The past 18 months have been the best in decades for California grape growers. Demand for wine grapes has been strong and that looks to be the scenario for the immediate future.
However, it has been a costly decade of economic malaise for growers, not only because of the prices received, but in the loss of acreage. Roughly 125,000 acres of vines have been removed. Granted, most of that was Thompson seedless raisin varieties. However, many acres of Central Valley wine grapes came out, replaced by more attractive alternatives. And even with historically high raisin prices and excellent wine grape prices, vines are still coming out because there are more economically attractive and stable alternatives like almonds, pistachios and walnuts.
Grape growers have short memories. They recall well recent years when grapes were left hanging on the vine; when wineries imported Chardonnay wine and killed that domestic market; when they were forced to custom crush or were compelled to take what they could get from wineries at the crusher. This is particularly true in the San Joaquin Valley where the overwhelming majority of grape production is located. More than a few SJV grape growers now call themselves almond growers.
During this decade of tumult, wine consumption has steadily increased to the point that the compelling question is are there enough grapes in the ground now and will be there be enough in the future in California to meet that growing wine consumption?
Allied Grape Growers President Nat DiBuduo and Vice President Jeff Bitter offered their 2-cents worth on what the future holds in Allied’s most recent member newsletter.
Allied represents 600 growers statewide in marketing grapes. Last year the cooperative sold more than 250,000 tons of grapes valued at more than $100 million.
DiBuduo and Bitter acknowledged that the feel of a “short supply” market may be disguised as “market equilibrium.”
“History and economics tell us that it is technically impossible to stay at true equilibrium, and if you look at almost any market for any product over time, it will point to the argument that cycles always exist,” DiBuduo and Bitter acknowledge.
However, the two grape industry veterans say the cycles ahead are not likely to have the depth and severity of past cycles.
Increasingly more people “are hanging their hats on the argument that, as we enter a period of increasing grape supply based on a relatively short market over the last couple of years and increased plantings, we will do so gradually and in a managed fashion.”
The question is how quickly and just how far the pendulum will swing the other way.
“Based on what we know today, it’s likely going to be a few years before we have to worry about any substantial oversupply of grapes, if at all,” they contend with the caveat “there are many, many factors outside of our control that can influence production and shipments in either direction.”
Gauging the future
The first place to gauge the future it to look at the California grape acreage report. However, both acknowledge that this report is “voluntary” and therefore suspect by its nature.
The current grape acreage report shows that total reported wine grape acreage is 480,000 acres (with 20,000 of that being non-bearing). However, the state has also estimated the actual amount of wine grape acreage to be much higher, at 546,000 with 38,000 non-bearing.
With the help of the state’s numbers, and Allied’s independent survey of grapevine nurseries, AGG has estimated a total wine grape acreage of 590,000 with 70,000 non-bearing. Third party sources have put total wine grape acreage, reported to the Department of Pesticide Regulation, at just over 600,000 acres with no breakdown on how much of that is non-bearing.
This disparity in acreage reporting makes it challenging to estimate supplies.
Allied has long been gathering its own data based on annual
nursery surveys. Admittedly this does not capture 100 percent of vine sales: “We have captured enough to know most other sources of data are under-reported.” Allied’s most recent nursery survey in January showed that more than 30,000 acres worth of new vines were sold last year. Allied believes 20,000 acres must be planted annually to maintain market expansion and allow for attrition of aging vineyards.
However, DuBuduo and Bitter say “there is no reason to be immediately concerned” with that perceived overplanting “as one or two aggressive planting years won’t make or break the market.”
Besides, most new acres have gone in the ground under contract and that implies market capacity is unfilled.
Allied project there will be market “balance,” for a few years.
“The bottom line is that the impressive number of acres being planted today should not scare us into a planting freeze any more than the under-reported acres publicized should prompt us to plant every hill and valley” according to DiBuduo and Bitter.
Looking a little deeper at the nursery surveys over the past five years, Cabernet Sauvignon has been the top selling scion. It represented about 25 percent of all new vine sales last year. Other notables have been Rubired, Muscat of Alexander and French Colombard. However, these three highly planted varieties were done so for very specific reasons and programs and may not actually have a significant impact on the broader wine market, according to Allied.
On a more “subtle and consistent basis,” Chardonnay, Pinot Noir and Pinot Grigio have all been varieties to watch as they have been planted annually in decent volumes. There has also been interest in alternative varieties like Malbec, Petite Sirah and Primitivo.
“Another notable trend is that, starting in 2012, planting in the coastal areas once again surfaced with some significance. Most new vines planted prior to 2012 were done so predominantly in the interior. We see that trend continuing in force for 2013 as the upper end of the market seems to be on a rebound and as concerns about a future shortage resurface.”
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