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Falling dollar raises spirits

The falling Australian dollar is good news for our exporters, with Australia’s wine companies set to reap the benefits.

Privately owned Casella Wines, the nation’s largest wine exporter, was faced with having to lift prices in the US, with the high Aussie dollar causing the company to post its first loss in 20 years, and breaching its debt covenants.

The Aussie dollar is now trading around 91 US cents, a fall of around 10% since April. Casella Wines’ most successful brand, Yellow Tail, is breaking even at the current exchange rate, and further falls will see the brand profitable once again. Yellow Tail accounts for around 40% of Australian wine sales into our second largest wine export market.

Casella’s managing director, John Casella, has told the Australian Financial Review that he was afraid of lifting prices as it could lead to a loss of market share. “We can look to the future with reasonable optimism,” he said.

When the Yellow Tail brand was launched in 2001, the Aussie dollar was trading at around US 57 cents, and became the nation’s largest exported wine within years. Around 8 million cases of production is sold into the US market.

For investors looking to take advantage of the lower dollar and the impact it will have on our wine exporters, Treasury Wine Estates (ASX:TWE) is our largest listed wine company, but Australian Vintage (ASX:AVG), Dromana Estate (ASX:DMY) and Brand New Vintage (ASX:BNV) could all be worth a look.

While a couple of those are tiny stocks, if they can make a hit with one brand, that’s all it might take to see the shares soar. The falling dollar will help their competitiveness overseas, while alleviating pressure in the local market, where producers have been forced to dump excess produce.

Foolish takeaway

With analysts predicting surplus wine stocks to fall, winemakers may see better profits, helped along by the falling Australian dollar.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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