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Short 2011 crop brings relief to growers, but not much


That sigh of relief you hear issuing out of California is from grapegrowers, who are happy that 2011 looks like it’s going to be a short crop.

By all accounts, shatter and frosts last Spring and wet weather this Fall that will cause cutters and sorters to throw away rotted grapes and bunches, will keep yields well below those of 2010, which was a big harvest, the third largest of the previous ten years. The growers are relieved, because a low crop means tighter grape and bulk wine supplies, which will help firm up the price of finished wine, already under severe pressure because of the recession.

Another reason for the short crop is because California growers understandably have been reluctant to plant new vineyards over the last several years. A comparison of acreage for the leading varieties from 2008 to 2010 confirms this. Cabernet Sauvignon was up by only 1.4%, Chardonnay by a measly 1.3%. Pinot Noir soared 10%, but that’s misleading, as there wasn’t much to begin with, so the double-digit increase came on top of a much smaller base. All the other major varieties grew by less than 2%, except for Zinfandel, which actually decreased by a percentage point.

You can appreciate this slowdown of plantings since the recession began by looking at Chardonnay over time. It increased by at least 1,000 acres a year every year in California since 2002.  But if you go back to 1994, the increase was at least 2,000 acres each year, and in some years–1997 through 2000–as much as 9,000 acres of Chardonnay came online annually. Compare that to a mere increase of 272 acres of Chardonnay in 2010, and you can see dramatically how much growers are loathe to invest in the heavy cost of developing new vineyards.

So the growers are relieved, but that doesn’t mean they don’t remain under heavy pressure to keep prices down. The American consumer is showing no inclination to pay more for a bottle of wine in 2012 than she did in 2009 or 2010 or 2011. We all know anecdotally that the majors–the Gallos, Constellations, Broncos, Wine Groups, etc.–are engaged in a constant battle to keep their market share, which would be impossible if they allowed prices to go up by even a fraction. Once again, the objective numbers testify to this fact. The average price per ton of crushed wine (red and white) in California typically rose in a steady climb from 1988 (when it was $297) to 2009 (when it was $612). Last year, it fell to $574, a 6.6% drop, the biggest since 2001, another recession year and one that was battered by the events of Sept. 11. Given the economic realities out there, I don’t think anyone doubts that the average crush price in 2011 (which we won’t know until Spring, 2012) will again be down, perhaps by double digits.

Of course, predicting market conditions always is risky. This article from last week’s San Francisco Chronicle reports on a Rabobank analysis suggesting that the low 2010 crop “should allow growers to improve profitability.” However, it hedged its bets by adding a qualifier: the twin effects of the recession and increased competition mean wineries “are unable to pass rising input costs on to consumers, which results in margin pressure.” It’s a classic market dilemma, in which supply and demand are in exquisite tension, and each winery will have to come up with its own strategy to tilt the balance toward profitability. And as we all know, your stategy is only as good as your strategists. These perilous times are testing the mettle of every marketing and sales manager out there, from the littlest family wineries to the biggest wine companies in America.

  1. Not representative of the bulk of the harvest, but I was hearing spot prices on Carneros fruit before the rains were pushing $4k/ton – a huge increase from 2010 when some fruit went unsold.

    Buyers who choose to perform on acreage contracts this year to maintain access to high-end grape sources will also push up average price per ton.

    Looks like the predicted demise of Syrah has been delayed: on the home front at least, none of my available fruit went unsold this year; better price than last year too. (BTW – sold out of my current Syrah vintage as well. Consumers get it, even if wholesale buyers and pundits don’t. Time to get with the program, y’all.)

    Oh, and this year’s grape supply is only tied to this year’s wine demand through the tenuous cord of current cash flows. Wineries are banking on return of price elasticity before the release of the bulk of the 2011 vintage.

  2. Hi Steve–

    The historic summary in your comments is very accurate. The future predictions are complicated by a lot of factors that you can’t see in “average” and “total” numbers from published reports.

    Wine grapes, in general, are an agricultural commodity–supply and demand is a very significant factor in our markets. As John notes, the grapes without “homes” (contracts) were purchased at prices last year that were less than the cost of growing them–i.e. “the demise of Syrah”. Those same grapes are today going to be paid a significant premium–because many buyers NEED them. “Artisan grapes”, like “artisan wines” march to different drum–but they march down the same parade route!

    Your guesstimate that the California average prices will be down this year is a great opportunity for me to offer a sure bet–a nice dinner, your choice of restaurant–if you are right! I expect that the average price will go up…and, it will continue to go up for a number of years. If not, it will be the first time in 40 years of my experience that the “cycle” did not function.

    Note: your citations of the minimal planting for a number of years is in the face of about 5% average annual increases in consumption of wine in America. On 500,000 acres that means 20,000-30,000 acres of new vines a year. And, it will be 3, 4 or 5 years before any of those new acres reach “average” grape production.

  3. These perilous times are testing the mettle of every marketing and sales manager out there, from the littlest family wineries to the biggest wine companies in America.

    Solution: Build relationships out in the market.

    : )

  4. Steve,

    I am not certain that I hear any “sighs of relief” from grape growers. Instead I hear a number of growers who are suffering economically like virtually everyone else.

    Let’s say that this year’s short crop allows grape prices to increase by 6% next year. But yields this year are down (on estimate) 10-40%. Who would take a 25% reduction in income this year to increase their income 6% next year? They have bills to pay now (and lots of bills, I might add, as farming costs this year soared due to the rot, etc. that you mentioned).

    Long term, perhaps this vintage’s shortfall is good for the market….but sadly I don’t think it is good for many growers in the short and medium term.

    Adam Lee
    Siduri Wines

  5. Mike Officer/Carlisle Winery says:

    As a grower, I don’t feel any sigh of relief this year. Nor do I hear any sighs of relief from any other growers. Mostly I just hear moans. Yields are down. Farming costs are up. Weather is not cooperating. Botrytis is taking a toll on many vineyards.

    Where’s the Pepto-Bismol…

  6. Hi Mike, it’s been a long time since I tasted Carlisle! After all I think I gave you your first great review.

  7. Rich,

    Not sure that you will win the bet about average price being up. Many vineyards here in Sonoma are not making minimum sugar levels which will cause a drop in prices. A couple of wineries are now going around offering to take fruit from growers, even though it is rotting and sugars are low, but only at half price. It is pretty ugly out there right now.

    Adam Lee
    Siduri Wines

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