Rabobank estimates global wine inventories are at the lowest point of the past decade, as shown in its latest quarterly report on trends and outlook for the international wine market. Indications are that the industry has finally moved closer to balance after years of oversupply challenges. This tightening inventory comes at a time when consumer demand continues to grow and while production remains somewhat constrained.

Stephen Rannekleiv, Executive Director of Rabobank's Food & Agribusiness Research and Advisory (FAR) group and author of the report, says the impacts of these trends aren't fully consistent across all markets due to a wide variety of area-specific factors affecting demand.

"Fluctuating exchange rates continue to shift the competitive positioning of various countries," noted Rannekleiv. "The sluggish worldwide economy continues to shift demand toward lower-priced wines."

In the U.S., the wine grape market remains tight, with very little domestic bulk wine available. Prices have increased dramatically leading many wineries to move to secure supply via attractive long-term contracts with growers or through vineyard acquisitions and expansions. U.S. exports were flat in volume compared to the first four months of 2011 with growth in vermouth exports compensating for declines in bulk wine exports. The value of U.S. wine exports declined 2 percent largely due to the increasing strength of the U.S. dollar.

Imports into the U.S. showed sharp increases in the first four months of 2012 as wineries utilized alternative supply sources in light of the tight bulk wine market. Bulk wine imports more than doubled, with increases coming from a wide range of suppliers, but the greatest growth coming from Chile, Argentina and Australia.

As the short bulk market continues to persist, the production season in California is just getting underway. Initial reports show that the crop is currently expected to be above average. If true, the increased production would be welcome news for many wineries.