The floor fell out of what growers expected to be a good green Thompson seedless grape market yesterday when the world’s largest winery, E&J Gallo, issued a $190 per ton price to crush Thompsons.
The Gallo price quote spread quickly throughout the San Joaquin Valley Monday afternoon. It was not a good way to start the week for growers.
It comes on the eve of harvest and past the deadline to purchase raisin rain insurance. If growers do not accept the Gallo price, they must make raisins from the Thompsons. It also reportedly demoralized Thompson dehydrator prices.
“Thompson seedless growers throughout the San Joaquin Valley are disappointed with that number,” said Nat DiBuduo, president of Allied Grape Growers, the state’s largest wine grape marketing cooperative.
Allied’s board called an emergency meeting to discuss the issue. DiBuduo is telling growers not to sign a $190 Gallo contract for Thompsons.
The crop is not large and the supply and demand for grape concentrate would indicate that a price of at least $25 more per ton is warranted, according to DiBuduo.
“Certainly something over $200 per ton,” he added.
For a 10-ton per acre Thompson crop, the difference between $190 and $225 per ton is $350 per acre.
Greg Coleman, vice president of grower relations for E&J Gallo, the world’s largest winery, did not return phone calls seeking comment.
Gallo is the largest winemaker in the world, with production of nearly 900 million bottles per year. Gallo produces one in every three bottles of wine made in the U.S. It produces 68 million cases of wine annually. Gallo crushes more than 50 percent of the grapes crushed annually in California.
The lowball Gallo price could have a major impact on raisin production, diverting 100,000 green tons of Thompsons to raisins. Although the raisin industry is coming off a record 350,000 ton shipment year, Gallo’s price offering could have a major impact on the 2010-2011 raisin marketing year at a time when the industry is on the upswing in sales and prices to growers.
Gallo’s price comes two weeks after the grower deadline to buy raisin insurance to protect against rain losses. Compounding the dilemma to market green or lay the raisins in rows to dry is that the crop is seven to 10 days later than normal. This heightens the chance of fall rains on the drying raisins. Without insurance that is a big economic risk.
Asked if Gallo’s disappointingly low price after the insurance deadline was an attempt to lowball the Thompson price, one expert said, “You hit the nail on the head. It seems to be calculated by Gallo to buy Thompsons cheaper than what they should be.”
Although it is not universally accepted, many contend that the Thompson crush price is the floor upon which other wine grape prices are based. A $190 Thompson is not good news for the California wine grape industry.
Thompsons represent the largest grape tonnage in the state. There are 216,000 acres of Thompsons in California, all in the San Joaquin Valley. Statewide there are 470,000 acres of varietal wine grapes.
Last year 307,000 tons of Thompsons were crushed, representing about 8 percent of the total crush. In 2008 500,000 tons were crushed, representing 14 percent of the total crush.
The 300,000 tons of raisins produced last year equates to roughly 1.5 million green tons using a five-to-one green-to-dry ratio.
This puts the total green Thompson crop at 1.7 to 2 million green tons annually.
The Raisin Bargaining Association has not reached a price settlement with packers for the 2010 crop, and industry experts say it is going to be difficult to achieve a higher price than last year’s field price of $1,323 per ton for raisins.
A price of $1,400 per ton for 100 percent of the 2010 crop is what most were expecting before the Gallo price.
This 2009 field price equates to a green price of $225 to $235 per ton. Last year’s green price was $165 per ton.
“We do not expect to get raisin equivalent prices for Thompsons, but we certainly expected something better than $190,” said DiBuduo. “The market tells us that.”
It costs far more to dry Thompsons for raisins than to pick green for the winery.
This market is largely centered around grape juice for concentrate. At Allied’s annual meeting, DiBuduo pointed out that:
• Apple concentrate from China is available only at high prices equivalent to $200 per ton for white grape concentrate.
• South American concentrate supplies could be half the normal supply.
• Red concentrate is in high demand.
• Chilean concentrate product is in short supply.
• There is a short supply of good concentrate in the U.S.
Plus DiBuduo says the crop is small this year, maybe even smaller than the latest NASS raisin crop estimate.
It said the California raisin type variety grape crop is 1.95 million tons, down 7 percent from the July forecast.
“We started picking some early Thompsons two days ago and the crop looks even lighter than the estimate,” said DiBuduo.
Glen Goto, chief executive officer of the Raisin Bargaining Association, said the 2010 raisin crop estimate was for about 275,000 tons based on the green crop size, average bunch count and anticipated higher green price diverting green grapes away from raisins. Last year the industry made 300,000 tons of raisins.
“The winery price says many growers are not going to crush a lot of Thompsons this year,” he said. This could drive 100,000 green tons to raisins and sharply increase the raisin supply to 300,000 tons.
“This is a huge swing in the raisin supply,” he said, adding that, “we made 300,000 tons last year and sold 350,000 tons, so the raisin industry is prepared to take its share.”
He admitted he was surprised by the $190 per ton price. “People were talking about some pretty lucrative prices for green Thompsons before this price came out,” he noted.
Sugars are coming up quickly, and Goto refused to accept a very late harvest forecast.
Regardless, he expects growers to start laying raisins on Labor Day.
Goto estimated 30 percent to 40 percent of the state’s raisin crop is machine harvested. This starts with cutting canes for the green grapes to dry on the vine.
Although growers want to wait until sugar levels are good enough to make premium raisins, the Sept. 20 insurance deadline for the start of drying is in concrete.
“At some point in time quality could be an issue, but we will not know that until we start boxing up the raisins,” he added.