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Grape concentrate price already $50 per ton higher than last season

Forget a year.

What a difference just six months has made in the price grape growers in California's San Joaquin Valley are now being offered compared to spot prices paid at harvest last year.

Some SVJ varietal winery prices have doubled in six months.

Specifically, Merlot and Cabernet Sauvignon 2008 crop prices are double the $150 paid last season at harvest, and it is still six months until the 2008 harvest begins.

Thompson seedless growers can expect to get at least $50 per ton more than the $150 green spot market price offered last fall. For a 10-ton Thompson crop this represents at least an additional $500 per acre.

These inflating prices are not because there is fear the crop will be short. Admittedly, it is a long time until harvest; however, early Thompson seedless grape bunch counts are foretelling at least an average 2008 crop. The Fresno-based Raisin Bargaining Association reports bunch counts are 15 percent higher than last year, which was an average crop.

Thompson seedless grapes were the focus of a meeting recently in Selma, Calif., on the subject of juice concentrate, a commodity used as filler in soft drinks and fruit juices.

Grapes crushed for concentrate represent a relatively small part of California's overall crush. Last year approximately 14 percent of the crop or a little more than 516,000 tons were crushed for concentrate. This included both white (mostly Thompsons), and reds (mostly Rubired). In the late 1990s and into 2000, as much as 750,000 tons were bought for concentrate.

Thompson seedless grapes are the most versatile in the state. They can be dried into raisins; crushed for concentrate and wine, and are a major table grape variety.

However, Thompsons represent the low end of the California grape spectrum because as a crushed product, it is a filler grape for wine or concentrate. It is a neutral tasting grape whether crushed for wine or concentrate.

Greg MaGill from Ciatti Company, a worldwide wine and concentrate broker, told growers and processors at an industry meeting recently in Selma, Calif., that unlike varietal grapes for wine, Thompson grape concentrate is a “price sensitive” commodity. Processors scour the world for the cheapest form of concentrate they can find. They don't like to, but will even buy apples and pears for concentrate if cheap enough. They prefer Thompson grapes because of their “neutral flavor.”

However, MaGill said major juice processors for the first time in many years are more worried about supply than price.

MaGill said a reduced world concentrate supply has major juice processors “scared and I have not seen them scared before.” In the past, if concentrate users could not buy cheap enough in California, they'd go offshore, primarily to Argentina. This price sensitivity has succeeded, along with low-balling wineries, in forcing growers to take out thousands of acres of Thompsons over the past decade, and plant more economically attractive permanent crops like almonds, pistachios, pomegranates, and walnuts.

This year, Argentina has a short crop, and prices there are not significantly lower than California prices today.

“The only thing that is worse than a price too high, is no product for the (retail) shelf,” MaGill noted, adding he believes California Thompson growers finally have the “attention” of major juice buyers and the impact of a long history of paying prices below the cost of production.

Thompson acreage in California has decreased by 20 percent since 2000 due to low prices. Two major California concentrate buyers are out of business. Sales of raisins made from Thompson seedless grapes are up 11 percent so far this year. The concentrate grape crop in Argentina is off 15 percent to 20 percent and worldwide demand for juice products is unprecedented.

Add it all up and processors are looking at paying at least $200 per ton for concentrate. A price of $225 per ton is readily justifiable, since that is the green equivalent of the $1,310 per ton price the Raisins Bargaining Association has negotiated with the state's raisin packers who want to make sure they can compete with wineries for the Thompson crop to generate about 300,000 tons of raisins annually. The $1,310 per ton price is the base for a three-year contract with packers that will go up from there.

Allied Grape Growers Vice President Jeff Bitter acknowledged at the Selma concentrate meeting sponsored by Allied, California Association of Winegrape Growers and Central California Winegrowers, the $225 is justifiable based on the raisin price.

There was little doubt that the Thompson growers are finally in charge of their economic destiny. The shoe is clearly on the other foot from about five years ago, when processors paid just $70 per ton for concentrate grapes.

However, it has been an arduous climb to the driver's seat. Thousands of acres of Thompson grapevines have been piled and burned and hundreds of growers have walked away from grape growing.

There were pleas to growers in Selma for market “sustainability” to ensure a future for the concentrate segment of the California grape market. There were pleas to halt vineyard pullouts.

MaGill said processors “cannot afford” Thompson prices much above $200 per ton.

However, there was no talk of market sustainability when growers were getting only $70 per ton for grapes for concentrate and it did not seem to be a sympathetic grower audience in Selma in 2008. Even with strong raisin prices for the next three years and a major turnaround in green Thompson prices this season, Bitter acknowledged that Thompson seedless acreage in the Central Valley has not bottomed out. “Thompson acreage will fall below 2007 after this year,” Bitter said.

There are only about 6,000 acres of non-bearing Thompsons in the San Joaquin Valley. Although many of those new vineyards are in higher producing Dried on the Vine (DOV) production systems, the pullouts will mean even fewer Thompsons for concentrate in 2008 and likely beyond, said Bitter.

“We are losing more Thompsons than new vineyards can replace,” said Bitter.

Demand for juice products is growing worldwide and that is compounding the shortage of concentrate grapes.

Russia has become a major buyer of grape concentrate, according to MaGill.

Russia, like many oil-producing nations of the world, is cash rich with oil profits and is spending a portion of the surplus on juice products for its consumers.

“Russians continues to be enthralled with anything Western. There is unbelievable demand for grape juice products in Russia right now,” said MaGill.

The same is true in India and China, two nations with exploding middle class populations. The weak dollar is spawning higher demand in Europe.

Argentina has replaced the U.S. in the world as the No. 1 source of grape concentrate. The U.S. shipped just 12 million gallons of concentrate last year, compared to 30 million gallons in 2000. Last year Argentina shipped almost 40 million gallons to world buyers. Despite a projected crop reduction of 12 percent to 15 percent, MaGill says Argentina is still expected to ship 36 to 38 million gallons of concentrate this year. The total supply of grape concentrate is not likely to be enough to meet world demand.

Bitter said historically a raisin price equivalent to an additional $60 per green ton makes raisins more economically attractive than harvesting for wine or concentrate. However, this was based on a hand-harvested raisin crop.

With as much as 50 percent of the California raisin crop mechanically harvested, that “true difference” between selling green and making raisins has shrunk by at least half, according to Bitter.

Plus, with mechanical harvesters and continuous tray drying in traditional vineyards, growers can easily make late season decisions whether they make raisins or sell green.

The final crop size will have a “huge impact” on the green price and whether growers make raisins or sell green. Bitter admitted this season's high bunch counts are close to what they were early last season, but the 2007 crop came in only about 5 percent above average.

You can bet there will be no grower ground swell to lower prices for the “sustainability” of the concentrate market. Memories are not that short. Juice products in health conscious societies in the U.S. and overseas are hot products, and juice processors are looking to pay some of the highest prices in history to meet that demand.

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