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Huge '05 wine grape outturn anomaly or crop prophesy?

The 2005 California wine grape season has not yet earned the always-awarded “vintage” designation, but it has earned the moniker “anomaly” from Nat DiBuduo, president, Allied Grape Growers, the largest grape marketing cooperative in the state.

DiBuduo estimated for a packed audience at the state of the industry session at the recent Unified Wine and Grape Symposium in Sacramento that when final totals are in, ‘05 will likely go down as the biggest California grape crush on record — 3.4 million tons.

It was also an enigma because it was also one of the worst powdery mildew years in recent memory due to a prolonged, wet cold spring yet the crush was huge. That unseasonably mild spring weather extended into summer and the crop got bigger and bigger and bigger, and winery buyers disappeared faster than a ground squirrel crossing Interstate 5.

One expert called ‘05 a once every 10 years occurrence. However, 2001 through 2002 were also 3 million ton crop years. The vines produced an estimated average of 7.2 tons per acre last season. In 1997 the average was 7.8 tons per acre and 2000 was a 7.2-ton average.

Plus, many of the 434,000 acres of bearing wine grape vines in the ground are newer and likely more closely spaced than old vineyards. Many are on improved rootstock and clones and trellised in the latest technology.

There are few non-bearing acres in the state and DiBuduo warns that “nearly all bearing acres going forward will be at full production potential.”

Add it all up and it means that the ‘05 record could be broken soon without adding many more acres.

‘Take cover’

DiBuduo said, however, it was unlikely 2006 will see another huge crop. His advice if there is a repeat performance, “Take cover.”

Last season was to be a turnaround year where growers were told to expect better prices than the past three years or so. After all 100,000 acres of San Joaquin Valley vines had been piled and burned over the past five years during one of the most severe economic downturns in grape pricing in years.

It turned into an upside down year when over contract grapes which would normally go to the winery were left hanging; custom crushed or sold at fire sale prices. And, concentrate prices deflated at harvesttime like a balloon in a herd of porcupines with only 500,000 tons crushed for concentrate, the lowest total in five seasons.

However, there was not much hand wringing at Unified over the huge 2005 big crop. Everyone tried to put on a happy face, saying the oversupply of wine would give consumer good value at low prices and hopefully increase consumption. However, that did not go very far to erase red ink from 2005.

Most everyone else along with DiBuduo does not expect a huge crop repeat in '06. However, no one was venturing any price guesses for the coming season, either. Tanks are bulging and bulk wine from the '05 crush is hanging over the market like a dark cloud and will until excess juice is drawn down. Fortunately, there is not much bulk '04 around.

DiBuduo and the rank and file wine grape growers in the central San Joaquin Valley hope '05 was a true tonnage anomaly. About 53 percent of California's wine grape acreage is planted in the central valley from Lodi south producing at least 60 percent of the state's annual crush.

That percentage is dropping with the pullout of vines. Ten years ago 62 percent of the acreage was in the valley and only 38 percent was in the coastal regions. Now there is 47 percent in the coastal regions.

Vines for nuts

The wine and raisin grape deals have been so bad for so long in the central valley, old vines were replaced with almonds and pistachios and other more profitable crops rather than grapes.

This 2005 anomaly/enigma crop hit as wine sales in the U.S. continue to grow. They were up 5 percent overall last year, according to Jon Fredrikson of Gomberg, Fredrikson and Associates, one of the world's most respected wine marketing experts.

California sales were up 4 percent, but imports continue to outpace California in growth percentage, up 11 percent. By comparison, California shipped an estimated 187 million cases. Imports totaled 81.5 million cases. Other states marketed 31 million cases in the U.S.

“Things have never been better in this (U.S.) market and the future looks outstanding,” said Fredrikson.

Although final sales numbers have yet to be compiled, Fredrikson says sales in the U.S. likely hit a new milestone in '05, 300 million cases. Retail sales likely topped $25 billion in America last year.

“This is an enormous recovery from where we were 15 or 20 years ago,” he said.

Since the famous French Paradox broadcast in 1991, sales have gone up 175 percent. Wine sales have gone up 59 million cases since 2001, an increase of 25 percent in just four years.

Wine sales climb

“Wine is now getting traction in the U.S. It is entering the mainstream of American life,” he said.

With wine consumption falling slowly in France and Italy and consumption soaring in the U.S., the U.S. is moving toward becoming the largest wine-consuming nation in the world by 2010.

For the 1,400 wineries in California that is good news.

The prospect of continued strong U.S. wine sales growth had Barbara Insel, managing director of MKF Research, flashing bar graphs that looked like crocodile jaws, gapping open showing “implied grape demand” into 2010 far apart from estimated grapes supplies.

“Slow growth planting in 2001-2004 means that even a small growth in wine sales leads to a shortage of grapes and planted vineyards,” she pointed out.

Those bar charts brought anguish flashbacks to DiBuduo and others of the infamous Bank of America wine grape demand report in the 1970s that created a vineyard planting boom and subsequent flood of surplus wine that was devastating and took years to recover from.

DiBuduo acknowledged wineries are offering planting contract, but nothing big or widespread.

Don't plant without a contract, is the recurring advice from DiBuduo and other veterans of the California wine grape business.

Winery prices are now too low compared to development and production costs.

There will be opportunities for growers and wineries to make money with future wine sales, but they must be market driven opportunities and not speculation, said DiBuduo.

And while checking out opportunities, wineries and growers must also look offshore because the U.S. has other wine producing nations licking their chops for a piece of the action here and many have plenty of wine to send to the U.S., according to Glenn Proctor of Joseph W. Ciatti Co., one of the world's most prominent bulk wine brokers.

Italy, France, Spain, Australia, Chile, Argentina and South Africa now have more wine than their markets will absorb. It's for sale cheap.

For example, U.S. Cabernet Sauvignon is selling for $3-$4 per gallon. In Europe it is going for $2-$3 and in Chile only $1.55 to $2 per gallon.

Global business

The wine business is globalized today, said Proctor. It wasn't 10 years ago. The U.S. is the most attractive market in the world. “All producers are focused here,” said Proctor.

The U.S. can compete with imports, but it must be with price and quality, he added. “Commodity-based (wine) supply in California is at risk of being outsourced,” he added. This means SJV wine grapes.

Australia has been one of the biggest import players in the U.S., increasing its shipments into the U.S. by 342 percent from 1999 to 2004.

Australia may have bitten off more than it can chew sooner than expected. Its '05 crush was 2.1 million tons, up 6 percent from '04. About 45,000 tons were left on the vines or dropped due to declining prices and lack of available cooperage.

Proctor said Australia finds itself in the same place California was four years ago, but growers are reluctant to pull vines and are looking to the government for help.

Proctor said Australia has already exceeded expansion projections for 2025.

The '06 crush could be a repeat of '05 with an estimated 250,000 tons left on the vines because wineries will be reluctant to purchase more grapes. The problem in Australia most likely will continue for three to four years as inventories build.

And then there is China, the biggest unanswered question in the agricultural world. Like so many American commodities, the question is the same for the wine grape world: Will China be a consumer or a producer?

European and Australian vintners are already in China, according to Proctor, teaching them how to produce wine grapes on 600,000 acres.

A study soon to be released by the University of California Davis will project 1.2 million acres of wine grapes will be producing in China in just two to three years.

China flooded the world with cheap, but high quality apple juice and it looks like the same thing could happen with wine.

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