Things are finally looking up for North Coast wine grape growers.
“For the first time in several years, most of California’s major wine grape varieties are in demand,” says veteran wine grape broker Brian Clements, vice president of Turrentine Brokerage, Novato, Calif.
With signs of an improving economy, consumers are buying more wine these days; in fact, the industry is now talking that demand may exceed the grape supply.
The degree of shortage will depend on the variety and where it’s grown, Clements says. In the North Coast, two of the most sought-after grapes this year are Cabernet Sauvignon and Pinot Noir. “They’re in very short supply, while supplies of Chardonnay and Merlot are mostly short,” he says.
As a result, the prices of these — and most of the coastal wine grapes —began rising with last fall’s harvest, and they continue to climb. At the same time, more and more North Coast wineries — seeking to insure adequate supplies of fruit — are offering growers multi-year contracts, typically three to five years, along with more attractive prices.
That’s in marked contrast to the past few years, when some North Coast growers left fruit hanging on the vine at harvest for lack of buyers.
In some cases, prices of the North Coast’s premium wine grapes have surged dramatically. Three years ago, Napa Valley Cabernet Sauvignon was selling on the spot market for about $1,200 a ton. The spot price of valley floor grapes for the same Cabernet has soared now to $5,000 per ton.
While welcomed by growers, price swings of that order could be disastrous for a potential buyer. “If you’re a winery and you’ve penciled in your Napa Cabernet Sauvignon grape costs at $1,200 to 2,000 a ton, now you’re in a terrible place,” Clements says.
He cautions that spot prices represent no more than about 15 percent to 20 percent of all grapes sold in the state; the rest are sold under multi-year or long term contracts.
North Coast growers aren’t the only California producers watching their market strengthen. Many recession-battered wine shoppers traded down, boosting demand for value wines from the Central Valley. Consequently, prices for valley grapes are about 20 percent to 40 percent higher than a year ago, Clements notes.
The higher prices are coming none too soon. “Many growers on long-term contracts have been doing OK in the last two to three years,” he says. “But those without contracts and trying to sell on the spot market in the last several years have been having a very tough time, unless they have income from other sources.”
Among the forces driving up the price of North Coast grapes are two straight years of short crops and a decade or so when growers added little to the overall acreage.
Widespread discounting of bottled goods cleaned up old inventory, and bulk wine supplies are down sharply. Five years ago the bulk wine inventory made from all California varieties totaled 24 million gallons, Clements says. It’s now less than 5 million gallons, which he describes as “an acute shortage.”
While it’s too early in the season to predict the size of this year’s crop, he doesn’t see a big one developing.
“With about two clusters per shoot on the vines, the North Coast crop looks to be about average this year for most major varieties,” he says. “It some cases it may be only average to light.”
Clements expects North Coast prices to continue improving this season, but at a slower rate than earlier in the year. “There’s more of a chance for prices to continue to increase the rest of this year, than to stay the same or go decrease.”
Central Valley growers are putting in new vineyards in response to better prices. “They’re planting all over the place,” he says; however, he expects North Coast growers to hold off expansion for at least another year or two,
“Right now, questions about the economy, the 2012 election, unemployment, and the financial problems in Europe are making everyone in the luxury end of the wine business nervous,” he says. “Otherwise, we’d be seeing a lot of planting contracts in this area. Wineries, growers and bankers are being very careful — they remember what happened after they over-planted in the mid-late 1990s. Then came the dot com bust that left a glut of grapes on the market.
“Still, we can talk about the risks of planting too many vines until we’re blue in the face — but once the industry gets into a planting phase, it’s difficult to slow down. And, sooner or later, we end up with too many grapes.”