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San Joaquin Valley grape markets brighten

Industry analysts say prospects for California’s San Joaquin Valley wine grapes and raisins are decidedly brighter after the 2004 harvest, although the grape juice concentrate business is struggling with a shifting market.

Spokesmen for each segment detailed outlooks in Fresno during a recent symposium jointly sponsored by the Central California Winegrowers, the California Association of WineGrape Growers, and the Wine Industry Symposium Group.

Nat DiBuduo, president of Allied Grape Growers, said grower returns for grapes used in wine and grape juice concentrate are much improved over gains made in 2003.

Since 2002 when prices bottomed out, wine inventories were sold off and acreage was removed as the industry began to right itself. "We have a lot of good things to talk about," DiBuduo told the assembly of growers, vintners, lenders, and services providers. However, he was quick to add that quality will be an essential need and issues remain for both supply and demand.

Thompson Seedless prices at $200 per ton in 2004, versus as little as $65 for Thompsons, and many wine varieties, in 2002, brought smiles among growers and soothed their tensions with vintners.

DiBuduo said Thompson Seedless, the touchstone for generic wine grape prices, remains as a key player in the California industry as does the San Joaquin Valley itself.

Percentage received

The region of southern San Joaquin County to Kern County is typically the source of about 42 percent of the state crush and, when tonnage for concentrate is added, 57 percent of the total crush. The perennial problem for SJV growers has been they receive only about 17 percent of the dollar value of the state crush.

Estimates for the 2004 California 5.5-million-ton crop are: wine types at 2.7 million tons, down 7 percent from 2003, raisin types at 2.05 million tons, down 5 percent, and table grape varieties at 750,000 tons, up 2 percent.

DiBuduo credited SJV growers, first, with stopping new plantings in 1997, a couple of seasons earlier than their counterparts elsewhere in the state, and, second, with starting to remove acreage. Both steps have moderated supply.

"As a result," he added, "even though new acreage came into production during 2002 to 2004, statewide harvested tonnage was down." He predicted that SJV bearing acreage could be about 33 percent of the state total by 2006.

On the basis of county burning permits issued, 40,000 acres of Thompson and about 45,000 acres of wine varieties have been removed so far, mostly from Madera County southward. Some observers say the total could reach 100,000 acres by the end of 2004.

More removals are likely among "challenged" vineyards that produce poorly and have remained only because growers could not afford to pull them.

What will be replanted on that ground remains to be seen. "It can’t all go to almonds," DiBuduo said. If grapes are planted, he urged, they should have contracts and thorough analysis of prospects for varieties selected.

Imports pressure

Mounting imports continue to pressure the valley’s wine grape growers, and DiBuduo reminded that one in four bottles of wine sold in the U.S. is imported.

And the "hang time" requirement, wineries specifying later harvest at greater maturity for "higher complexity of flavors," will be an issue for growers.

In changing from harvesting at 21 to 24 Brix to harvesting at 25 to 28 Brix, there is a loss in tonnage, he explained. "We don’t know exactly what it is - somewhere between 5 and 25 percent - and we don’t know what the cumulative effect will be."

Demand has picked up on several fronts, he said. "Super-value" wines at $2 a bottle absorbed brimming inventories but also encouraged "good-value" wines at somewhat higher prices. Growers will have to be conscious of quality in producing grapes for wines in the $7 and less category that faces global competition.

California wine shipments were up 5 percent over 2003, and 18 percent of the state’s production is currently exported. Although winery consolidation has shrunk the number of buyers, DiBuduo said it has not reduced demand.

Glen Goto, chief executive office of the Raisin Bargaining Association, said the raisin industry is also optimistic as it recovers from the disappointments of the past several years.

Shipments from August through November, the first four months of the industry’s fiscal year, were 225,000 tons, much of it contracted, and sales are stronger than a year prior.

Acres for raisins

Acreage for raisin types, mainly Thompsons, is declining, totaling 244,000 in 2004 and 255,000 in 2003, and Goto said some of the replanting is indeed almonds.

Noting that raisin shipments are typically 60 to 65 percent domestic and 35 to 40 percent export, he said the 2004 crop, for the first time in several years, was less than the amount shipped, the difference being made up by reserve supplies. Without reserves, the 2005 crop will need to fill market demand.

Indicative of leaner supply, the 2004 field price, reached through a two-year contract between the RBA and processors, is $1,210 per ton on 100 percent of delivered crop. In contrast, the 2003 field price was $810, with 70 percent free tonnage and 30 percent reserve, for an immediate grower return of $570.

The 2005 season, Goto said, will see raisin growers converting more vineyards to mechanical harvesting and cutting other costs. For that second year of the two-year contract with processors, the price will be based on crop availability, which he termed a more responsible way of determining pricing.

Traces concentrate

Greg MaGill, broker with Joseph W. Ciatti & Co., San Rafael, traced the grape juice concentrate (GJC) segment, burdened in recent years by high processing costs, high inventories, and poor returns.

Although growers may have thought concentrate processors were "cutting a fat hog" with purchases of grapes at depressed prices, he said the number of major processors dwindled from six to three as of last year.

"We all learned that we can’t recover our losses by selling more volume; it’s just a quicker way to go out of business."

GJC has become a global commodity available cheaply from South America, but MaGill said his main concern is China’s emerging production. "They are actively planting wine grapes and we know it is only a matter of time until they enter the grape concentrate market."

The Chinese, he said, desire global domination with their apple juice concentrate and imports of it to the U.S. increased 90 percent this year and 96 percent last year, so that the U.S. now receives 45 percent of the Chinese output.

As a result, the California GJC industry faces what MaGill called a "paradigm shift." A two-tiered juice concentrate market has appeared: premium juice users who demand top quality and "belly floaters," or those who will accept product with off-flavors and poor shelf-life, provided the price is low.

Target market

"We need to target our market with the premium users because GJC has a more neutral flavor profile and better stability than other juice concentrates. We can get our product to market with better quality, although not as cheaply."

He said California suppliers should capitalize on their traceability of product from field through processing to consumers. "We need to become a value-added product because we are the only state with the traceability major users need to handle their product safety and liability issues. We don’t have the paperwork of imports at ports of entry, and our quality is guaranteed."

The California GJC industry, he said, needs to move from a commodity filler to a premium, 100 percent pure juice product. Manufacturers, processors, and growers all need to work together, with contracts between all three, to ensure top quality.

Growers, he suggested, need to raise yields by adopting new practices, such as improved trellising, fertilizer and other inputs, on existing land, rather than trying to produce more with more acreage. He said he would also like to see lenders support replanting with higher yielding varieties.

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