Experts and researchers have recently become aware of a market imbalance that threatens the happiness of millions. Based on the latest production and demand data, there is not enough wine in the world. The industry is falling short by almost 300 million cases per year, according to Morgan Stanley Research, and the global shortage is only expected to get worse.
The source of the problem is twofold. First, the last few years have seen a worldwide downturn in wine production. Last year it dropped 5%, reaching its lowest level since the 1960s, as a result of bad weather in wine titans France and Argentina. European wineries, which account for roughly half of the global supply, saw production drop 10%. All the while, thanks to expanding wine markets in China and the United States, global consumption rose 1% last year. Those numbers equate to a lot of connoisseurs left thirsty.
The news is not all grim though. Wine stocks may not be at the top of many powerful investors’ watch lists, but they’re out there. Some of the more prominent ones are Constellation Brands Inc. (NYSE: STZ), owner of respected Napa Valley labels such as Mondavi and Blackstone; and Brown-Forman Corp. (BFB), also the maker of Jack Daniels, which, to this writer’s relief, is not experiencing a global shortage.
A basic education in economics tells one that when there is a shortage of a good, the price of that good increases, and production ramps up. Therefore, these stocks should be watched as the wine market rallies from this brutal demand hangover.
View original at: Investment U
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