Friday, March 11, 2011

Grapes and Wine

Turrentine Brokerage

March 9, 2011  I  Vol 23, No. 1  I  Copyright © 2011 Turrentine Brokerage  I  Bill Turrentine, Editor

The Final Grape Crush Report released March 10th, shows no significant changes from the Preliminary Report.  The total crop of winegrapes harvested statewide in 2010 was 3.58 million tons, down only 3% from 2009, making 2010 the third largest crop in California history. There were dramatically different results in different regions of the state, with the North Coast down 5%, the Central Coast up 5%, the Northern Interior down 22% and the Southern Interior up 5%.  We're going to look at the results from the Interior Regions of the state more closely below and discuss the changing market for Chardonnay.

A Closer Look at the Crop in the Interior

The decreased production in the Interior regions of the State in 2010 was not a surprise, and was in-line with our projections, but it's the biggest story coming out of the 2010 Preliminary Grape Crush Report for three reasons:

1) Value-priced grapes and wine, which are primarily sourced from the Interior, continue to enjoy the strongest level of demand.  While wine consumption grew through the recession, consumers traded down to less expensive bottles and shifted purchases from restaurants to retail.  Even as the economy continues to slowly recover, the under $10/bottle category remains very strong.  Demand for red grapes, and especially the key red varietals, outstripped supply in 2009 and 2010 and the market for 2011 red grapes is already active.  Demand for red wine in bulk has also increased as inventories have decreased.  In the case of Cabernet Sauvignon and Pinot Noir, many wineries could have used a larger harvest, and as a result, bulk wine demand and prices have increased.

2) The Interior was only down about 4% overall, or 120,000 tons, but the distribution of those tons is significant.  The Northern Interior (Districts 9, 10, 11, and 17) was down 21% and some analysts have claimed that this decrease was largely offset by gains in the Southern Interior (Districts 12, 13, 14) which were up 5%.  However, the gains in the Southern Interior were largely in generic varieties -Rubired up 50,000 tons, Other Red up 19,000 tons, and Ruby Cabernet up 7,000 tons.  In fact, these three varieties account for 81% of the increase in the Southern Interior.  Furthermore, some percentage of this tonnage was crushed for concentrate rather than for wine production.  If we compare the major varietal wine categories shown in the chart below - it is clear that the Southern Interior did not come close to making up for the shortfall of key varietals in the Northern Interior.

Northern Interior
Southern Interior
Net Gain/Loss
Cabernet Sauvignon

3) Much of the wine produced in the Southern Interior competes directly with inexpensive wine from around the world and - from a consumer's perspective - is interchangeable.  However, California brands looking to source wine from other parts of the world are faced with a different paradigm than just a few years ago:

a)     Exchange rates have dramatically increased the cost of many imported wines - especially from countries that are big exporters of natural resources, such as Australia ($AUS up 50% vs. Q1 of 2009) and Chile (Peso up 26% vs. Q1 of 2009)

b)     Global Inventories are down - sharply in some cases.  In particular, Chile's inventories are well below pre-earthquake levels and their 2011 crop is projected to be average, and Australia is expecting a light crop due to disease pressure that has been extreme with the rains and flooding.


For the last several years, Chardonnay has been synonymous with surplus.As our team of brokers survey the world wine business, however, they have noticed that the supply picture for Chardonnay is changing.  Consider the following points:

1)     The 2010 crop of Chardonnay in California was down 10% from 2009, a reduction equivalent to about 12 million gallons.  Wineries purchased almost all of the Chardonnay grapes available for the harvest of 2010, which is in sharp contrast to 2009, when thousands of tons were custom crushed by growers who were unable to sell their grapes, especially on the Central Coast.

2)     Although recent sales prices have remained low, inventories of 2009 Bulk Chardonnay in California have come down dramatically. Total California bulk listings (see graph of Chardonnay in bulk below) are also down sharply from last year at this time.

3)     On the Global bulk market, the biggest source for Chardonnay directly competitive with California is Australia. The 2011 growing season down under has been challenging from the start with heavy spring and summer rains that continued as harvest started.  The disease pressure from Downey mildew early in the season and then Powdery mildew later has been intense and will impact the volume and quality of this year's harvest.  Bulk market prices have been steady and some wineries have withdrawn wine from the market as a hedge against 2011 quality concerns.  The shift in the exchange rate over the past couple of years has made the supply more expensive for California buyers.  Supply is down for Chardonnay throughout Europe and prices are high.  Chile and Argentina are not significant players for Chardonnay.  (See chart of International supply below.)

4)     In contrast to most years in the recent past, there is some early demand for 2011 Chardonnay grapes in California.

Turrentine Brokerage_International_CH chart 

Chardonnay bulk wine graph_Turrentine BrokerageWhile the association between Chardonnay and surplus still lingers in people's minds, supply in the real world has dropped.  Scan-data, on the other hand, indicates some significant sales growth for Chardonnay casegoods.  Those responsible for Chardonnay inventory, as grapes or wine, will want to stay in close contact with Turrentine Brokerage as spot market and long-term market dynamics continue to develop.

Market Opportunities
*Note to all growers: Markets are shifting. We need to know now what you have available for 2011 and in the future in order to provide you with the right opportunities

Bulk Wine Needed
Grapes Needed
Bulk Wine Available

Grapes Available

2010 Zinfandel
Dry Creek Valley

Arneis 2010
Sonoma Coast
4,500 gallon lot

Dry Creek Valley benchland, small lots and truckload quantities

2009 Pinot Noir
Carneros and Russian River

Dolcetto 2009
Sonoma  Mountain
2,000 gallon lot
Pinot Noir
Santa Rita Hills,
multiple truckload lots

2009 Zinfandel
All California appellations

Vernaccia 2009
Sonoma Carneros
7,000 gallon lot
Cabernet Sauvignon
Alexander Valley mountain, small lots and truckload quantities

2009 & 2010 Cabernet Sauvignon
All California appellations

2009 Valdiguie
Paso Robles
6,000 gallon lot

Sonoma Coast, small lots and truckload quantities

2009 & 2010 Malbec
All California appellations

2010 Cabernet Sauvignon
Red Hills
Large lots

Napa Valley, truckload quantities

Russian River
Multiple lots
Cabernet Sauvignon
Mount Veeder, small lots and truckload quantities

Muscat Canelli
Various appellations
Multiple small lots

Pinot Noir
Santa Lucia & Chualar Canyon

2010 Pinot Noir
California appellation, North Coast and Central Coast

Planting opportunities: Eastside Lodi and District 12

2009 & 2010  Zinfandel
Paso Robles

2009 Chardonnay
Great opportunities at bargain prices

2010 Petite Sirah
Napa Valley

2010 Grenache Blanc
Santa Barbara

2007 Port
3,000 gallon lot

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