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Will 2009’s record crop further harm Napa Valley Cabernet Sauvignon?


First, I apologize to readers. This site was down most of yesterday, due to issues at my web hosting company.

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It’s already been widely reported that California’s 2009 grape harvest was the second largest ever — 4.9 million tons, more than any other harvest except 2005, which “crushed” all previous records. (To put this number into context, that is 44% more grapes than were crushed in 1988.) Conventional analysis suggests that high-end wineries will take a hit, since “[I]n the coastal areas, there really is too much [product] at this point,” according to the well-known grape broker, Bill Turrentine, who added, “high end wineries in Sonoma and Napa counties suffer [from] a glut of fine wines almost no one thinks they can afford to buy.”

This is not particularly good news for “cult” wines or those just below cult status that aspire to super-ultrapremium prices. For the last 1-1/2 years (which is to say, since the economy collapsed), I’ve been astounded by the quantity of $50 and above wines that continue to pour in to me for review. “Who are all these people, and how are they staying in business?” I asked myself. Now, there’s additional pressure on them: the grape and wine glut from 2009.

What wine and region comes to mind when someone is predicting difficulties for “high end wineries?” Napa Valley Cabernet Sauvignon is the correct answer (those of you who guessed right win a free lifetime subscription to this blog). So let’s drill down and see just how much trouble N.V.C.S. is in.

Statewide, the ‘09 Cabernet crush (441,563 tons) was up 35% over 2008, which was not a small crop by historical measures. Of that, 55,000 tons, or about 12.5%, was grown in District 4, which is Napa County — more than any California region except for District 11 (the northern San Joaquin Valley, but we don’t care about Central Valley Cab, do we?). That means Napa Valley is going to be churning out an ocean of 2009 Cabernet Sauvignon, starting in about a year and continuing (for late releasers) through 2013.

In the just-issued, official “Grape Crush Report” (preliminary) for the 2009 California crop is a section that’s always worth reading: “Base Price Paid to Growers.” It essentially summarizes individual dollar deals from growers to producers who buy grapes. While there were some pretty cheap transactions ($350 a ton for District 4 Cabernet? I wonder where those grapes came from?), most of the grapes went for between $6,000-$11,000 a ton. The official “weighted average” for Napa Cabernet was only $4,743 per ton, but that average is skewed low by the cheap grapes, which will end up in inexpensive bottlings that have little impact on high-end Cab. By contrast, the weighted average for District 3 Pinot Noir (which includes Russian River Valley and Sonoma Coast) was just $3,039 — and we know how expensive those bottles are.

Now, my good friend, Pierce Carson, wrote in last week’s St. Helena Star that, due to “grape prices holding their own,” even this large harvest won’t significantly lower bottle prices. Pierce interviewed Vic Motto, a grape and wine finance guy whom reporters like me have turned to for many years as a source of information. Vic’s prediction was nonchalant. “(A recession) is never permanent. The wine we’re making today will be sold tomorrow — we’ll see what tomorrow brings.” He was, if anything, optimistic about Cabernet’s future.

I’m not so sure. I have a feeling deep down in my gut, as Turrentine seems also to, that these high prices cannot hold. And if cult Napa Cabernet begins to tumble (which, in fact, it already has), how long will it take before the downward pressure hits Sonoma County, Paso Robles, even Santa Barbara County?  “[T]he economics of the wine business are still much better than most industries,” Pierce quotes Motto as saying. That may be true, in the sense that owners (many of them wealthy to begin with) are able to tread water, so they’re not in the dire straits of, say, the auto industry. But what about consumers? They are in dire straits. Even a multi-millionaire owner can’t afford to absorb big losses year after year.

My feeling is that, by this summer, we’ll have a greater understanding of how much damage was, or wasn’t, caused to Napa Cabernet by the Recession and, now, 2009’s big crop. I wouldn’t be at all surprised to learn of more bankruptcies, more sales, more dumping at Costco or wherever. Also, consider the fickleness of the consumer, who’s always looking for the latest critical darling. As I look over my highest-scoring Napa Valley Cabs since last Fall, I see brands such as Hestan, Redmon, Napa Angel, Knights Bridge, Piña and Sabina. These are not exactly household names. In other words, there’s a whole new crop of new (or relatively new) producers chasing, or should we say threatening, the more traditional boutique brands. Is there room for everybody? Not in my opinion, and not in reality. As MSNBC online reported just yesterday, “Napa Valley is facing the worst wine downturn since the early 1980s. Premium wines priced between $50 and $125 were ‘a dead zone’ in 2009, according to Silicon Valley Bank’s annual wine market report…”. I can’t see that changing in 2010. Something’s gotta give.

And this just in:

Where will Hardy land? That’s been the question over the ultimate job destination of Mr. Wallace, who won Murphy-Goode’s Really Goode Job. We now know: “I am passing along a press release to your email that announces Michel-Schlumberger’s unique partnership with the winner of the Really Goode Job, Hardy Wallace. He is moving into our winery where he will be writing about his experience living at a winery in addition to his other pursuits…”. That’s the word from Jim Morris, who works for Schlumberger. Same job, different location. Is the pay still ten grand a month? Enquiring minds want to know!

And this too

I’ll be doing a really nice, different kind of wine tasting at Old Crow Tattoo, in my neighborhood, on Sat. Feb. 20, starting at 8 p.m. The address is 362 Grand Ave. Stop by. I’d love to see you!

  1. Steve- Totally different job(s) From my job with Murphy-Goode.

    Consulting for Michel-Schlumberger, and working at The Natural Process Alliance (The NPA)

    More info is up on my site.

  2. I’m curious what you mean by: ….by contrast, the weighted average for District 3 Pinot Noir (which includes Russian River Valley and Sonoma Coast) was just $3,039 — and we know how expensive those bottles are.

    In Comparison to Napa Cabs I think higher end (@ $40- $50) RRV Pinot Noirs are a great deal..

    Of course if the grapes triple in cost (to Napa Levels) then we’ll be in the same boat as they are!

  3. Congrats Hardy.

    Steve>wine tasting at Old Crow Tattoo<<

    Post it to LWE, eh?


  4. Those Napa cab grape prices are astonishing. In Washington, the average price per ton for cab is about one fourth of the lowball figure you cite for Napa. The only thing holding Washington back is simply a lack of vineyard acreage. The quality – and certainly the pricing – is more than competitive.

  5. Lee, what I meant was, If these RRV Pinots are $40-$50 at an average of $3,039, then what can we expect the Napa Cabs to be? Much higher. And that is the problem. How many dozens of Napa Cabs at $60-plus can the market support?

  6. Steve – the current cost of grapes is just a cash flow issue for wineries that are struggling to sell their ’06-’08 bottled wines. If we are still in recession in 2013 the troubles of the wine industry will be only a pimple on a really big boil. That said, there are and always will be very few Napa Cabs that people will pay any price to get, and business models based on comparable “cult” pricing for new, unknown wineries were delusional even before the recession.

    Based on the old rule of thumb, with average Dist 4 Cab prices at $4743 the average price per bottle when the 2009 wines are released should be $45-$50. If the smart money thought these wines would still be selling at $35 or less in 2013, the grape price would have come down. But keep in mind that the average price in the Grape Crush Report does not reflect the true commodity price. There are tax reasons for wineries that own their vineyards to shift as many costs into the price of their grapes as possible, which artificially inflates the reported prices for winery-owned fruit.

    The numbers I would find most interesting would be those for growers only, for how many grapes went unsold, and for how many contracts were negotiated downward at the last minute in 2009. This information is not reported but one hears stories. I was not as tuned in as usual this past harvest, but still I did not hear about as much of that happening in 2009 as in 2008.

  7. Re Hardy Wallace: Well done, lad. Two wineries down, only three thousand to go. Live long and prosper, and you will be able to see them all.

    Re John Kelly’s comments: I keep hearing stories of grapes unpicked in the Napa Valley and got some confirmation of that last week. The comment, though, suggested that Merlot, and not Cabernet Sauvignon, was the most likely candidate to go unpicked.

    I do know of a winery in the Bay Area that was able to get Cab Sauv at $1500 a ton from a vineyard that in 2008 had sold to one of those $100 a bottle wineries at tonnage prices in excess of $5000. Sic transit gloria.

  8. steve,
    did you say you got a crow tattoo?! you gonna tweet about that?

    well, that’s depressing reporting (cab grapes, not hardy). from disneyland to bargainland. yet another thing one of the silicon valley fellahs also says is that people will always aspire to trade up and that’s never gonna change. i’d stick with vic. this recession is not doomsday. i wish wine media would stop henny-pennying around. i’m afraid to step outside.

    as an industry newcomer i know i still have a ton to learn about all the numbers and whatnot, and who the hell knows what people will think of our wine when we release it this year, but a shake out is always good. it is. let that cream rise, i say!

  9. We are thrilled to have Hardy at Michel-Schlumberger. While he is living here, he will be creating content for us and writing about his experiences, etc. one day a week. His full time gig is with the NPA, a most amazing wine venture. He will have the best of both worlds, living and experiencing first hand life at a world class, all-organic estate and being part of a cutting edge wine venture that will certainly garner attention.

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