape juice in bulk storage, with no decent prospect that this liquid will reach our tables as wine. The European Union has a major political headache to grapple with in the coming months as it looks at what to do with the situation.

A wild card coming into the mix is China, which is rapidly planting vineyards and building a wine infrastructure. Perhaps the growing Chinese middle class with drink up this supply as it comes on line during the next decade. If not, the world's supply of moderately priced wine will only grow.

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