Lighter winegrape crop attracts higher prices

Winegrape harvest like the one pictured here at Kautz Vineyard in Lodi is nearly complete and growers are reporting lighter yields than last year. Better prices for grapes are helping to offset higher costs for fuel, fertilizer, labor and other inputs.

As they work to finish a harvest characterized by high quality and higher grape prices, California winegrape growers ponder the possible impact of the nation's economic downturn on their long-term markets.

Winegrape harvest in California vineyards has nearly ended and growers report a much lighter crop this year. They're also seeing high quality—small, tight berries they hope will impart especially good flavor and color to finished wines—and they're seeing strong demand.

Allied Grape Growers, which represents about 500 farmers in the state's main winegrape regions, said the strong demand has fueled an increase in grape prices. In most areas of the state, prices rose 50 percent to 100 percent per ton, according to Jeff Bittner, Allied Grape Growers vice president for operations.

"That sounds fantastic, but you have to look at the revenue equation—price times yield. When the yield is off, revenue is off. Input costs increased—the state minimum wage went up again, fuel and fertilizer costs have skyrocketed, water costs have jumped—which doesn't leave much profit," he said.

Joe Valente, who manages vineyard operations for Kautz Vineyard in Lodi, said prices paid by wineries are up. For example, if cabernet grapes were selling a few years ago for $200 a ton, today those grapes may be worth $400 a ton.

"Across the board, growers in the Lodi region are probably seeing per-ton prices up $50 to $100 a ton," he said. "But our production costs are much higher—fertilizer, fuel and sulfur—they're all up."

The smaller crop means virtually all winegrapes in the state have been sold. That is in contrast to the record production in 2005 that saw a significant amount of fruit unsold and left in the vineyard.

Bittner said Allied did see some challenges in the market this year. Although not all winegrapes were left behind, some were placed at prices not profitable for growers.

"What we're seeing is that wineries are beginning to take a cautious approach to their buying because of the economy," he said. "Some wineries said, 'Our buying is going to be down 30 percent. This economy scares us. We don't want to be long on inventory if the economy negatively impacts sales.'"

Last year sales of California wines in the United States reached a record 457 million gallons, up 2 percent over the previous year. The retail value of these shipments increased to $18.9 billion, according to the year-end summary in the Gomberg-Fredrikson Report.

What is unclear at this time, experts say, is what impact the economic downturn will have on wine sales in the future.

Bittner said the strategy seems to be that wineries are settling for shorter winegrape deliveries now, knowing they can buy bulk wine later if sales pick up.

"That could end up making the bulk wine market fairly exciting in a year or so," Bittner said. "But, nobody knows that. It depends on where we're going with this economy. Some speculate that only the high end of the market will be impacted and wine with lower bottle prices will sell fine. We'll see."

Glenn Proctor, winegrape broker with Ciatti Co. in San Rafael, said this year was a tale of two markets for winegrapes. Early market demand was "wide and deep" and kicked off in November 2007. Then there was a lull in winery buying.

The second market began after the significant freeze in April and was characterized by cautious interest as the world economic situation began unraveling, Proctor said.

"Early market, we saw brisk demand and price increases in the valley and on the coast," he said. "But that didn't continue. The frost was a significant event and people stepped away. As we moved toward the end of the season, prices coasted."

He said now wineries are thinking hard about how many tons of grapes they really need. He called California's winegrape and wine production system "trim," meaning there is little carryover in either bulk or case goods.

Vineyard plantings closely match demand and there are few non-bearing acres and even fewer new plantings.

Preliminary estimates put this year's yield from the state's 550,000 acres of winegrapes at about 3 million tons, compared to the 2007 crush of nearly 3.7 million tons. Yield estimates for the 2008 crop are well below the record 4.3 million tons crushed in 2005.

Yields this year were off more for some varieties than others, Bittner said. Merlot and cabernet sauvignon were particularly affected, and even some of the traditional Central Valley grapes like French colombard, carignane and grenache were light, he said.

Kautz Vineyard grows about 20 different winegrape varieties, Valente said. He estimated yields were down in the Lodi region as much as 20 percent to 30 percent, depending on variety and vineyard location.

He attributed the smaller crop to a number of factors: the drought, weather gyrations and a tendency for the vines to alternate between light and heavy crops, noting that statewide yields last year were above average.

But, Valente said, "we have vineyards in Murphys in Calaveras County that lost 80 to 90 percent of their crop due to frost."

Madera winegrape grower Michael Naito said the red winegrape varieties were especially light in his vineyards in 2008 and said drought caused the shorter crop.

"But my crop was a pretty good size," he said. "And prices were up. But input costs probably ate up any price improvement. It's scary the way costs have been going up and the economy is falling apart. It's hard to work up an operating budget that will work for our operation."

Naito, who is a Madera County Farm Bureau director, said many winegrape growers in his area have been switching to almond plantings because the returns are better.

"Around here, almonds are what's keeping the grapes in the ground," he said.

(Kate Campbell is a reporter for Ag Alert. She may be contacted at kcampbell@cfbf.com.)

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