Tight Market for Grapes and Wine

Experts and growers discuss market heading in to 2016 harvest

by Andrew Adams
vineyard economics seminar
Nearly all of the 2016 wine grape crop in California is spoken for, according to wine brokers at the Vineyard Economics Seminar.

Napa, Calif.—As far as the wine and grape market is concerned, the record crops of 2012-14 are a distant memory.

Prices for bulk wine from the North Coast and Central Coast have increased dramatically while availability has decreased, and there are few (if any) remaining grapes for sale on the spot market. Any new acreage coming online is most likely already under contract, and the ongoing trend of consumers buying higher priced wines coupled with the short harvest of 2015 have exhausted any excesses of the larger harvests of previous years.

The changing market was a focus of the Vineyard Economic Seminar held in Napa today. Other speakers at the seminar said there are few remaining areas that can support new vineyard plantings for premium grapes, and the availability of water and regulations will make it even more difficult to plant those, meaning grape and wine prices are likely to continue increasing.

Turrentine Brokerage partner and bulk wine broker Marc Cuneo and broker Mike Needham delivered a presentation about the current market. Cuneo said buyers have come out “early and active” for bulk wine, and the 2016 crop is pretty much spoken for now. He said wineries should now be planning for 2017 and 2018. “If you don’t like your position, what are you doing to change that?” he asked.

He described several major macro-economic factors affecting the market. The majority of grapes are under contract and there is less speculative acreage getting developed. Last year’s smaller harvest drove up the costs of supply just as higher priced wines have become more popular. There is almost no demand to create any new low-priced wine programs, what Cuneo described as “super value stagnation.”

Inventories of wine and grapes have also come into balance around much of the world. The Australians have reduced their acreage to the same size as during 2001; it’s been a rough vintage in South America, and Spain has worked through a large inventory of wine. “When you look at world supply, you see inventories that are much more aligned with global demand,” he said.

Cuneo and Needham used a few key varieties from prominent regions to illustrate the current market. California produces more Chardonnay than any other varietal, and Cuneo said that’s created a perception that there’s always a lot of it available, prompting wineries to run their Chardonnay as a “just in time program.”

This year, however, the average prices for Sonoma County doubled in some cases to $18 to $25 per gallon, and Monterey County Chardonnay went from $5-$7 per gallon to the mid-teens. There’s also little wine out there, with Cuneo saying prospective clients will now receive two to three wine samples rather than a case or two to choose from.

Cabernet Sauvignon remains the “star of the market” and has enjoyed steadily rising prices since 2011. Bulk prices of Napa Cabernet have reached $45 per gallon or higher. “This is uncharted territory here,” Cuneo said. "When does this price soften? There’s a lot buyer fatigue at these price points.”

But the name “Napa” still sells wine, so it’s hard for wineries to shift Cabernet programs to other appellations. One can’t look to Sonoma County, where there’s little available bulk wine or grapes.

Needham said there is little room left in Napa or Sonoma counties to plant more Cabernet, and grape prices have steadily increased. Sonoma Cabernet on the spot market is fetching nearly $3,500 per ton, and in Napa the per-ton price is approaching $5,000. He noted back in 2010 the price for Napa Cabernet on the spot market was just $1,800 per ton.

Challenges in the vineyard

Towle Merritt, general manager of Napa-based Walsh Vineyard Management, gave the audience an overview of the key challenges confronting the vineyard side of the industry.

Because of new state and federal regulations, Merritt foresees the cost of labor increasing by 27%. Based on a 2012 study by the University of California, Davis, about the cost of running a vineyard in Napa Valley, he said this increase could add an additional $950 per acre to the cost of running a vineyard.

On the pest and disease side, Merritt identified red blotch-associated virus as one of the biggest current threats to the productive life of a vineyard. Current research shows the best approach is to pull or “rogue out” infected vines as soon as possible. “A lot of our effort for our clients is early detection and early rogueing out of infected grapevines,” he said. “It’s the needle in the haystack we’re trying to find quickly, so it doesn’t spread throughout the vineyard and we can maximize and protect the investment.”

Not only is labor getting more expensive, it’s also getting much harder to find. Doug Wilson, vice president of grower relations for Silverado Investment Management Co., moderated a panel discussion with two other grower-relations directors, during which the topic of labor came up repeatedly.

Wilson was joined by John Azevedo, director of grower relations for Jackson Family Wines (JFW), and Scott Warren, director of grower relations for Constellation Brands Inc. Wilson and Warren reported they’ve mechanized many of their vineyard operations, while Azevedo said JFW is still willing to pay a premium for hand labor.

In Monterey County, Calif., where Silverado just recently purchased an 1,800-acre property with about 900 acres of planted vineyards near King City, Wilson said it’s nearly impossible to find workers because of competition from other fruit crops such as strawberries. “If you need to have hand work done before Mother’s Day, good luck,” he said.

Wilson added it would often be impossible for them to pick an entire vineyard within the Brix parameters set by their winery clients if not for mechanized harvesting.

Warren said in his more than 20 years working in vineyards he’s always heard labor complaints, but this is the first year when growers have been saying it’s a real problem. He said a revitalized construction industry is drawing workers away—and improved mechanical harvesting, ironically, is actually making the labor problem worse. He said more winemakers are embracing or even preferring the high quality of machine-harvested fruit, and that’s taking a great deal of work and pay away from field workers. “It’s really a changing environment in terms of maintaining this labor force,” he said.

Azevedo said several of JFW’s wineries have retained traditional winemaking, and that extends out to the vineyard. To ensure the company has sufficient labor, he said they strive to keep their vineyard employees busy and happy throughout the year so they won’t be lured away with better hourly pay elsewhere. “We want to make sure those guys and ladies are happy and working,” he said. 

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