October 14, 2009

2 Min Read

Despite 37 years experience growing and selling his own wine grapes and managing vineyards, Richard Smith, Valley Farm Management, Soledad, Calif., is having difficulty understanding why California growers have an excess of grapes this fall.

As he sees it, the economic collapse of last fall doesn’t fully account for the soft grape sales.

“There are many aspects of this year’s market that are difficult to explain,” he says. “Supply and demand were considered more or less in balance during last year’s harvest — which would indicate that the market should be strong this year. Instead, things are mixed.”

Supply hasn’t increased this year, Smith says, noting that there have been no significant new plantings in California for the past seven or eight years.

Except for higher-than-average Chardonnay production this year, yields of white grapes on the Central Coast have been in the normal range. It’s the same for reds. “And, I haven’t heard of anyone with any quality issues,” he says.

Retail sales of lower-priced wines are up 6 percent, Smith says. The weakness is in sales of $20 to $80-bottle wines.

“Wines in that range probably represent no more than 20 percent of the market,” he says. “Even if that market is off as much as 25 percent, it still doesn’t represent that much of the state’s supply of grapes.”

While imports of bottled and bulk wine this year are up substantially over last year, they had been reduced significantly in 2008 over 2007.

“If you compare 2009 imports to 2007, then they are up only 7 percent,” Smith says. “These imports are filling the demand for the less expensive wines.”

In the meantime, long-term contracts have remained stable. “Everyone is delivering to their contracts every grape that is available,” Smith says. “That probably indicates that the backbone of the California industry is strong.”

But, that’s not the situation with spot market sales, which represent less than 20 percent of Central Coast production.

“Growers are having mixed success with spot market sales this year. I’ve heard of several sales which were discounted 40 percent off average prices, and one that was discounted by 75 percent.”

Wineries in his area, which normally do a significant amount of custom-crush business, have some space available this fall, Smith says. “That’s very unusual. In a year of over-supply, like this one, those winemaking capacities are usually booked by midsummer. This year they haven’t been booked by mid-October, and that’s a surprise to me.”

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