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Jeff Bitter 2012

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  • 1. Winegrape Market Review SJVWAWinegrape Industry Forum Jeff Bitter Allied Grape Growers November 29, 2012 Allied Grape Growers, 2012. All rights reserved.
  • 2. Presentation Outline - Answering the Questions•Part 1: Production & Supply •Exactly how big was this crop? •Are we still short of grapes/wine? •Where does California fit into the world picture?•Part 2: Imports •What drives their presence, and are they here to stay? •How do we compete or position ourselves considering imports?•Part 3: The Market •What were this year’s prices paid? •What are the factors that determine if today’s prices are here to stay?•Part 4: Planting Trends •What are my neighbors doing?! •Should I plant grapes? Allied Grape Growers, 2012. All rights reserved.
  • 3. Part 1:Production & Supply Allied Grape Growers, 2012. All rights reserved.
  • 4. Production Analysis Central Valley Yields, 2012 Comparison of Allied Grape Growers Central Valley Yields (Districts 12-14) 2011-2012 Four-Year 2012 to Avg Variety/Category 2009 2010 2011 2012 % Change Avg Yield % DifferenceRaisin (Thompson/Fiesta) 8.4 8.9 10.9 8.0 -27% 9.1 -12%Generic Whites (French & Chenin) 10.6 12.2 10.2 11.5 13% 11.1 3%Chardonnay 8.2 8.9 7.1 7.8 10% 8.0 -3%Florals (Muscat, Symphony, etc) 14.3 14.7 12.7 13.2 4% 13.7 -4%Pinot Grigio N/A N/A 9.0 8.5 -6% 8.8 -3%Grenache 11.3 10.6 10.9 9.8 -10% 10.6 -8%Rubired 11.9 13.6 14.4 10.9 -24% 12.7 -14%Barbera/Carignane 9.5 10.3 8.4 9.8 17% 9.5 3%Cabernet Sauvignon 10.7 9.4 8.2 8.7 6% 9.3 -6%Merlot 9.8 9.3 9.2 8.6 -7% 9.2 -7%Ruby Cabernet 11.8 11.5 11.9 9.8 -18% 11.3 -13%White Zinfandel 12.7 11.8 11.2 12.6 13% 12.1 4%Syrah 10.2 10.5 9.3 10.0 8% 10.0 0% Allied Grape Growers, 2012. All rights reserved.
  • 5. Production Analysis Central Valley Yields, 2012 Comparison of Allied Grape Growers Central Valley Yields (Districts 12-14) 2011-2012 Four-Year 2012 to Avg Variety/Category 2009 2010 2011 2012 % Change Avg Yield % DifferenceRaisin (Thompson/Fiesta) 8.4 8.9 10.9 8.0 -27% 9.1 -12%Generic Whites (French & Chenin) 10.6 12.2 10.2 11.5 13% 11.1 3%Chardonnay 8.2 8.9 7.1 7.8 10% 8.0 -3%Florals (Muscat, Symphony, etc) 14.3 14.7 12.7 13.2 4% 13.7 -4%Pinot Grigio N/A N/A 9.0 8.5 -6% 8.8 -3%Grenache 11.3 10.6 10.9 9.8 -10% 10.6 -8%Rubired 11.9 13.6 14.4 10.9 -24% 12.7 -14%Barbera/Carignane 9.5 10.3 8.4 9.8 17% 9.5 3%Cabernet Sauvignon 10.7 9.4 8.2 8.7 6% 9.3 -6%Merlot 9.8 9.3 9.2 8.6 -7% 9.2 -7%Ruby Cabernet 11.8 11.5 11.9 9.8 -18% 11.3 -13%White Zinfandel 12.7 11.8 11.2 12.6 13% 12.1 4%Syrah 10.2 10.5 9.3 10.0 8% 10.0 0% Allied Grape Growers, 2012. All rights reserved.
  • 6. Production Analysis A regional look at production Stated in tons crushedRegion 2009 2010 2011 3-Year Average Est. 2012North Coast 465,938 443,360 393,416 434,238 475,000Central Coast 508,709 537,202 387,265 477,725 550,000Lodi/Clarksburg 906,949 705,066 682,431 764,815 950,000Central Interior 1,738,182 1,831,629 1,803,648 1,791,153 1,825,000Other 83,253 71,321 75,929 76,834 85,000Total 3,703,031 3,588,578 3,342,689 3,544,766 3,885,000 Allied Grape Growers, 2012. All rights reserved.
  • 7. California Production Tons Statewide Grape Crush 2005-2011 with 2012 Estimate(in Millions) 4.33 4.09 4.25 3.98 3.87 4.50 3.67 3.67 4.00 3.49 3.76 3.70 3.89 3.50 3.58 3.34 3.14 3.25 3.00 3.06 2.50 2.00 1.50 1.00 0.50 0.00 2005 2006 2007 2008 2009 2010 2011 2012 Est. Other Crush Winegrape Crush Allied Grape Growers, 2012. All rights reserved.
  • 8. Conclusion: While the California winegrape crop, as a whole,is estimated to be 10% above average, the Central Valley winegrape crop was close to average. Allied Grape Growers, 2012. All rights reserved.
  • 9. World Wine Supply Headlines….Allied Grape Growers, 2012. All rights reserved.
  • 10. World Wine Supply•2012 supplies from major producers: •Down in size/inventory: •Argentina •Western Europe (France, Italy, Spain, etc.) •New Zealand •Stable in size/inventory: •Australia •Up in size/inventory: •California •South Africa •Chile Allied Grape Growers, 2012. All rights reserved.
  • 11. World Wine Supply - Putting it in Perspective•California represents only about 10% of theworld’s wine supply….. •Our estimated increase in production of about 500,000 tons is offset at least three-fold by the estimated decrease in production from Europe. •Following the “short” 2011 crop, almost 600,000 tons worth of bulk wine has been imported by California wineries and bottlers. •The United States is the single largest wine market in the world. Everyone is trying to increase shipments to the U.S. Allied Grape Growers, 2012. All rights reserved.
  • 12. Conclusion: No need to panic over thelarger 2012 California crop. Current global demand and supply dynamics translate into opportunity for California. Allied Grape Growers, 2012. All rights reserved.
  • 13. Production vs. Shipments MIllions California Grapes Crushed for Wine vs. California Wine Shipments of Tons 2005-2011, with projections and estimates thru 2014 5.0 Grapes crushed for wine, NOT winegrapes crushed. 4.5 Average difference = 212,000 tons 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Updated March 2012 Est. Est. Est.Wine Shipment Data Source:The Gomberg Fredrikson Report Grapes Crushed for Wine Wine Shipments Allied Grape Growers, 2012. All rights reserved.
  • 14. Production vs. Shipments MIllions California Grapes Crushed for Wine vs. California Wine Shipments of Tons 2005-2011, with projections and estimates thru 2014 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Updated March 2012 Est. Est. Est.Wine Shipment Data Source:The Gomberg Fredrikson Report Grapes Crushed for Wine Wine Shipments Allied Grape Growers, 2012. All rights reserved.
  • 15. Production vs. Shipments MIllions California Grapes Crushed for Wine vs. California Wine Shipments of Tons 2005-2011, with projections and estimates thru 2014 5.0 Shipment Trend Line 4.5 Based on Seven Years 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Updated March 2012 Est. Est. Est.Wine Shipment Data Source:The Gomberg Fredrikson Report Grapes Crushed for Wine Wine Shipments Allied Grape Growers, 2012. All rights reserved.
  • 16. Production vs. Shipments MIllions California Grapes Crushed for Wine vs. California Wine Shipments of Tons 2005-2011, with projections and estimates thru 2014 5.0 4.5 Need Need Need 3.69 3.76 3.83 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Updated March 2012 Est. Est. Est.Wine Shipment Data Source:The Gomberg Fredrikson Report Grapes Crushed for Wine Wine Shipments Allied Grape Growers, 2012. All rights reserved.
  • 17. Production vs. Shipments MIllions California Grapes Crushed for Wine vs. California Wine Shipments of Tons 2005-2011, with projections and estimates thru 2014 5.0 Taking the estimated 3.89 million ton 4.5 winegrape crush and taking off approximately Need Need Need 200,000 tons for other uses, we end up at 3.69 3.69 3.76 3.83 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Updated March 2012 Est. Est. Est.Wine Shipment Data Source:The Gomberg Fredrikson Report Grapes Crushed for Wine Wine Shipments Allied Grape Growers, 2012. All rights reserved.
  • 18. Conclusion: California grape/wine supply is likely in balancewith demand following therelatively large 2012 crop. Allied Grape Growers, 2012. All rights reserved.
  • 19. Part 2: ImportsAllied Grape Growers, 2012. All rights reserved.
  • 20. Wine Shipments (thru September) Data Source: Gomberg Fredrikson Report•Cal. wine shipments are slightly down from last year (-1%) •The big three are up 3.5% collectively (includes imports) •Mid and small wineries show mixed results, some suffering from lingering effects of the recession and some struggling with inventory shortages.•Imports/Exports •All imports are up 23% (exclusively due to bulk imports) •Packaged is down 2%, bulk is up 129%! •Bulk imports represent 37% of all imports •All exports down 4% (exclusively due to bulk exports) •Packaged up 7%, bulk down 13% •Bulk exports represent about half of all exports Allied Grape Growers, 2012. All rights reserved.
  • 21. Imports into the U.S. Graph Source: Gomberg Fredrikson Report Allied Grape Growers, 2012. All rights reserved.
  • 22. Exchange Rates Exchange Rates (Value to $1 U.S.), July 2008 - November 2012 Aus $Chilean Arg PesoPeso Euro1000 5.00 900 4.50 800 4.00 700 3.50 600 3.00 500 2.50 400 2.00 300 1.50 200 1.00 100 0.50 0 0.00 Chilean Peso Australian Dollar Euro Argentine Peso Allied Grape Growers, 2012. All rights reserved.
  • 23. Production vs. Shipments MIllions California Grapes Crushed for Wine vs. California Wine Shipments of Tons 2005-2011, with projections and estimates thru 2014 5.0 4.5 Need Need Need 3.69 3.76 3.83 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Updated March 2012 Est. Est. Est.Wine Shipment Data Source:The Gomberg Fredrikson Report Grapes Crushed for Wine Wine Shipments Allied Grape Growers, 2012. All rights reserved.
  • 24. Imports Excerpt from the Gomberg Fredrikson Q3 Industry Review“It appears likely that big producerswill continue to outsource a portionof their bulk wine supply needs in thefuture in order to maintain adequatesupplies at desired price points,especially for economy wines, and tosupplement short supplies of hot newvarietals.” Allied Grape Growers, 2012. All rights reserved.
  • 25. Conclusion: Imports are here to stay, regardless of exchange rates.They provide domestic vintnerswith supply alternatives during times of grape shortageand/or grape price increases. Allied Grape Growers, 2012. All rights reserved.
  • 26. Part 3: The MarketAllied Grape Growers, 2012. All rights reserved.
  • 27. D-TATS DiseaseAllied Grape Growers, 2012. All rights reserved.
  • 28. Desire to- Talk About Thompson SeedlessAllied Grape Growers, 2012. All rights reserved.
  • 29. The Importance of Thompson Seedless•Presents grape supply into the “system” •Blend extension (quantity) •Price moderation (cost) •Assists California vintners in competing at the lowest end of the market•Provides stock for alternative winery products •Brandy •High Proof Alcohol •Concentrate (both for market and internal use) Allied Grape Growers, 2012. All rights reserved.
  • 30. Concentrate Market •White concentrate: •Short market for all whites •Cal. grape about $13+/gallon, but no inventory despite crush •Apple and foreign grape concentrate are non-issues •Strippings (or lack thereof) playing an important role •Red concentrate: •Stable demand & balanced market •Pricing at about $12+/gallon •Other countries not expanding supply – yields are lighter •California-dominated market Allied Grape Growers, 2012. All rights reserved.
  • 31. Concentrate Market Estimated Breakdown - Grapes Used for Concentrate, 2008-2012 TONS800,000 747,925700,000 598,365600,000 535,794 499,323 495,000500,000400,000300,000200,000100,000 - 2008 2009 2010 2011 2012 Est. Raisin Varieties Winegrapes Table Varieties Dark Reds (Rubired, etc.) Allied Grape Growers, 2012. All rights reserved.
  • 32. The Market for Thompsons A “perfect storm” for price in 2012•Low yields recognized by most in the industry early on.•A robust raisin market•Generally decreasing acreage/supply•Concentrate inventories at all time lows with pricing atall time highs.•Non-availability of strippings from the table grapesector•World supplies of generic/low-end wines as well asgrape alcohol tighter than in past for numerous reasonsincluding EU pull-out programs and elimination ofsubsidies. Allied Grape Growers, 2012. All rights reserved.
  • 33. Conclusion: The Thompson Seedlessmarket should remain strong.However, it is easily influencedby a number of factors, some of which have the propensity to change quickly. Allied Grape Growers, 2012. All rights reserved.
  • 34. SJV Winegrape PricingSJV Pricing - 2012 Contract "Market" Spot Market(Districts 12-14) (as low as)* (as high as)Chardonnay $ 450 $ 700French Colom/Chenin $ 325 $ 400Muscat/Florals $ 375 $ 600Pinot Grigio $ 435 $ 600Barbera/Carignane $ 350 $ 500Cabernet Sauvignon $ 475 $ 800Grenache $ 325 $ 400Merlot $ 450 $ 700Rubired $ 300 $ 400Ruby Cabernet $ 350 $ 500Syrah $ 375 $ 550Zinfandel (White) $ 350 $ 400*Base prices, trucking provided by winery in many cases. Allied Grape Growers, 2012. All rights reserved.
  • 35. The Winegrape Market What’s really driving the increased prices of this year and last year?Five major factors driving price now, and in the future Allied Grape Growers, 2012. All rights reserved.
  • 36. The Winegrape Market What’s really driving the increased prices of this year and last year?•#5: The relatively weak dollar •Thwarts imports and encourages exports •Thought or tip: •Despite the current import/export trends, which are contrary to those associated with a weak dollar, think about how magnified it would be if the dollar had been strong the last three years. •Outlook: •Most economists don’t anticipate immediate or sudden changes to the value of American dollar. Of course, no one anticipated 9/11 either. Allied Grape Growers, 2012. All rights reserved.
  • 37. The Winegrape Market What’s really driving the increased prices of this year and last year?•#4: Competition from alternative crops •Almonds primarily, but all ag crops in general •Thought or tip: •All ag is doing good right now, in part because of our global price competitiveness (weak dollar). Cheap money (low interest rates) and lower cost of inputs and development, relative to grapes, also helps encourage growers to look at alternative crops. •Outlook: •Can you say $3/pound? For how long? •Many market forecasts from the almond industry point toward unfilled market capacity in the short term. Allied Grape Growers, 2012. All rights reserved.
  • 38. The Winegrape Market What’s really driving the increased prices of this year and last year?•#3: Forethought by buyers •Buyers needed to secure mid-term supply via aggressive contract offers •Translates into competition for existing grapes •Thought or tip: •Growers have had the opportunity to “play the market” a bit the last two years. While less grapes on the spot market creates higher spot market prices, at some point wineries choose to go without or look at alternative supply sources when the price for “those last few tons” gets too high. •Outlook: •Price seems to be stabilizing based on supply/demand factors. External factors may limit further substantial price increases. Allied Grape Growers, 2012. All rights reserved.
  • 39. The Winegrape Market What’s really driving the increased prices of this year and last year?•#2: The re-establishment of the “mid-market” (post-recession) •Simply put, the $7-14/bottle is hot, but wineries depleted inventories! •Market challenges exist in changing price on current brands •Thought or tip: •Don’t under-estimate the importance of the wine market at price points higher than those in which SJV wine traditionally goes. Watch grape markets in other areas of the state. •Outlook: •Large Lodi and coastal 2012 crop will help supply $7-14 programs. Demand for SJV fruit will come in the interest of averaging down price. Allied Grape Growers, 2012. All rights reserved.
  • 40. The Winegrape Market What’s really driving the increased prices of this year and last year?•#1: Overall supply balance, or “shortage” •Not just domestically, but globally. •Thought or tip: •The moderate planting of new grapes will serve to preserve market share while protecting us from sudden surplus due to excess production. •Outlook: •Planting will continue in moderation. Speculative planting will be at a minimum, while contracted planting may slow down just a bit in the immediate term. •With the exception of a few “smaller” world producers, like Chile and California, most winegrowing regions are not expanding their acreage. •Does anybody know the size of the 2013 crop? Please advise if so. Allied Grape Growers, 2012. All rights reserved.
  • 41. Conclusion: Factors that drive winegrape prices have been in the grower’s favor lately. Themarket is always searching for equilibrium, and it feels likewe are there, at least for now. Allied Grape Growers, 2012. All rights reserved.
  • 42. Part 4:Planting TrendsAllied Grape Growers, 2012. All rights reserved.
  • 43. 2012 California Nursery Survey•In January of 2012, Allied Grape Growers conducted aconfidential & voluntary survey of California nurseries todetermine up-to-date planting trends: •Data represents at least 85% of the major varietal vine sales in the state, by variety, and region. •Dependent upon vine spacing, total potential planted acreage identified via the survey represents between 17,000 and 23,000 acres. •Survey participation was slightly skewed toward the larger state nurseries. Smaller, coastal nurseries were not as likely to participate, therefore the resulting data is likely missing a minor level of coastal influence. Allied Grape Growers, 2012. All rights reserved.
  • 44. 2012 California Nursery SurveyBreakdown of Vines Sold by California Nurseries - 2011 Red Winegrapes White Winegrapes 45% 55% Allied Grape Growers, 2012. All rights reserved.
  • 45. 2012 California Nursery Survey Breakdown of Wine Varieties Sold by California Nurseries, 2011Other Reds Include: Cabernet Chardonnay,Grenache Sauvignon, 11.5%Petite Verdot 13.2% Pinot Grigio,Cab Franc 2.4%Syrah SauvignonBarbera Other Red, Blanc, 1.1%Ruby Cab 9.2% Petite Sirah, 2.8% Muscat of Malbec, 3.1% Alexander, 22.1% Rubired, 1.5% Zinfandel, 2.4% Pinot Noir, Muscat 9.5% Canelli, 2.8% Merlot, 3.6% French Other Whites Include: Other White, Colombard, Various Florals 4.8% 9.9% Viognier Allied Grape Growers, 2012. All rights reserved. Chenin Blanc
  • 46. 2012 California Nursery Survey Categorical Allocation of VinesSold by California Nurseries, 2011 High Mid Value Note the amount of green on this chart vs. burgundy or gray. Allied Grape Growers, 2012. All rights reserved.
  • 47. California Acreage Trends Estimated Coastal & Interior Bearing Acreage, 2000-2015 Acres600,000500,000400,000 48% 39% 50%300,000200,000 61% 50% 52%100,000 - Interior Coastal Allied Grape Growers, 2012. All rights reserved.
  • 48. Conclusion:Planting has been moderate,targeted (via contracts) and concentrated in the SJV.Contracts will continue to be offered. There is norecommendation to plant on speculation. Allied Grape Growers, 2012. All rights reserved.
  • 49. Take Home Message Like most ag crops in the San Joaquin Valley, winegrapes look promising for the immediate future. Our industry will continue to face the everyday pressures of global competition,economic uncertainty, regulation and taxation, fluctuating crop sizes (Mother Nature) and indecisive and fickle consumers. But theunderlying factors that create a stable market look to be in our favor, at least for the foreseeable future. Here’s to a great 2013! Allied Grape Growers, 2012. All rights reserved.
  • 50. View this on-line at:alliedgrapegrowers.org Allied Grape Growers, 2012. All rights reserved.