Allied president Nat DiBuduo and Allied’s staff said, however, only for growers who have a "good vineyard, poised for production and quality in the future" will the light at the end of the tunnel grow brighter.
Allied sold 200,000 tons of grapes for wine and concentrate this season, about 6 percent of the total crush, which the state is estimating to be 3 million tons. However, Allied, which sold grapes to about 75 vintners, is like many in the industry who do not believe it will reach that level in the final analysis. Last year’s crush was 3.1 million tons.
For coastal growers, Allied called 2003 a "watershed year" where the "dismal" price slide reversed itself "after two or three years of solid underperformance.
"We expect to begin seeing gradual strengthening in the coastal regions next year, just as we saw start in the interior in 2003," reported Allied. "But, it may not be significant."
Allied’s assessment of the 2003 crop and the near term future applied to spot market grapes. Growers with pre-existing multi-year winery contracts were in good shape in 2003. Growers who made quality standards were paid enough to be profitable in 2003.
One way left
There was only one way for the SJV wine grape market to go this season since the absolute bottom was attained last year when most spot market grapes were purchased at concentrate prices in 2002.
Most varietals sold for at least $125 per ton. Some went for as much as $200. This is not enough to keep the vines in the ground long term, but it was enough to keep growers from losing the farm.
Wineries low-balled prices to try and keep $2 wines a reality. These "extreme value" wines characterized by Charles "Two-Buck Chuck" Shaw represented 17 percent of all California wine shipments to California markets during the first five months of the year, according to the Gomberg Fredrikson Reports. Wineries want to keep that ball profitably rolling as long as they can, but can only do it with relatively low wine grape prices.
Only growers who can produce 8 tons or more per acre consistently can survive at "Two Buck Chuck" wine grape prices. "For growers who struggle to reach 8-10 tons per acre, prices in the low to mid $100s simply won’t cover the cost of production," reported Allied.
"As a result, we fully expect more wine grape vineyards to come out this winter," said DiBuduo.
The "shining stars" for this year’s SJV spot market were Merlot, Ruby Cabernet and the floral varieties. However, lower yields may have hurt growers’ chances to make money even on those varieties.
Zinfandel and Grenache also were relatively strong, but yields were definitely down in those varieties as well.
The coastal wine grape crop was down 15 to 20 percent.
Spring rains had a lot to do with the reduced crop with North Coast Merlot the most affected. "Many growers reported the worst set that they had ever witnessed for this weather-sensitive varietal and tonnages were off up to 50 percent in many Merlot blocks," said DiBuduo.
Zinfandel and Chardonnay also were affected by adverse weather.
The "new darling" of the coastal reds, Syrah, is now in definite oversupply due to overplanting; regrettable overcropping and consumers less enamored with the varietal than many growers and wineries had expected.
The same is true for Cabernet Sauvignon. According to Allied, many lots of Cab went begging for a home this year, even with a crop 10 to 20 percent below normal.
"There is still Cabernet Sauvignon hanging on the vine due to abundance of coastal supply and inability for the market to absorb it all," said DiBuduo.
For the Lodi-Woodbridge-Delta region, 2003 was also tough with demand being stable or slightly stronger for most varieties over 2002.
Demand for Zinfandel for white was strong, but the impact of fewer wineries wanting Zinfandel for red was felt in the region, which historically produces 15 to 20 percent of its Zinfandel for red wine.
Reds overall proved tough to sell on the spot market. Merlot fared best among the reds. "Cabernet Sauvignon continued down the path of destruction with most spot market Cabernet sold very late mostly for $100 to $150 per ton," reported Allied.
Petite Sirah, Pinot Grigio, Sauvignon Blanc and Viognier experienced relatively strong demand at prices that would allow growers to pay the bills.
"Overall, the season ended up better than last year with much fewer grapes left hanging on the vine in the northern interior. Nearly everything found home at some price level," reported Allied.
The rebound may have started in 2003, but it will not be robust in any segment of region any time soon, according to the state’s largest wine grape marketing cooperative.
Compared to the past few years, the near-term projections for concentrate are "relatively optimistic."
However, farming Thompson Seedless for concentrate may not be sustainable over the long term, even if prices increase. If newer, higher-yielding raisin/concentrate varieties continue to be planted, it will become increasingly difficult for Thompsons to be a viable grape for raisin or concentrate production.
The future looks brighter for red concentrate.
Allied expects wine grape prices for "value wines" in the Central and Southern San Joaquin Valley to experience relatively low prices for the next one to three years, largely to sustain the extreme wine market. When prices get above $200 per ton, $2 wines become harder for wineries to produce economically.
However, most varieties show some promise to reach levels above $150 per ton near term.
Vineyards producing more than eight tons per acre should be sustainable at those levels.
For the large wine grape category to produce above $3 per bottle fighting varietals, it may continue to be a struggle to compete on the shelf with the lower tier of wine in the short term.
"Longer term, acreage adjustments and slowly increasing demand will make this segment return to the powerhouse it once was," according to Allied.
"Quality will be vitally important (in the fighting varietal category) as consumers begin to trade back up with a stronger economy," according Allied’s staff.
Premium wine also will continue to struggle in the short term. Cabernet, Syrah and Pinot Noir may be overplanted and removals or grafting may be needed to correct the supply problem short term.
No segment of the California wine grape industry has been immune to the oversupply problem, including the ultra premium area of Napa and Sonoma.
Spot markets for Napa and Sonoma grapes will continue see limited buyers because there are too many grapes available.
"Wineries will continue to play it safe and limit inventory investments, especially as long as the high end bulk market supply remains stable. Once the high end bulk wine supply begins to dwindle, grape market activity will pick up again."
However, that will not happen until consumers are comfortable spending more than $15 per bottle again.
"New value brands, taking advantage of inexpensive Napa/Sonoma grapes and wine, should continue to be successful with consumers," according to Allied.