Oversupply clouds otherwise bright future The California wine industry has bright prospects, but at the vineyard level, particularly in the interior counties, oversupply drapes a veil of uncertainty on grower returns for 2001 and beyond.
That was the assessment of Barry Bedwell, general manager of Ciatti Grape Brokerage, LLC in San Rafael, speaking at the recent Agribusiness Management Conference in Fresno.
In setting the scene for the outlook for wine grape production, Bedwell said the 2000 crush demonstrated the continuing gap in prices between coastal and interior regions.
Spot markets in some districts were the lowest in decades. Estimates of grapes left on the vine in interior counties this season range from 30,000 to more than 100,000 tons.
The former president of the Allied Grape Growers marketing cooperative again cautioned growers not to plant new wine grape vineyards until consumer demand for wine has a chance to catch up.
One area of particular concern, he said, is the new acreage, much of it thought to be speculative, around Paso Robles.
The 2000 crush is estimated at 3.2 million tons, or nearly 600,000 tons more than the previous season. It is considered to be above average in yield and represents an estimated minimum of 40,000 new acres coming into production.
Although the California Agricultural Statistics Service preliminary report of the 2000 crush will not be issued until February of 2001, Bedwell said estimates of the crush include 500,000 to 700,000 tons of Thompson Seedless and other non-wine varieties.
Bedwell, whose company is the largest wine, concentrate, and alcohol broker in the U.S., having a volume of more than 110 million gallons annually, gave status reports of prices for the state's four production regions:
On the North Coast, prices for Chardonnay, which has the largest acreage for wine varieties, in 2000 were generally stable but had considerable spot-market weakness. A high percentage of reference price contracts will keep prices high in 2001, but spot-market declines, particularly with an average or above crop, may continue.
On the Central Coast, Cabernet Sauvignon and Merlot held, but red Zinfandel showed weakness, and Chardonnay on the spot-market dropped materially. Additional acreage planted on speculation will mean more downward pressure, given a normal crop in 2001.
In the Northern Interior, all varieties saw major price declines, ranging from 10 percent to as much as 80 percent on the spot market in 2000.
"Many growers," he said, "may witness only a slight decrease in price per ton coupled with the higher than expected production, which would result in an overall increase in revenue.
"On the other hand, growers exclusively on the spot market or attempting to sell their grapes on an annual basis will see major decreases in dollars for their operation."
In the Central and Southern San Joaquin Valley, contract prices were mostly at minimums for 2000 with a spot market being difficult or non-existent. Prospects are for similar results in 2001 and afterward, perhaps for three to five years, until acreage adjustments are made.
Differences between the four major regions in share of statewide wine grape tonnage compared to share of wine grape value were significant in 1999, Bedwell said. The North Coast claimed 13 percent of the tonnage and 40 percent of the value.
The Central Coast had 11 percent of the tonnage and 20 percent of the value. The Northern Interior tallied 19 percent of the tonnage and 22 percent of the value. And the Central and Southern San Joaquin Valley produced 57 percent of the tonnage for 18 percent of the value.
The North Coast includes Mendocino, Lake, Sonoma, Napa, and part of Solano counties. The Central Coast is comprised of the Bay Area and Monterey, San Luis Obispo and Santa Barbara counties, and Southern California. The Northern Interior is made up of Delta, Sierra foothill, and Northern California counties. The Central and Southern San Joaquin Valley takes in crush districts from Stanislaus County south to Kern County.
Bedwell said the wine industry does not consider the four regions as distinct. Rather, it associates Napa-Sonoma with the ultra or luxury premium wine category, or mostly wines retailing at more than $15 per bottle.
"That is the part of the industry that continues to do very well, with double-digit growth. Napa and Sonoma are in their own little world. Then comes the coastal category including Mendocino, Lake, Solano and the Central Coast counties, including the Temecula area."
The interior counties a tied to the California appellation, making difficult any differentiation of the Lodi-Woodbrige district premium wine production. "That's something Lodi-Woodbridge will continue to contend with, even though it is recognized as the top-end of the interior category."
Increased production of the fighting varietals made significant impacts on the spot market. Reviewing the roles of the four in the 2000 crush, he said Chardonnay was more plentiful in all districts and may account for about 600,000 tons. Interior districts have doubled their production of this variety during the past three seasons.
Cabernet Sauvignon too increased, possibly to 300,000 tons or more, and most of it came from the interior.
New acreage of Merlot is leveling off and its increases may be slightly less than Cabernet, while Zinfandel, mainly from the interior counties, will most likely exceed 400,000 tons.
Acreage gaining Counter to faltering grower returns, acreage is on the upswing. The California Agricultural Statistics Service listed 554,000 acres, with 130,000 non-bearing, for 1999.
Bedwell said observers tend to consider the non-bearing acres to be fairly evenly distributed between the growing regions. "But on a percentage basis, these non-bearing acres would lead to a much higher percentage of growth in the interior as compared with the coastal areas for the four premium varietals most planted in California."
Bedwell said the 2000 crush strained the capacity of the wine industry. "Even though additional storage and processing have been added since 1997, the fact that we entered this year with high inventory levels has mitigated that expansion."
In one "horror story" being circulated, he said, a grower is said to have offered his Zinfandel crop free of charge this year to a vintner in exchange for a minimum of $200 a ton for Zins in the coming two years. After considering the offer, the vintner turned it down because he had no capacity for the grapes anyway.
Fundamentals good But Bedwell did offer some positive thoughts about the fundamentals underlying the wine industry.
"The overall quality of California wine has never been better and the opportunities to grow sales both domestically and internationally are very encouraging.
"The industry has plenty of wine to sell at almost all levels as compared to times of selected shortages. The image of wine remains generally positive, wineries appear ready to spend money on promotion, rules on flavored wine products have changed, and consumer demographics appear to favor further growth."
However, he reminded, production and prices of the wine grape industry are historically cyclical. Considering the rush to plant wine grape acreage during the past five years, he said, the probability of an oversupply in many areas of the state - notwithstanding the potential impact of the glassy-winged sharpshooter and Pierce's disease - appears well on its way to becoming a reality.