NWR: Euro at $1.26 vs dollar today.

originally posted by Ian Fitzsimmons:
Better not to get involved, just roll with the punches, unless you want to get really involved.
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And just how do you propose not being involved? Only buy domestic wines? Only visit $ denominated countries(USA and China)?
 
I meant in speculating and trying to profit from the changes, Tom. Living with the everyday effects is what I meant by rolling with the punches.

But you're right, who am I to be dispensing advice? Do exactly as you please.
 
originally posted by Ian Fitzsimmons:
I meant in speculating and trying to profit from the changes, Tom. Living with the everyday effects is what I meant by rolling with the punches.

But you're right, who am I to be dispensing advice? Do exactly as you please.
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Ian, you're right, my misunderstanding.
 
and crude is down. That's good for the US since the price of crude effects our economy much more than Europe.
 
originally posted by VLM:
Under $1.22 today
and crude is down. That's good for the US since the price of crude effects our economy much more than Europe.
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Be careful what you wish for in terms of crude oil prices. The price of oil is one of the better harbingers for world economic activity. It fell all through the summer of 2008, leading up to the current unpleasantness. One month doesn't make the trend, but several months in a row could signal serious economic hardship.
 
I wonder if the currency changes will affect pricing of imported French 09s from, say, Beaujolais, Bourgueil, and Chinon. Perhaps purchase terms for these wines have already been set based on the Euro-$ exchange rates of several months ago.

Do wine importers hedge their purchase terms by buying currency futures? Just curious.
 
Dan Kravitz, of Hand Picked Selections, has said on the old Parker Board, that he buys currency futures as a way of making his expenses more predictable. I expect large importers have ways of managing currency. Joe, of course, can report on what he does here. Buying forward rates is always a form of gambling obviously, and I can imagine preferring not to do it.
 
As a former investment manager, I would't use the word gambling for hedges that limit/eliminate exposure to price fluctuations in a commodity that you own. I would reserve it for position taking without underlying physical holdings. But I can see that even corporate hedging could be called a form of gambling because it involves active position taking with an upside and a downside. But then it's only fair to recognize that non-hedging is just as much a bet, with an upside and a downside, the only difference being that one is active and the other passive. Regardless of whether a wine importer hedges or not, he is taking a position on FX movements.
 
Thanks, Jonathan. As I understand things, many businesses that import goods will buy currency for future delivery at the exchange rate prevailing at the time a purchase agreement is struck, to protect themselves from disadvantageous currency rate fluctuations that may take place between the time terms are set and payment it due, without having to tie up working capital unduly. This is a standard hedge, not speculation; purchasing without this hedge would be akin to gambling. I'm idly curious whether this is the routine practice in the wine business.
 
I understand that, given events of the last two years, saying that buying futures is gambling raises hackles. And both Oswaldo and Ian are right that, frequently, the point of such activities is precisely to minimize uncertainty by locking in expenses in a predictable way. That was Dan Kravitz's point and I accept it. I would probably try to do the same if I were in a similar business. Nevertheless, if currencies were fixed, there would be no future market. Hedging is what smart gamblers do to make the odds favor them as much as possible. With regard to importers, for instance, what would they do when the rates for a 90 day forward are actually higher than the current rates (it happens with some frequency). It would obviously make more sense, if they wanted to, to buy the Euros and bank them than to buy a forward. But if he future market is wrong and the Euro goes down, it might make sense just for them to wait. Every decision you make with regard to currency is a calculation of odds, and I call that gambling.

I say this as someone who has to purchase enough Euros once a year to pay carrying costs on property to make the decision of when I buy and how I do it meaningful (at least in terms of hundreds of dollars) and I recognize that any choice I make is a form of gambling.
 
We tend to avoid forward contracts. We pay based on real time exchange rates for the most part. Some prices on 2009s will come down.

On the other hand, many will stay the same as domaines will increase prices to keep up with the increasing costs of dry goods like boxes, bottles, and corks. Many producers kept their prices unchanged over the last few vintages in order to stay competitive in the export market, despite higher overhead costs.

Needless to say, I'm pretty happy about the current exchange rate. It means we can import some wines that were formerly price prohibitive at higher rates of exchange.
 
originally posted by Jonathan Loesberg:
With regard to importers, for instance, what would they do when the rates for a 90 day forward are actually higher than the current rates (it happens with some frequency).
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The difference between spot and forward rates is exclusively a function of interest rate differentials between the two currencies.
 
originally posted by Oswaldo Costa:
originally posted by Jonathan Loesberg:
With regard to importers, for instance, what would they do when the rates for a 90 day forward are actually higher than the current rates (it happens with some frequency).
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The difference between spot and forward rates is exclusively a function of interest rate differentials between the two currencies.
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If this is empirically true, I don't see how it would remain so for long, since buying forwards allows one to speculate on price and where that possibility exists, so do speculators. In other words, if a speculator thought that the current 90 forward rate underestimated how much the Euro would fall due to the current fiscal situation, he surely would bet on it. That's how people made money on the derivative crisis. Indeed that's how people make money in markets. I didn't know that this idea was even controversial. Of course, the fiscal situation will have implications for interest rates, but if that's all you are saying, your statement is trivially true.

Even if what you say is true, I fail to see how it contradicts what I said above since of course one also can speculate on the direction of interest rates.
 
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