California's wine flood of Biblical proportions has receded.

The only thing missing when industry leaders at this year's Unified Wine and Grape Symposium in Sacramento, Calif., proclaimed the wine ocean had become a mere lake were flocks of doves with olive branches circling high above the cavernous convention center halls and hotel ballrooms where more than 9,000 vintners and viticulturists gathered to hear about the economic health of their industry and catch up on the latest wine industry technology.

Maybe the doves were missing because as hard as the experts tried to paint a new life for California's wine industry, no one broke out in a chorus of “Happy Days are Here Again.”

The state of the industry has improved, but there was no where to go but up after the past few seasons that saw an economic trough deeper than ever before. The rebound is apparently not that high yet or Bronco Wine Co. would not have been selected as the winery of the year for the second year in a row.

Peter Byck of the Winery Exchange selected Bronco because of another year of huge increase in shipments. Bronco's president Fred Franzia is the creator of Charles “Two-Buck Chuck” Shaw wine, the $2 bottle of wine that has mesmerized and chagrined California winemakers. More than 8 million cases of “2BC” reportedly have been sold by Trader Joe's boutique grocery stores since it was introduced two years ago by Bronco.

Primarily a West Coast phenomenon, “2BC” is a product of that surplus sea of wine. Bronco is credited with playing a major role in draining brim-full wine tanks to make 2BC while at the same time driving the price down for every other price category of wine. Most vintners say it continues to hang over the California and West Coast wine market like an economic shroud, cutting wine margins wine for everyone except Bronco and 2BC. Its amazing sales success and loyal followers make it not look like it is going away any time soon.

Supplies reduced

While Bronco did its part to drain the sea, San Joaquin Valley grape growers played a bigger role in reducing excessive wine supplies. They have paid a big price for it, removing of almost 100,000 acres of vineyards in the California's great central valley since 1998, according to Nat DiBuduo, president of Allied Grape Growers, the state's largest grape marketing cooperative with 500 grower members statewide. Much of that ground remains out of production because of limited alternatives and capital to replace the vines with other permanent crops.

Since 2002 alone, 40,000 acres of vines have been bulldozed by SJV farmers who decided to stop losing money growing grapes. That represents 320,000 tons of production — more than the total annual crush for the three wine grape growing regions that stretches from San Francisco to Ventura.

Those 320,000 tons would have produced more than 55 million gallons of wine annually.

Another 10,000 to 15,000 acres of vines will likely be bulldozed in 2004, said DiBuduo.

“Significant plantings statewide have stopped and pullouts have slowed,” said DiBuduo. “If the industry is looking at the valley to pull out all its (wine) grapes to solve the industry's (nagging oversupply) problems, look somewhere else. It is not going to happen.”

Demand as key

The long term solution is not more abandoned vineyards, but increasing demand. One way to do that, he added, is to “take back” the 26 percent share of the domestic market now in the hands of imports with aggressive marketing.

Wine sales in the U.S. were up 9 percent in 2003, but California's wine sales were up only 4 percent. Sixty seven million cases of wine were imported into the U.S. last year and that number is expected to grow with the increasing production of new world wines from Australia, Chile, Argentina and South Africa joining growing imports from Italy and Spain.

Bulk wine broker Bill Turrentine said if California wine sales were growing at “anywhere near the rate” of imports into the U.S., the Sacramento symposium “would be devoted to how to get vineyards into full production faster” rather than wondering how fast the wine surplus is disappearing.

Turrentine believes the “brain power and resources” are available in the California wine industry to identify “key factors” to achieve success for individual wineries as well as areas where growers and vintners can unite “to make the California wine business once again competitive in an increasingly competitive world market…make California once again the shining star of the world of wine.”

Only short supply

While DiBuduo, Turrentine and others tried to put a positive spin on the industry's supply/demand picture, the news was basically acreage and wine supply are coming into “balance.” For an industry that has been bleeding economically for several years, news like that is about as thrilling as a tie football game. You know what famous University of Texas football coach Darrell Royal once said about a tie game: It's about as exciting as kissing your sister.

The only variety in short supply? Lowly French Colombard in the San Joaquin Valley. It was the first ripped out. There were 55,000 acres planted in the state in 1992 the wake of the white wine boom, but it has dwindled to just 30,000 acres, bringing the crush down to 300,000 tons from what was once 600,000 tons. Now wineries are looking for Colombard, which has grown in the export market as a bulk commodity for what are now called “extreme value” wines in Europe.

“Don't go home and plant Colombard,” warned DiBuduo.

That is what everyone did with just about every other varietal during what Turrentine called the “glory years” of 1992-1999 when demand was high and supplies short. And that resulted in the deepest economic depression wineries and grape growers have ever seen. Grapes have been left unsold on the vine during the past two seasons.

While the San Joaquin Valley is sobering up from planting too many vineyards far exceeding grape demand, others areas of the state still have a hangover.

DiBuduo said the Central Coast still has non-bearing acreage and production there as well in the North Coast has not peaked. It may be 2005 before it does. Production in the Lodi-Delta area has leveled off.

By specific varietal, here is what Turrentine and DiBuduo had to say about acreage the wine supply.

  • Cabernet Sauvignon. It is the second largest wine grape in terms of acreage and bulk wine supplies are so excessive some wineries are no longer listing bulk supplies because they is no chance of it being sold. Supplies swelled tremendously until this year from the Northern and Southern interior valleys. Over the next two to three years, the increases will come from the coastal regions. It may be 2006 before Cabernet Sauvignon supplies are balanced with demand. Acreage has almost doubled since 1994 and 13,000 acres came into bearing last year. Single digit sales increases have been overwhelmed by double digit production increases. Expect the next two seasons to be difficult in marketing Cabernet wine grapes.

  • Syrah. California's answer to Australia's popular Shiraz is overplanted big time, and supplies are well ahead of admittedly strong sales. There are now 12,000 acres of Syrah in California, up from just 600 in 1994. Some 4,000 acres are non-bearing. Turrentine is impressed with the quality of the Syrah vintages and if the U.S. economy continues to improve, wine drinkers may become more adventurous and try Syrah instead of the more traditional reds. However, for now there is too much Syrah in the ground, in the tanks and coming down the pipeline.

  • Pinot Noir. Like Cabernet Sauvignon, acreage has almost doubled in 10 years. However, Mother Nature has not seen fit to produce a huge crop. There is an adequate supply of Pinot wine. It there is a big crop in the next year or two, Pinot could find itself battle for storage tank space with Cabernet.

  • Zinfandel. Supplies for white and red Zin are in balance. It has become a good bulk export product for the UK and Germany where it sells for $3 to $4 per bottle, the European version of 2BC. Zinfandel grape prices should be stable to strengthening in 2004.

  • Merlot acreage and wine supply peaked last season. Merlot pullouts in the San Joaquin helped bring supply and demand into balance. There is a stable to strengthening price outlook for 2004. Turrentine called this varietal the bulk wine variety of the year. “People actually made money on Merlot this year — a novel concept for the wine industry,” he said. This is true for the $10 or less bottle of wine. It is as close to a bull market as Turrentine would go. Harvest was short in 2003 and Turrentine was surprised there was not more upward price pressure for 2003 grapes.

  • Chardonnay. The crown jewel of California wine was the first to go into the financial tank when the downslide started. It is the first to come out of the darkness. Enough Chardonnay has been pulled from the central valley to offset new acreage elsewhere coming into production. Demand and prices should be strong in 2004 and 2005.

World supply short

Chardonnay supplies are short worldwide and there has been a steady reduction in California bulk Chardonnay. It may be bit of a stretch to call Chardonnay a bull market, but sales are good.

For the California wine grape industry to continue pulling itself out of the hole, it must produce quality at all price points, said DiBuduo. “The question is will growers be compensated for the cultural practices that produce quality.

“There are also (winery-grower) contract issues to be resolves,” said DiBuduo. Final prices, harvest schedules and the new winery terminology/demand, more “hang time.”

Wineries want grapes to sugar more on the vine. However, the longer they are left on the vines, the lower the tonnage delivered to the winery. Growers are paid on tonnage.

DiBuduo is confident these issues can be resolved.

e-mail: hcline@primediabusiness.com