The world's largest winery, E&J Gallo of Modesto, Calif., has tossed out the first price pitch of the California wine grape pricing season. It was low and away. It may even be a wild pitch.
A price of $125 per ton for open market Thompson seedless grapes and other low value white grapes has San Joaquin Valley grape growers taking for a ball and looking for the next pitch.
However, some industry experts say Gallo will get some to take the price, even though this year's short is crop and $125 per ton is definitely a money loser. If anyone takes it, it likely will be the grower without debt who does not want the hassle of finding labor to make raisins or chance a weather wipeout making raisins. Take the money and run and hope for a better day or pull out the Thompsons and plant almonds. Some are predicting more vineyard removals after this harvest.
The open market price is $25 per ton less than Gallo is paying its contract growers and $25 more than the marketer of 75 millio cases of wine per year offered last year — in October.
The majority is not standing up and saluting Gallo's offer. Some think Gallo will run another price up the flagpole to see anyone salutes. Others believe the $125 is a take it or leave it deal because tanks are full and foreign concentrate is being sold into the United States cheaper than Gallo and others can buy the grapes in California.
Greg Coleman, Gallo's vice president of grower relations, would not return phone calls to answer the question of whether the $125 price is a firm price or a starting point. Gallo issued a brief news release announcing the price with one quote from Coleman: “Everyone seems ready to get the harvest underway and we expect to begin receiving grapes during the week of August 21st.”
The $125 open market price is for Thompsons around Fresno and south to Bakersfield.
At the same time Gallo announced it will pay the following prices to its contracted growers in the Central San Joaquin Valley: Chardonnay, $300 per ton; Merlot, $300; Cabernet Sauvignon, $300; White Zinfandel, $225; Muscat $225; Rubired, $200; and White Concentrate grapes, $150 per ton.
Gallo said it would pay $200 per ton for non-contracted dark red concentrate grapes.
While the opening price produced little action from growers, raisin packer Ernie Bedrosian, president of National Raisin, Fowler, Calif., reacted quickly, guaranteeing a minimum price of $1,210 per ton for raisins delivered to National, regardless of the size of the final crop size. The Raisin Bargaining Association (RBA) formula calls for payment, on a sliding scale depending on the size of the crop, from $1,160 per ton to $1,260 per ton. Bedrosian said the raisin industry needs raisins to meet world demand.
At $1,200 per ton, the green tonnage equivalent is $220. Deduct $50 per ton for added harvest costs to product raisins, and the green equivalent is $170 per ton, almost $50 more than Gallo's first offer and $20 more than what Gallo is paying its contract growers.
Glen Goto, president of the Raisin Bargaining Association, said the raisin carryover to supply in the market from August to October is expected to be only about 50,000 tons. In past years it has been as high as 200,000 tons. “We are in a much better supply position than we have been in the past four years,” said Goto.
However, the wine industry is not in a solid position in the wake of record '05 crush and more than a year's wine supply already in tanks. A price of $125 is an inauspicious beginning that the president of the state's largest wine grape marketing cooperative hopes is not a harbinger of what's ahead for wine grapes higher up the quality ladder.
“I hope this is not the floor for future wine grapes prices this season,” said Nat DiBuduo, president of Allied Grape Growers. “Production is lower across the board in most varieties, except Cabernet Sauvignon and Merlot, and I hope it is premature to look at that Thompson price as the floor.
“We started harvesting early Thompsons in the Central Valley and the first vineyards came in at 7.5 tons per acre. We were thinking maybe 8 tons this season,” noted DiBuduo.
DiBuduo said at 7.5 tons per acre, $125 per ton is a gross income of $1,000, $400 to $500 less per acre than it cost to produce the grapes “and that is if you have the ranch paid off.”
While the price is disappointing, DiBuduo and Goto are pleased Gallo came out ahead of raisin harvest with its price to allow producers to make decisions on whether to sell green or make raisins.
The unknown factor in this decision is labor available to hand harvest raisins. In the recent heat wave, tree fruit growers experienced labor shortages, not a good sign for the raisin harvest set to begin in late August.
The summer harvest workforce has been chronically short 20 percent to 40 percent from last year, according to Barry Bedwell, president of the California Grape and Tree Fruit League.
“We've been getting by with a significantly lower labor supply because the crops have been considerable smaller,” said Bedwell who heads an organization that represents more than 85 percent of the volume of fresh market table grapes and deciduous tree fruit grown in California. “For example, last year's table grape crop was 96 million boxes. This year it is projected to be 80 million.”
Bedwell said growers are reporting that workers available this season are not as skilled as those in past seasons.
Now is the peak labor demand period because raisin harvest is at hand and it requires an estimated 40,000 workers to harvest green grapes and lay them on the ground to dry and to gather as raisins about two weeks after they are laid. Raisin harvest alone takes almost 10 percent of the estimated 450,000 people it requires to harvest California crops during the spring and summer.
“September is the peak labor demand month because it is when everything is being harvested: raisins, wine grapes, the end of the tree fruit season,” said Bedwell.
Easing the labor demand is the fact Thompson bunch counts are off 20 percent to 40 percent, depending on which organization is doing the counting. The crop also is early, which means raisins can be laid earlier and the raisin harvest can extend longer before the threat of rain cuts if off. This may alleviate the labor shortage.
Also easing labor demand is the growing percentage of dried on the vine and mechanically gathered raisins. Goto estimated 20 percent of the crop was dried on the vine and mechanically harvested last season and as much as a third of the estimated 230,000 to 280,000 ton ‘06 raisin crop could be harvested by machines after the grapes dry on the vine.
What makes the low open price more frustrating in the wine industry is that Gallo is the only winery offering prices right now. DiBuduo said it is still deafeningly quiet as it has been all summer in the wake of the largest wine grape crush in history last year that filled winery tanks to the brim.
“I was hoping for a higher price. I also hope those tanks are not full of foreign wine.” said DiBuduo. “Surprised? I am not surprised any more at what goes on in this industry.
“We are in a global marketplace today where we see Argentina exporting concentrate to the U.S. cheaper than we can produce it. We are seeing imports taking 26 percent of the U.S. wine marketing.”
DiBuduo called on wineries to step up and protect the grape grower base in California.
One would expect prices to be better this season since the USDA/NASS field office is forecasting wine-type for California at 3.2 million tons, down 16 percent from '05.