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Wine market appears more balanced, analysts say

Issue Date: June 9, 2021
By Dennis Pollock

The market for California winegrapes appears to be right-sizing, after a 2019 season that saw tons of grapes left unharvested, followed in 2020 by a smaller crop and the COVID-19 pandemic.

But analysts say the wine market faces threats from inroads by the spirits industry. It has seen prices rise in wine bottles priced more than $11 as COVID-19 held sway, but the hold on those rising prices appears to be slipping—and the wine business needs to take a good look at increased purchases of ready-to-drink alcoholic beverages, from beer to spirits to wine in cans.

Those were among observations shared by three top wine business analysts at two separate virtual forums.

Glenn Proctor, a global wine and grape broker with the Ciatti Co., spoke as part of a weekly viticulture-enology seminar series from Fresno State University.

Danny Brager, a beverage industry consultant, and Jeff Bitter, president of Allied Grape Growers in Fresno, spoke as part of a series presented by the San Joaquin Valley Winegrowers Association.

Proctor is an owner of Puccioni Ranch in Healdsburg and also chairs the Sonoma County Winegrape Commission.

He cited a 2018 crop of 4.3 million tons of winegrapes, California's largest on record, and the fact that in 2019 more than 150,000 tons of grapes went unpicked. In 2020, there was a limited crop of 3.4 million tons, leading to lower inventories in 2021.

During 2020, off-premises sales saw a big bump, Proctor said, and on-premises sales encountered challenges. During the year, there were sharp declines in production of many varieties and in grape prices, as well as impacts of smoke damage in some regions. Across the board, prices were down 18%.

Since August, the bulk market has seen dramatic activity, he said, with a spike in demand and a shift from oversupply to a more balanced position.

Proctor said grape prices continue to increase in the Central Valley. On the Central Coast, prices have stabilized, but have not kept increasing.

"We cannot afford to repeat 2020 on how we dealt with smoke," he said. "Nobody came out of 2020 without bruises."

It took six to eight weeks to get back data on the extent of possible damage so that informed decisions about the grapes could be made, he said, adding that wineries, growers and laboratories need to work closer together to deal with smoke issues, data gathering and substantiation.

This year, Proctor said, "Pricing in some areas may be below where growers would like it, but an improvement from last year. Buyers need supply to reload from 2020."

Proctor said removals of older vineyards need to continue: "Efficiency is the biggest advantage."

During the second webinar, Brager said "trading up" on price points accelerated during the pandemic, led by growth in the $11-plus price tiers, though most wine still sold at less than $11 a bottle. He said premiumization will continue, but "not at a torrid pace; it may slow as COVID-related impacts lessen. We need to not price our category out of reach of those upon whom we must rely for future growth."

Brager said some people who were "new to wine online" became purchasers during the pandemic. He expects online wine buying to remain ahead of pre-pandemic levels.

Ready-to-drink alcohol, or RTDs, is "not a fad; wine must participate," he said.

Bitter said bunch counts this year indicate neither a small nor a large crop. He said disease pressures have been low, but there is lots of concern about water-starved areas and the potential impact on crop size.

Low yields in 2020, along with wildfires, led to the crush being down 600,000 tons, which Bitter said had a "balancing effect in all regions."

He said 237,000 acres of winegrapes were planted in California the past 11 years.

"We've overplanted by about 20% during this period," he said.

Bitter said he believes acreage will remain flat the next couple years, but said, "We are still capable of producing over 4 million tons annually."

"The short 2020 crush corrected our oversupply, but if we don't experience wine shipment growth coming out of the pandemic and/or we don't reduce our bearing acreage base further beyond 2021, it's not a matter of 'if' we become oversupplied again, it's just a matter of 'when,'" he said.

But Bitter said he is "not throwing cold water on the market," and cited positive signs: brisk grape market activity in the interior regions and "improved" activity in coastal regions; outside of another smoke event or a bumper crop, it's unlikely any substantial amount of 2021 grapes will go unharvested or unsold; and planting contracts are returning.

In addition, he said, grape buyers are active to avoid being short on supply; prices have been stabilizing at levels that cover cost of production but don't necessarily provide a return on investment; and the Gallo-Constellation deal closed in January, providing additional stability to the market.

(Dennis Pollock is a reporter in Fresno. He may be contacted at agcompollock@yahoo.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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