Commodity Modeling and Pricing: Methods for Analyzing Resource Market Behavior

CHAPTER 8

Do Fluctuations in Wine Stocks Affect Wine Prices?

James O. Bukenya

INTRODUCTION

Globalization and the expansion of the world wine trade, helped by agricultural subsidies, have caused a wine boom. This has made fluctuations in wine inventories a more critical issue than in the past. In the case of domestic and international wine markets, little is known about intertemporal inventory adjustments and how they relate to prices. Data on wine inventories and prices have been difficult to obtain; and this problem has been aggravated because wines are heterogeneous commodities. We know that wine inventories increase during times of abundant and decline during years of poor grape harvests. Inventories ultimately affect wine prices. There is a need to investigate possible dynamic relations between these variables in a time series context, to improve our understanding of how wine producers and traders can face price and financial volatility. In this chapter, we study countries for which meaningful data series could be constructed: Argentina, Australia, France, Germany, Italy, Spain, and the United States.

The study begins with an examination of the empirical evidence relating inventories in these markets to prices. Stationarity tests are first performed to assess likely trends in wine inventory and price variables. Cointegration analysis follows to analyze the stationary relationships between these variables. To explain the dynamics of the interrelationship between these variables, ...