As much as 81 million gallons of wine from California wine grapes grown in 2006 could change hands at least once as a bulk commodity before it is ever packaged for sale to consumers.

That represents 15 percent of the wine from the 3.1 million tons of wine grapes crushed last season. Experts say from 10 to 15 percent of any year's California crush is sold on the bulk market before it is bottled or bagged.

Bulk California wine is sold and bought primarily by very large to medium wineries for a wide array of reasons from a need to create cash flow to a desire to adjust inventories up or down based on sales, to unload undesirable wine or for several other reasons.

Everyone knows it is a vital part of the California and world wine business, yet it is part of the business not discussed in great detail among growers.

It is critical to understand and watch because basically the amount of bulk wine on the market translates directly to the price growers receive for grapes. And as California growers learned last year, the price and quantity of bulk wine from other countries also has a direct impact on grape prices they receive. Last year California wineries imported inexpensive wine primarily from Australia for “American appellation” wine products sold in the U.S. rather than buy California wine grapes.

The king of bulk wine is Fred Franzia and Bronco winery. An oversupply of wine in the late 1990s gave birth to now legendary Charles “Two Buck Chuck” Shaw varietal wines. Millions of cases were sold from Trader Joe's boutique supermarkets for $2 per bottle. Franzia bought cheaply priced bulk wine by the tankerloads; shipped it to a state of the art bottling plant in Napa, Calif., and bottled millions of bottles of Two Buck Chuck.

It was not necessarily inferior “cheap” wine. It was wine overflowing tanks that wineries had to unload, and Franzia had the deep pockets to help wineries out of their financial misery. While Franzia's Two Buck Chuck angered many other California wineries, he was credited with single handedly quickly reducing burdensome wine inventories quickly, which was a direct benefit to growers and even the bulk wine market.

Dabbled with bulk

Rank and file grape growers have dabbled in the bulk market for decades, generally when prices were so low producers refused to accept low winery grape prices and could not drop the grapes on the vineyard floor to rot.

So they paid a winery to “custom crush” and ferment their grapes, hoping to get a better price for the wine than they could get for the grapes.

Some have been successful and many lost money. It has been called “desperation” marketing.

Nat DiBuduo, president of Allied Grape Growers, believes there was significant custom crushing by growers over the past three seasons, mostly coastal varietals.

Allied even custom crushed a few '06 grapes.

“We crushed about 2,000 tons out the 200,000 tons Allied marketed. It was not significant,” said DiBuduo.

According to the USDA/ NASS California Field Office almost 70,000 tons of grapes were crushed to grower accounts in ‘05. The vast majority of that was Chardonnay and Cabernet Sauvignon. The year before the custom crush was 45,000 tons. The '06 figure will not be out until the final grape crush report is released this summer. The tonnage likely will be higher than '05.

The '05 custom crush represents about 12 million gallons of wine. No doubt some of that was desperation crushing. However, a new element emerged for custom crushing over the past five or six years.

“It's diversification by growers rather than desperation,” according to Glenn Proctor, a partner in Joseph Ciatti Co. of Sam Raphael, Calif., the largest wine brokerage in the U.S.

Ciatti offerings

The current Ciatti Web site lists more than 226 million gallons of wine for sale from 12 wine producing countries. Some 26 million gallons of bulk U.S. wine is for sale through Ciatti.

Bulk wine prices can range anywhere from $2 per gallon to $40 per gallon, according to wine brokerage Web sites. Experts estimate a ton of wine grapes produces from 160 gallons to 175 gallons of wine.

Proctor said increasingly more growers are crushing their own grapes to sell as bulk wine as part of a business plan.

“The number of major wine grape buyers has shrunk in the past few years from what may have been 10 buyers to maybe three or four,” said Proctor.

When there are fewer buyers in the system for a perishable crop, growers are looking for more marketing options and one of those has been custom crushing and bulk wine marketing. Some have built their own crushing and storage facilities. Others are thinking about it. Still others work with larger wineries to custom crush and store wine.

Proctor warns this is not for the faint of heart. It requires extra financial resources and an understanding of the market.

There is a cash flow issue. When a grower spends a season growing the grapes and selling them to a winery, it is a 365-day program. When he crushes his own grapes, it may be a year and a half or maybe longer before he gets a return.

Begin early

“You need to begin working with a wine broker early,” said Proctor.

A grower must understand that when grapes are crushed, bulk wine buyers do not care how the grapes are grown. “Bulk wine is a different commodity than grapes. Buyers do not care how you carefully pruned your vines; deficit irrigated or whatever. He or she only cares about what is in the sample and if it is what he is looking for in a specific wine program,” he said.

“We can give a buyer 30 Cab samples and he may like three,” said Proctor.

“Custom crushing is something a grower should plan out. It is not something you decide to do three weeks before harvest,” said Proctor.

“Growers have been successful doing it. Others have lost more money than they would have if they had dropped unsold grapes on the ground,” he said.

Typically, when grape prices are low, custom crushing grows. The question is when grape prices rebound, will there still be growers crushing their own grapes to sell exclusively as bulk wine?

“Sure, when prices rebound, some growers will go back to selling grapes rather than custom crushing,” said Proctor.

“However, I think custom crushing will continue for those growers who have made investments in facilities and who have bulk wine as part of their overall business plan. I also think it will continue after prices rebound because consolidation of buyers will continue and growers do not like that,” he said.

The day may not be too far off to find out if Proctor is correct.

Grape prices over the past few years have not been particularly profitable.

“It has been a rough seven years in the wine grape business,” said DiBuduo.

Hundreds of thousands of acres of grapes, particularly in the San Joaquin Valley, have been pulled out over the past five years. Many of those vineyards were replaced with orchards.

There have not been significant new plantings in the coastal areas over the past few years.

“A continued 2 to 3 percent growth in consumer wine demand bodes well for producers as we move forward. I think you will see markets for grapes improve overall,” said Proctor.

And when they do, will custom crushing and bulk market be a part of the picture?