Sacramento, Calif.—While the great debt load of nations including the United States positions the global economy in a dangerous phase, experts at the Unified Wine & Grape Symposium said today that wine industry indicators are remarkably positive. Mike Veseth, founder of the Wine Economist blog, set the stage for the State of the Industry session by sketching out the major global economic variables.

Veseth, who teaches economics at the University of Puget Sound, and has authored several books on wine and economics, said he sees 2012 as a period of slowing growth for the U.S. and other global economies. Exports remain a bright spot for U.S. wineries, however, unless there’s an alteration in the favorable exchange rate that comes from a relatively weak dollar.

Even though most of the immediate economic news for wine is good, Veseth said an era of intense global competition will squeeze margins. “If the Chinese growth slows to less than 8%—and no one knows if 8% is really the number—exchange rates could alter and help the competitive advantage of those countries.”

How can the U.S. wine industry plan around this possibility? “The best way to prepare for the future is to prepare to be surprised,” Veseth concluded.

Supply and demand in check
This morning, Allied Grape Growers president Nat DiBuduo shared good news with the audience: Wine industry inventory is balanced for the first time in several years.

According to DiBuduo, wineries crushed an estimated 3.25 million tons of winegrapes in 2011, a 10.4% decrease from the previous year. The Central Coast registered the most dramatic year-to-year disparity, with spring frost events prompting total tons crushed to fall an estimated 34.3% in the region. Production in the North Coast was down 15.2%.

Based on DiBuduo’s estimations of the 2011 crop and bearing vineyard acres, California growers harvested an average of 6.44 tons per acre, a 7.4% decrease from 2010. Lower than expected yields brought supply and demand into equilibrium, said DiBuduo, who added, added that the delicate inventory balance is “on the cusp of shortage.”

Discussing the spike in direct shipping during the past year, DiBuduo mapped out the winegrape production that would be necessary to meet demand if the past seven years of trends were to continue: Yields would have to return to 2005 levels to meet demand. If the next three growing seasons produce average yields, 2012 could see a potential shortage of 185,000 tons of winegrapes available to crush for wine, a 125,000-ton shortage in 2013 and a shortage of 60,000 tons in 2014.

DiBuduo said the possibility of shortage could work in favor of growers during pricing discussions. “Today we’re going to go forward in a new era of negotiation. Make sure you’re looking at a fair price….Don’t sell yourself short,” he urged. “There has been some new negotiation on payment terms: Tell (wineries) you want 30 days.” DiBuduo also suggested growers ask for bonuses to reflect quality and hang time.

Moscato boom
Every year, vineyard owners want DiBuduo to tell them which varieties they should be planting. This month Allied Grape Growers conducted an anonymous survey of California nurseries about trends in planting. Based on the survey, DiBuduo predicted that 17,000-23,000 new acres of winegrapes could be planted, depending on issues such as vine spacing.

“There has been a shift from last year, when more than half of the plantings were red winegrapes,” DiBuduo said. “This year it has shifted to predominantly white winegrapes”—55% white grapes, to be exact.

Of the white varieties, more than 40% are being planted to Muscat of Alexandria (almost all of which will be used for value-priced wines); Chardonnay represents 21% and French Colombard is the third most popular white variety, with an 18% share of the California white cultivars sold by California nurseries. For red wine, almost 30% of the red plantings are Cabernet Sauvignon, and 21% Pinot Noir.

Based on the information gathered from his survey, DiBuduo estimated the changes in bearing winegrape acreage that will be available by 2015. He expects the bearing acres of Muscat of Alexandria to increase 136% over 2011 numbers by 2015. He estimates Rubired will see a 44% jump, while 26% more acres of Pinot Noir will have begun bearing fruit.

“Rubired has been a highly planted variety the last few years. The growers have hit their bubble on wineries saying they wanted Rubired,” DiBuduo said of the blending variety.

In the Central Valley, Muscat of Alexandria, French Colombard, Rubired and Chardonnay are currently popular planting selections. DiBuduo said planting contracts are being offered and the “expansion rate is strong.” He recommends high-yielding varieties that maintain quality. “They’re not looking for the qualities in a 2 ton-an-acre grape.”

In the northern interior region of California, Zinfandel is white hot in Lodi, but white Zin is on its way out. “Zin is being planted in the valley,” DiBuduo said, however, “There’s not going to be any white Zin in Lodi in the future.”

Cabernet Sauvignon, Chardonnay and florals are being planted in the northern interior, and DiBuduo said Zinfandel and Bordeaux varieties are good picks for the area. Expansion of planting contracts offered in this region is moderate.

In coastal regions, the number of planting contracts being offered is extremely limited, DiBuduo said. In Napa and Sonoma, the hot varieties are tried and true classics: Chardonnay, Cabernet Sauvignon and Pinot Noir. Due to high real estate prices, DiBuduo said smart varieties in this region include anything with “a history of being able to fetch high bottle prices.”

He cautioned, however, “In the ’90s, we all thought we were gonna get rich, so we all planted. Learn from history. Plant in moderation.”

Getting creative
Addressing the morning general session, Steve Fredricks of Turrentine Brokerage said bulk wine supplies are down in the U.S. and the rest of the world. Demand is going up, price is going up, prompting producers to look for substitutes.

The bulk market is not just having an off year, he said, but is at its lowest point in more than a decade. Turrentine said that current inventory is at about 4 million gallons, including about 400,000 gallons of Cabernet Sauvignon. New plantings for the variety also have stayed flat for the past five years.

With such a scarcity of varieties such as Cab—its price has doubled—winemakers likely will be looking for grapes from AVAs outside Napa and Sonoma. Yet the traditional sources of cheap Cabernet Sauvignon, Merlot and Malbec are not as bountiful as they were in past years. “We seen an increasing need of it,” Fredricks said of Merlot, adding that it’s unclear where the supply will come from.

Even Zinfandel is in question as growers in the Lodi AVA, for example, replace Zin with white varieties. San Luis Obispo County had a severe frost that curtailed its 2011 crop, and the Sierra Nevada Foothill counties also saw reduced tonnage from the challenging vintage.

Pinot Noir has great potential, Fredricks said, especially for California growers who can supply the $10 to $20 segment that has strong demand.

Talk of the town: Moscato
Fredricks described Moscato’s success as a “story waiting for an ending,” and it remains unclear whether the variety’s popularity is a flash in the pan or a lasting player in the wine industry. “We still don’t know the size of consumer demand,” he said.

Fredricks told Wines & Vines he was not sure if other wines have much presence in retail stores where consumers are buying Moscato. DiBuduo countered that the industry should accept the popularity of Moscato and stop questioning it. People including his 20-something daughter are enjoying the trendy varietal wine, and there is nothing wrong with that, he added.

345 million cases shipped
Wineries in the U.S. and abroad shipped 345 million cases to market in the U.S. during 2011, according to veteran wine industry analyst Jon Fredrikson of Gomberg, Fredrikson & Associates. His estimate indicated the market grew 4.5% from 2010, when the U.S. became the world’s largest wine-consuming country.

Shipments have been on an uninterrupted upward climb since the early 1990s. Fredrikson said the growth in 2011 came from an increasing role for wine in Americans’ lifestyles and media, plus “a staggering diversity of wine choices” available to consumers. Many varietals and types contributed—Moscato, sweet reds, sangria, saké and even chocolate wines, as well as traditional varietals like Cabernet Sauvignon and Pinot Noir.

Fredrikson uses data from the Wine Institute, TTB, U.S. Department of Commerce and his own firm’s research to estimate the totals of domestic and imported wines shipped. He pegged imports at 115 million cases in 2011, exactly one-third of the total. His numbers show that total U.S. wine production rose 4.7%, while California wine rose 4.9%, and imports grew slightly slower at 3.9%.

He reminded the Unified Symposium audience that 61% of California wine sold for less than $7 per bottle in 2010, but consumers moved somewhat to higher price points in 2011. 

Sales very positive
As Fredrikson roamed the large ballroom with a wireless microphone like a motivational speaker, he characterized the sales situation as very positive, diverse and competitive. “It’s a free for all, it’s a food fight.” He said 120,000 labels were approved by the TTB in 2011 for domestic and imported wines in new packaging, with new brand names and market niches popping up everywhere. 

Some sources, he said, cite 11,000 more on-premise accounts and 5,250 off-premise accounts opening in 2011. Walgreens is selling wine again, Fredrikson noted, and Starbucks is experimenting with wine sales.

Using Nielsen data from food stores, he highlighted as the hottest red varietals or types: Pinot Noir with 12% growth in cases sold, sweet reds with 202% growth and Malbec with 40%. Among whites, Moscato wines made from Muscat grapes grew by 64% in volume, Pinot Grigio/Gris by 12% and unoaked Chardonnay by 101%.

Exports of U.S. wine also grew, reaching $1.2 billion in 2011, according to U.S. Department of Commerce data that Fredrikson cited.

Fredrikson also unveiled his choice for 2011 Winery of the Year: 4.5 million-case DFV Wines, Manteca, Calif., owned by the Indelicato family.