Dollar to Euro at [INSERT NEW LOW HERE] - When Will it hit U.S. retail?

Peter_Petersen · January 4, 2015, 3:03am

So we’ll see the effect on domestic wines first

John_Morris · January 5, 2015, 4:12pm

Down $1.1936 now.

A_S_K_R_O_B_A_C_K · January 5, 2015, 11:26pm

Yep. A NINE year low today. Bring on the sales.

NPR reports: “The euro fell 1.2 percent against the dollar to $1.1864 — the lowest level since March 2006; it later recovered to $1.19370.”

ATaylor · January 6, 2015, 4:08am

Be very careful what you wish for. The market was also off over 300 points and the spectre of a Grexit after Jan 25th weighs heavily. There is a boatload of debt tied to the oil market that went non-perfoming $10 a barrel ago.

If it blows through a floor of 1.15, then parity may well not be far off…for the ballas out there.

NED_VALOIS · January 6, 2015, 4:42am

Party in BORDEAUX !!!

Mark_Y · January 7, 2015, 10:18pm

Since i’m headin’ over there in May… i hope the downward trend continues for the next 5 months

Chris_C · January 8, 2015, 12:38am

PC Strong Dollar Bordeaux Specials!! So 2 years at the earliest?

Jon_A-K · January 8, 2015, 4:20am

I know of one paper that estimates exchange rate pass-through for wine, by Natalie Chen and Luciana Juvenal, but it only looks at Argentinean wine (from 2002-09). Here’s a summary (with a link to the paper given at the end):

http://www.voxeu.org/article/quality-goods-and-pass-through-puzzle

They find fairly high pass-through: for example, a 10% depreciation of the Argentinean peso against the dollar would be associated with an 8.9% decrease in the US import price of an Argentinean wine, on average. This varies from about 8.6% for the highest “quality” (highest scoring) wines in the sample, to 10% for the lowest scoring wines (complete pass-through).

I suppose the more market power a producer has - that is, the more shielded from competition from close substitutes the producer is - the more ability the producer has to “price to market” - vary the price of the wine by export destination according to market conditions (exchange rates, demand conditions, etc.) in each destination. If you make a homogeneous good, you have little market power and have to price however your competitors price, which theoretically should be determined by their costs of production, which are mostly local costs, so prices in the local currency would be largely unaffected by exchange rate movements and there would be very high pass-through of exchange rate changes to prices in export markets. On the other hand, a producer with a unique terroir in Burgundy, for which customers do not perceive there to be any close substitutes, is able to respond to a depreciation of the euro by raising the export price (in terms of euros), reducing the pass-through of the depreciation of the euro to prices of the wine in the US.

So theoretically (and empirically, if Europe is anything at all like Argentina), a sustained depreciation should bring down US dollar prices, but how much they go down might depend quite a lot on what sorts of wine you buy. (sorry for the tedious post )

A_So · January 8, 2015, 4:28am

Howard_Cooper · January 8, 2015, 3:31pm

John Morris:

Another factor that could delay price reductions: Some importers buy currency futures so they know what their landed costs will be. Those people may be stuck with higher euro costs until they run through those futures.

It’s not like gasoline, which very quickly reflects oil prices.

Nick Gangas:

Drew, I always figure that new vintages are paid for about a year ahead. So wines being released next fall should reflect this. Unless where talking about Burgundy then the retailers will tell you that they could have screwed you worse so stop your belly aching or they’ll sell your wine to the Chinese.

Unfortunately, in Burgundy you’ve had a string of very small harvests back to back which has decreased supply substantially. So the euro will only help offset the pain a little there.

I think John hits a key point. I don’t think you will see Burgundy prices moderate until we see a few at least normal sized vintages. 2010, 2011, 2012 and 2013 were all small vintages. 2014 is the first normal sized vintage in a while.

Nick_Gangas · January 8, 2015, 5:14pm

Agreed there are many factors affecting prices but for instance, I received an offer for some 13 Burg in The UK this week. Same price as last year. But the premier cru at 120 pounds is now about $150 a bottle to me. Last year it was $180 correct ?

John_Morris · January 8, 2015, 7:59pm

Nick – It gets even more complicated when you look at UK prices because the pound has fallen substantially against the dollar (from $1.71 in the summer to $1.51 today), but not as much as the euro, which means the pound has gained a bit against the euro, and it gained substantially against the euro from May to July before the pound started to slide.

Craig_G · January 8, 2015, 9:08pm

Just one data point, but a bunch of 2010 Faiveley Villages (CM, GC, VR) just showed up at K&L for $40. Similar wines (10/11) have been around $60 there for the past few years. No doubt there are multiple factors are at work but I suspect the Euro is helping.

A_S_K_R_O_B_A_C_K · January 8, 2015, 10:00pm

That’s just the start, Craig. Keeping my powder dry…

From Bloomberg: “Being more bearish on the euro than the consensus helped ING Groep NV become the world’s most accurate currency forecaster in 2014. The Dutch bank sees no reason to change its strategy now, breaking from the pack to predict a drop to parity with the dollar within two years. After watching the 19-nation currency slide as low as $1.1754 today from last year’s high of $1.3993 in May, ING sees it continuing to weaken all the way to $1, a level last seen in 2002. The median estimate of more than 30 forecasters in a Bloomberg survey is $1.15 by the end of 2016.”

Nolan_E · January 8, 2015, 10:07pm

How does the dollar to euro ratio affect the GBP?

Not too related to wine importing but I buy a few things strictly from England and the euro pricing has me rethinking where I should be shopping.

Scott_G_r_u_n_e_r · January 8, 2015, 10:11pm

Hopefully the GBP hits its lowest in April… when I am in London of course!

ToddFrench · January 9, 2015, 2:59am

You need to Charlie Fu it and go when the Euro is strong, like WE did last May

ATaylor · January 9, 2015, 4:57am

World’s Best Forecaster Targets Euro-Dollar Parity: Currencies

http://www.bloomberg.com/news/2015-01-08/world-s-best-forecaster-targets-euro-dollar-parity-currencies.html

And I called it before ING

Jon_A-K · January 9, 2015, 10:12am

Interesting! Is this just one producer, or more than one? The euro has depreciated almost 6% against the pound in the last year. The fact that the prices are unchanged indicates that either the producer priced to market and chose to keep the UK import price constant by raising the export price in terms of euros (what we US consumers are hoping will not happen to us), or that something happened further along in the importing and distribution chain (someone taking higher margins), or some combination of these. Not a great outcome for UK consumers - their prices didn’t change despite the appreciation of the pound.

This is illustrative of how currency depreciation is typically good for exporters. Even if a French producer keeps prices in euros constant, there will be increased sales in export markets (as the price in foreign currency falls); or, they take the opportunity to raise prices in terms of euros, since the world market can bear it.

But the fact that you can get a good deal in the UK now is mainly because the pound has depreciated quite a lot (about 8%) against the dollar, as John said. Equally good or very likely better deals should be found in Europe. Hopefully, some savings here in the US, too!

Russell_Faulkner · January 9, 2015, 10:54am

Am I the only one who finds the idea of an accurate currency forecaster ridiculous?