How Short Was California's Grape Crop?

Executive at 10,000-acre vineyard company says yields were down as much as 86% in some areas

by Paul Franson
At a post-harvest seminar, Mark Couchman of Westchester Group Investment Management reported that wine grape yields were down across California, with shortages ranging from 8% for Sonoma County Merlot to 86% for Cabernet Sauvignon in Monterey County, Calif. Photo: Tony Albright/Napa Valley Vintners
Napa, Calif.—Prominent wine industry accounting firm Moss-Adams hosted a post-harvest seminar featuring two industry experts Wednesday at the Marriott Napa Valley, where they made it clear how short this year’s California grape harvest was.

Mark Couchman is executive vice president and CEO of Westchester Group Investment Management. He oversees Silverado Investment Management Co. (formerly Silverado Premium Properties) and Plata Wine Partners, which produces bulk wine.

The company owns more than 10,000 acres of vineyards in Napa and Sonoma counties, the Central Coast and the San Joaquin Valley of California, selling to more than 100 wineries.

“2015 was a rude awakening,” Couchman said. “Yields were down almost everywhere in the state.”

The company has 1,685 acres of vineyards in Napa that produced in both 2014 and 2015. Yields per acre were down 17% for Cabernet Sauvignon, 44% for Pinot Noir and 46% for Sauvignon Blanc.

Merlot was decent, Couchman said, albeit off 32% after a bountiful 2014 harvest.

He said that the drop wasn’t due to the drought in Napa Valley, but to poor fruit set in the cool, wet spring. “The vines on the valley floor did better than those on the hillsides, and Carneros particularly suffered.”

Outside of Napa
In Sonoma County, things were a bit better for Westchester’s 1,963 acres of vines. Merlot was down 8% and Chardonnay down 24%, and Pinot was down 25%. “It’s tough to make money when you get down to 3 tons per acre,” he told attendees.

Monterey County, Calif., represents a “very big part” of the company’s portfolio at 5,140 acres. “It was a cold, miserable year,” Couchman laments. “Cabernet was down 86%. That represents a $2 million crop insurance payment for us.”

Chardonnay fared relatively better at 37% drop while Merlot was off only 15%, but Pinot Noir, another important variety from Monterey, was down 48%.  “We went into 2014 with a big inventory of bulk wine, but that’s no longer true.”

Couchman notes that Constellation Brands, which bought hot Pinot brand Meiomi but no vineyards, thought it had an ample wine grape supply, but it may have found out otherwise. He said it’s not clear where the grapes will come from to support the brand’s ambitious growth plans.

Westchester/Silverado has 1,065 acres of vineyards in San Luis Obispo County, including Paso Robles, Calif. “It was miserable,” Couchman said. Cabernet was down 71%, and Merlot 30%.

“It was a combination of the drought itself and long-term accumulation of salts in the soil and water. “We need a lot of water to replenish the aquifer and wash out the minerals.”

Silverado is also big in Santa Barbara County with 2,595 acres. It’s an important source of Pinot Noir, which was down 32%. Chardonnay was down 14% and Merlot 44%.

The Delta/Lodi region (1,314 acres of vineyards) was down about 20% except Pinot, which was off 46%. “We used to be bigger there, but we have pulled some vines for orchards,” Couchman admitted.

The only region that held up well was the Southern San Joaquin Valley—not a big part of the portfolio, especially in terms of revenue.  Chardonnay was unchanged at 14 tons per acre, while French Colombard was up 7% and Rubired was down 3% (to 18-plus tons per acre).

Couchman added that the company sees very strong demand from winery buyers. “Many customers buy bulk wine from us from our vineyards, but we have much less than in the past.”

He added that they’ve analyzed buds to try to gauge next year’s crop, but it could be seriously affected by conditions during the spring, as happened this year. “This could happen again next year,” he said.

From a broker’s view
Glenn Proctor, a partner at Ciatti and Co., the world’s largest grape and wine broker, was equally pessimistic.

“Before 2015, we had big crops in 2012, 2013 and 2014. Every popular wine brand had inventory and many buyers (wineries) were selling excess wine.  Now things are very different. Wineries are buyers again, and sellers are starting to act coy.”

It’s been a big change from early in the year, when 2015 looked like a big year. Now it’s moved back to short.

Sonoma, for example, dropped from 256,000 tons total in 2014 to 195,000 tons this year, according to Proctor. 2012 and 2013 were even bigger.

Ciatti’s total inventory of bulk wine was 35 million gallons in January. It dropped to 30 million in May and 18 million in November. Some wines, like Napa Cabernet, simply aren’t available at prices people want to pay.

Proctor sees more planting or long-term contracts from buyers, too, as well as contract extensions.

Couchman and Proctor both agree that wineries are being more flexible in demands, like allowing lower Brix; the low yields mean they can’t compromise there.

Needless to say, prices for grapes—and hence bottles of wine—have risen. “Wineries have to raise bottle prices to compensate for a change of their sources,” Proctor said.

“Prices for Napa Cabernet are already astonishing,” Couchman said, even as a grower. He added that wineries moving to direct-to- consumer models have more profit to put into grapes, however.

If there’s one bright spot for wineries that can adapt, it’s that there is plenty of bulk wine available overseas. “The U.S. is the best market in the world for grapes,” noted Proctor. “There are plenty of sources willing to sell here for more than they can likely get at home.”

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