California wine grapes — Supply falling behind demand in 2009

California wine sales continue moving upward, but California grape growers are not planting vineyards to meet future demands.

“Twelve million cases of foreign bulk wine were shipped to the U.S. in 2008,” said the premier U.S. wine market analyst, Jon Fredrikson of San Francisco.

Fredrikson told a packed ballroom of more than 1,500 at the Sacramento Hyatt Regency during the Unified Wine and Grape Symposium that the number “will be 15 or 20 million cases before you know it” because there will not be enough wine grapes produced in the state to sustain the projected growth in U.S. wine consumption.

“There is not enough gas in the tank to keep the market,” says the respected wine industry analyst.

In the past, remarks like that would send new and old grape growers and speculators alike running to develop new vineyards everywhere. It has happened more than once in the past.

Not now, according to Nat DiBuduo, president of Allied Grape Growers, the state’s largest wine marketing cooperative.

For the past three years in one of the most dismal wine grape markets in decades, 10,000 acres of vines were planted annually. In a survey of the majority of wine grape nurseries conducted by Allied, DiBuduo reported in the past year it has gone up to only 14,000 to 18,000 acres.

That is a drop in the wine barrel when considering the fact that wine grape prices last season were the highest they had been in seven years; the 2008 wine grape crush was the smallest in five years; the huge 2005 crush has been worked off and California wine shipments were up 2.5 percent and projected to continue climbing.

“If you want to grow the wine market, it will have come from bulk wine from overseas,” Fredrikson said. “There is no longer a plentiful supply” of domestic wine grapes.

He was not talking about the premium wine market; it is the wine segment with bottles costing $6 or less. This segment — “everyday wine” — represents 61 percent of the California wine market.

Grapes for that market come largely from the San Joaquin Valley where 55 percent to 60 percent of the state’s annual wine grape crop is grown.

This despite the fact that over the past decade more than 150,000 acres of vineyards have been ripped out, replaced mostly by orchards.

DiBuduo says farmers have grown weary of the yo-yo wine markets and the annual uncertainty, such as two years ago when there were plentiful supplies of grapes and wineries went offshore to buy cheap bulk wine rather than buy California grapes.

The banks are reluctant to lend money for new vineyards in the current economic climate.

Also, the huge 2005 crush that was produced with fewer acres harvested than are currently in the ground is mentally hanging over the grape market.

Rather than plant new vineyards with improving prices, one veteran coastal grape grower says many growers in his area have pruned vines for the 2009 crop, leaving more spurs than in past years or a kicker cane to produce more grapes than last season. If prices hold up or improve, the grapes will be harvested. If the economics are not there, growers will spend $100 per acre to drop the crop before harvest.

“We are capable of producing that 2005 crop again” to meet future projected increasing trends out to 2010, said DiBuduo. “Even if we produce grapes along the growing (near term) market trend line, with price highs and lows,” DiBuduo said growers are reluctant to plant more vines, especially in the Central Valley where there have been several more attractive crop alternatives.

The current balanced supply/demand scenario “isn’t always utopia,” added DiBuduo.

Beyond 2010, Fredrikson is skeptical that there will be enough grapes produced in California to meet increasing California wine sales growing at about 3 percent annually.

The Allied nursery survey covered the major varietals in the state: Syrah, Zinfandel/Primitivo, Chardonnay, Pinot Noir, Pinot Grigio, Merlot, Cabernet Sauvignon and Sauvignon Blanc.

While the total wine grape acreage is not changing materially, the variety mix is, according to DiBuduo. He mentioned specifically Merlot grafted over to Pinot Noir or Pinot Grigio.

“The hot Pinots, Noir and Grigio, may be approaching market capacity in regions not proven for their long-term production,” he said.

DiBuduo acknowledged that Allied is getting inquiries from growers to plant wine grapes as a “balanced approach” to farming operations. He also said that some of the old faithful like Chardonnay, Cabernet Sauvignon, and “maybe” Merlot could experience increased demand for planting in the near future.

However, he added “as an industry we should focus on understanding the planting, production, and consumption trends so we can experience managed growth over the next decade.”

This managed growth will come at a price if wineries want grapes from California.

DiBuduo went through regional costs of production surveys to reflect what Allied believes would be a reasonable return on investment for growers.

The difference between the average 2007 grape price and what DiBuduo estimates was a good rate of return ranged from $800 per ton in the premium grape growing areas to $150 per ton in the San Joaquin Valley.

Fortunately for grape growers sorting out the situation in a faltering economy, there is not a lot of bulk wine available in California or in the world to fill the void in the immediate future, according to wine broker Bill Turrentine.

Australia is the only country with excess bulk wine, said Turrentine.

“The last time we went into an economic recession was also a period of excess wine supplies. Heading into this recession there is not a huge oversupply and that is helpful,” he said.

“I think for the next couple of years the industry will be flying pretty close to the earth, keeping an eye on the long-term trends,” he concluded.

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