Allied Grape Growers board members Todd Fitchette
Central Valley grape producers and Allied Grape Growers board members, from left, Chairman Michael Naito, Madera; Vice Chairman Paul Lanfranco, Kerman; and, Steven Nickel, Lodi.

Closer demand-supply balance bodes well for California wine grape growers

Spot market pricing of California wine grapes is up on news that supply is more closely aligned with demand, says an industry leader

California Central Valley wine grape growers from Fresno to Lodi say incessant heat is impacting vines by reducing bunch counts and producing an overall lighter crop load.

Several Allied Grape Grower (AGG) board members were surveyed at the recent AGG annual meeting in Fresno, Calif.

Paul Lafranco, a Thompson Seedless grape grower in the Kerman area, said the season was shaping up as a good one until the heat hit with a vengeance which caused some sunburn on grape bunches.

Michael Naito, a Madera grower with Thompson Seedless, Rubired and Zinfandel grapes, said the season was going well with minimal pest and disease pressure but “some” mildew and mites.

Lodi grower Steven Nickel who grows Zinfandel grapes said the heat has been particularly bad in the northern San Joaquin Valley (SJV) with highs from 105 to 107 degrees. He has seen reduced crop load and early bunch counts. He said grapes began to “color up” by early July.

Industry update

The annual AGG meeting in Fresno was well attended as several hundred growers and industry representatives heard mixed news from organizational staff.

AGG Vice President Jeff Bitter said the recession in recent years may have helped Central Valley grape growers over their counterparts in other regions of the state. As consumers became more frugal with wine purchases, they purchased wines under $7 which is where a larger percentage of San Joaquin Valley wine grapes are bottled.

With an improving economy, consumers are “trading up” again and buying wine at higher price points, Bitter continued. This tends to bode better for grape growers in the Central Coast and Lodi regions whose grapes are more apt to be in bottles in excess of $10. It also tends to work against SJV wine grape growers as the demand can decline for their grapes.

Even so, Bitter says wine grape supplies statewide, including those in the Central Valley, have “tightened” leading to more positive market conditions for growers looking for a home for wine grapes.

It’s not demand driving these conditions, according to Bitter. Rather the tightening supply is due largely to a lower volume of grapes on the spot markets, a result of SJV vineyard removals that peaked in 2014-2015 at more than 60,000 total acres.

Over half the number of total SJV vineyard removals were wine grape varieties, according to AGG statistics.

Wine grape planting trends that peaked statewide at about 35,000 acres per year in 2013 have since slowed to about 15,000 acres per year and appear to favor replacements rather than growth, Bitter says.

“We’re not planting in excess and haven’t been for about three years so we don’t anticipate a large growth in supply,” Bitter said.

This move towards a closer SJV balance between supply and demand is helping bolster grower prices across the Valley. For instance, Muscat grapes are “doing well,” according to Bitter, who says demand is strong.

He is likewise optimistic about the position of Thompson Seedless grapes as the raisin industry seems to be strengthening.

“I think we’re going to see a Thompson market that is much healthier this year,” Bitter said.

He isn’t predicting more Thompson Seedless grapes going to wineries, but rather pricing should remain stronger as oversupply shouldn’t be a problem “because the Thompson crop is shrinking with this heat.”

“What started out as being a short crop in Thompson's is only getting shorter,” Bitter said.

Overall, Bitter likes the position of the SJV grape market because it seems to favor grower pricing.

“The health of our market is because we have reduced supply more so over any kind of increase in demand,” Bitter told the Fresno audience.

For growers outside the central and south SJV he says pricing is doing even better. Bitter says conditions are stronger in the Lodi region than a year ago as Chardonnay pricing is about $100 higher at $500-$600 per ton with Cabernet Sauvignon selling for about $650 to Lodi growers.

Even Merlot has seen increased demand in the market with spot sales above $500, he said.

Sauvignon Blanc, Pinot Grigio and Pinot Noir from Lodi are also doing well price wise. The only challenge Bitter sees is in the Zinfandel market is supply appears to be ahead of demand.

“This year’s Zinfandel crop seems light so maybe it will clean up well,” the AGG vice-president said.

Another positive for SJV growers is that Bitter sees coastal wineries seeking Central Valley grapes to average out costs and extend wine making programs.

Meanwhile, North Coast growers continue to get record high prices for wine grapes – a phenomenon that's not slowing.

Varietal and price trends

The place to be in the wine industry, aside from Napa and Sonoma, is in the $10-plus bottle of wine as growth in this sector outpaces all other price-points, says Bitter.

As consumers engage in “premiumization,” the trading up of wine buying from the lowest price points to higher price points, the industry has seen a 27.5 percent jump in California wine sales volume of bottles priced above $10. Total volume in the category in 2016 was 62 million cases, or a little over half the 111 cases of sub-$7 California wine shipped domestically during the same period.

“That’s where all the growth is right now.” 

Though the volume in the sub-$7 category remains the highest it's fallen about 10.5 percent since 2011. Growth in the $7-$10 price category is up about 4.5 percent to 45.5 million cases since 2013, according to industry figures.

Planting trends statewide continue to favor four varieties with Cabernet Sauvignon leading the way. In 2016, 35 percent of the 15 million planted vines were Cabernet Sauvignon.

Though total plantings since 2014 have declined by almost half from 27 million vines, growers still favor Cabernet Sauvignon as 29 percent to 35 percent of the vines planted each of the past several years.

Chardonnay remains another popular variety planted at 17 percent of the crop in 2014, 13 percent in 2015 and 16 percent in 2016.

The numbers for Pinot Noir were 12 percent (2014), 15 percent (2015), and 16 percent (2016). Pinot Grigio rounded out the top four at 12 percent, 17 percent and 7 percent over the same period.

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