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58 WINES&VINES October 2017 BARRELS PRACTICAL WINERY & VINEYARD Benefits beyond saving money In addition to the financial advantage to pur- chasing early, there are non-financial advan- tages to buying barrels early. In February 2015 the nine-month labor conflict at U.S. West Coast ports between the Pacific Maritime As- sociation and the International Longshore and Warehouse Union ended. Many barrels shipped to Long Beach, Oakland, Portland and Tacoma were not available for the 2014 harvest. This impacted California, Oregon and Washington wineries. The wineries that took early delivery in 2014 avoided the port strike. Exchange-rate movements and early payment discounts The analysis approaches this question in a specific real-world applied framework: utilizing barrel prices for the exact same barrel paid for by Tim Mondavi of Continuum Estate from 2001 to 2016. Barrel prices for Mondavi's Taransaud Ref 102 barrel over 15 years (see page 57) depict the movement of actual per-barrel prices paid by Continuum Estate. This barrel price is a proxy for many French oak barrels used in the U.S. wine industry, even when other wineries choose different barrel coopers, types, sizes or styles. Prices likely moved in the same direction during that time period. Second, the euro-dollar ex- change rate must be considered over time to see how the foreign currency market impacts this decision strategy. Exchange rate fluctuations matter. For ex- ample, as the U.S. dollar increases in value, American wineries can purchase French oak barrels for less in real terms. If the exchange rate is $1.50 per euro in April, and in September the rate is $1 per euro, the winery would prefer to make its purchase in April because it would spend fewer real U.S. dollars for the same "price" in euros. There is uncertainty involved in this decision as well, since it is unknown how the exchange rate will change over time. The dollar-to-euro exchange rate over time depicts the exchange rate over our sample time period. Year-to-year variations in the exchange rate during the sample time period are evident: The dollar became weaker in the early 2000s, though currently it is almost nearly the same as in April 2000. As the dollar strengthens, it re- 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 DOLLAR TO EURO EXCHANGE RATE OVER TIME 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 The volatility of the dollar/euro exchange leads many wineries to hedge their barrel purchases. Year Euros per U.S. Dollar