Jeff Bitter 2012

Allied Grape Growers, 2012. All rights reserved.

Winegrape Market Review

SJVWA Winegrape Industry

Forum

Jeff BitterAllied Grape GrowersNovember 29, 2012


Presentation Outline -Answering the Questions

• Part 1: Production & Supply• Exactly how big was this crop?• Are we still short of grapes/wine?• Where does California fit into the world picture?

• Part 2: Imports• What drives their presence, and are they here to stay?• How do we compete or position ourselves considering

imports?• Part 3: The Market• What were this year’s prices paid?• What are the factors that determine if today’s prices are

here to stay?• Part 4: Planting Trends• What are my neighbors doing?!• Should I plant grapes?


Part 1:

Production & Supply


Production AnalysisCentral Valley Yields, 2012

Raisin (Thompson/Fiesta) 8.4 8.9 10.9 8.0 -27% 9.1 -12%Generic Whites (French & Chenin) 10.6 12.2 10.2 11.5 13% 11.1 3%Chardonnay 8.2 8.9 7.1 7.8 10% 8.0 -3%Florals (Muscat, Symphony, etc) 14.3 14.7 12.7 13.2 4% 13.7 -4%Pinot Grigio N/A N/A 9.0 8.5 -6% 8.8 -3%Grenache 11.3 10.6 10.9 9.8 -10% 10.6 -8%Rubired 11.9 13.6 14.4 10.9 -24% 12.7 -14%Barbera/Carignane 9.5 10.3 8.4 9.8 17% 9.5 3%Cabernet Sauvignon 10.7 9.4 8.2 8.7 6% 9.3 -6%Merlot 9.8 9.3 9.2 8.6 -7% 9.2 -7%Ruby Cabernet 11.8 11.5 11.9 9.8 -18% 11.3 -13%White Zinfandel 12.7 11.8 11.2 12.6 13% 12.1 4%Syrah 10.2 10.5 9.3 10.0 8% 10.0 0%

Comparison of Allied Grape Growers' Central Valley Yields (Districts 12-14)

Variety/Category 2009 2010 20122011-2012 % Change

Four-Year Avg Yield

2012 to Avg % Difference2011


Production AnalysisCentral Valley Yields, 2012

Raisin (Thompson/Fiesta) 8.4 8.9 10.9 8.0 -27% 9.1 -12%Generic Whites (French & Chenin) 10.6 12.2 10.2 11.5 13% 11.1 3%Chardonnay 8.2 8.9 7.1 7.8 10% 8.0 -3%Florals (Muscat, Symphony, etc) 14.3 14.7 12.7 13.2 4% 13.7 -4%Pinot Grigio N/A N/A 9.0 8.5 -6% 8.8 -3%Grenache 11.3 10.6 10.9 9.8 -10% 10.6 -8%Rubired 11.9 13.6 14.4 10.9 -24% 12.7 -14%Barbera/Carignane 9.5 10.3 8.4 9.8 17% 9.5 3%Cabernet Sauvignon 10.7 9.4 8.2 8.7 6% 9.3 -6%Merlot 9.8 9.3 9.2 8.6 -7% 9.2 -7%Ruby Cabernet 11.8 11.5 11.9 9.8 -18% 11.3 -13%White Zinfandel 12.7 11.8 11.2 12.6 13% 12.1 4%Syrah 10.2 10.5 9.3 10.0 8% 10.0 0%

Comparison of Allied Grape Growers' Central Valley Yields (Districts 12-14)

Variety/Category 2009 2010 20122011-2012 % Change

Four-Year Avg Yield

2012 to Avg % Difference2011


Region 2009 2010 2011 3-Year Average Est. 2012North Coast 465,938 443,360 393,416 434,238 475,000 Central Coast 508,709 537,202 387,265 477,725 550,000 Lodi/Clarksburg 906,949 705,066 682,431 764,815 950,000 Central Interior 1,738,182 1,831,629 1,803,648 1,791,153 1,825,000 Other 83,253 71,321 75,929 76,834 85,000 Total 3,703,031 3,588,578 3,342,689 3,544,766 3,885,000

Production AnalysisA regional look at production

Stated in tons crushed


California Production

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2005 2006 2007 2008 2009 2010 2011 2012Est.

3.76

3.14 3.253.06

3.703.58

3.34

3.89

4.33

3.673.49

3.67

Tons(in Millions)

Statewide Grape Crush 2005-2011 with 2012 Estimate

Other Crush Winegrape Crush

4.093.98 3.87

4.25


Conclusion:

While the California winegrape crop, as a

whole, is estimated to be 10% above average, the Central Valley winegrape

crop was close to average.


World Wine Supply

Headlines….


• 2012 supplies from major producers:• Down in size/inventory:• Argentina•Western Europe (France, Italy, Spain, etc.)• New Zealand

• Stable in size/inventory:• Australia

• Up in size/inventory:• California• South Africa• Chile

World Wine Supply


• California represents only about 10% of the world’s wine supply…..• Our estimated increase in production of about 500,000 tons is offset at least three-fold by the estimated decrease in production from Europe.• Following the “short” 2011 crop, almost 600,000 tons worth of bulk wine has been imported by California wineries and bottlers.• The United States is the single largest wine market in the world. Everyone is trying to increase shipments to the U.S.

World Wine Supply -Putting it in Perspective


Conclusion:

No need to panic over the larger 2012 California crop. Current global demand and supply

dynamics translate into opportunity for California.


Production vs. Shipments

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 Est.

2013 Est.

2014 Est.

California Grapes Crushed for Wine vs. California Wine Shipments2005-2011, with projections and estimates thru 2014

Grapes Crushed for Wine Wine ShipmentsWine Shipment Data Source:The Gomberg Fredrikson Report

MIllionsof Tons

Updated March 2012

Grapes crushed for wine, NOT winegrapes crushed.

Average difference = 212,000 tons


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 Est.

2013 Est.

2014 Est.



MIllionsof Tons

Updated March 2012



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 Est.

2013 Est.

2014 Est.



MIllionsof Tons

Updated March 2012


Shipment Trend LineBased on Seven Years


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 Est.

2013 Est.

2014 Est.



Need3.69

MIllionsof Tons

Need3.76

Need3.83

Updated March 2012



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 Est.

2013 Est.

2014 Est.



Need3.69

MIllionsof Tons

Need3.76

Need3.83

Updated March 2012


Taking the estimated 3.89 million ton winegrape crush and taking off approximately 200,000 tons for other uses, we end up at 3.69


Conclusion:

California grape/wine supply is likely in

balance with demand following the relatively

large 2012 crop.


Part 2:

Imports


Wine Shipments (thru September)

• Cal. wine shipments are slightly down from last year (-1%)• The big three are up 3.5% collectively (includes

imports)• Mid and small wineries show mixed results, some

suffering from lingering effects of the recession and some struggling with inventory shortages.

• Imports/Exports• All imports are up 23% (exclusively due to bulk

imports)• Packaged is down 2%, bulk is up 129%!• Bulk imports represent 37% of all imports

• All exports down 4% (exclusively due to bulk exports)• Packaged up 7%, bulk down 13%• Bulk exports represent about half of all exports

Data Source: Gomberg Fredrikson Report


Imports into the U.S.Graph Source: Gomberg Fredrikson Report


Exchange Rates

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2.50

3.00

3.50

4.00

4.50

5.00

0

100

200

300

400

500

600

700

800

900

1000

Exchange Rates (Value to $1 U.S.), July 2008 - November 2012

Chilean Peso Australian Dollar Euro Argentine Peso

ChileanPeso

Aus $Arg Peso

Euro


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 Est.

2013 Est.

2014 Est.



Need3.69

MIllionsof Tons

Need3.76

Need3.83

Updated March 2012



Excerpt from theGomberg Fredrikson Q3 Industry Review

“It appears likely that big producers will continue to outsource a portion of their bulk wine supply needs in the future in order to maintain adequate supplies at desired price points, especially for economy wines, and to supplement short supplies of hot new varietals.”

Imports


Conclusion:Imports are here to stay, regardless of exchange

rates. They provide domestic vintners with

supply alternatives during times of grape shortage

and/or grape price increases.


Part 3:

The Market


D-TATSDisease


Desire to-

Talk

About

Thompson

Seedless


The Importance of Thompson Seedless

• Presents grape supply into the “system”• Blend extension (quantity)• Price moderation (cost)• Assists California vintners in competing at the lowest end of the market

• Provides stock for alternative winery products• Brandy• High Proof Alcohol• Concentrate (both for market and internal use)


• White concentrate:• Short market for all whites• Cal. grape about $13+/gallon,

but no inventory despite crush• Apple and foreign grape

concentrate are non-issues• Strippings (or lack thereof)

playing an important role

• Red concentrate:• Stable demand & balanced

market• Pricing at about $12+/gallon• Other countries not expanding

supply – yields are lighter• California-dominated market

Concentrate Market


Concentrate Market

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2008 2009 2010 2011 2012 Est.

Estimated Breakdown - Grapes Used for Concentrate, 2008-2012

Raisin Varieties Winegrapes Table Varieties Dark Reds (Rubired, etc.)

TONS

747,925

499,323535,794

598,365

495,000


The Market for ThompsonsA “perfect storm” for price in 2012

• Low yields recognized by most in the industry early on.• A robust raisin market• Generally decreasing acreage/supply• Concentrate inventories at all time lows with

pricing at all time highs.• Non-availability of strippings from the table

grape sector• World supplies of generic/low-end wines as well

as grape alcohol tighter than in past for numerous reasons including EU pull-out programs and elimination of subsidies.


Conclusion:

The Thompson Seedless market should remain strong. However, it is easily influenced by a

number of factors, some of which have the propensity

to change quickly.


SJV Winegrape PricingSJV Pricing - 2012 Contract "Market" Spot Market(Districts 12-14) (as low as)* (as high as)Chardonnay 450$ 700$ French Colom/Chenin 325$ 400$ Muscat/Florals 375$ 600$ Pinot Grigio 435$ 600$ Barbera/Carignane 350$ 500$ Cabernet Sauvignon 475$ 800$ Grenache 325$ 400$ Merlot 450$ 700$ Rubired 300$ 400$ Ruby Cabernet 350$ 500$ Syrah 375$ 550$ Zinfandel (White) 350$ 400$ *Base prices, trucking provided by winery in many cases.


What’s really driving the increased prices of this year and last year?

The Winegrape Market

Five major factors driving price now, and in the future




•#5: The relatively weak dollar• Thwarts imports and encourages exports

• Thought or tip:• Despite the current import/export trends, which are contrary to

those associated with a weak dollar, think about how magnified it would be if the dollar had been strong the last three years.

• Outlook:• Most economists don’t anticipate immediate or sudden changes

to the value of American dollar. Of course, no one anticipated 9/11 either.



•#4: Competition from alternative crops• Almonds primarily, but all ag crops in general

• Thought or tip:• All ag is doing good right now, in part because of our global

price competitiveness (weak dollar). Cheap money (low interest rates) and lower cost of inputs and development, relative to grapes, also helps encourage growers to look at alternative crops.

• Outlook:• Can you say $3/pound? For how long?• Many market forecasts from the almond industry point toward

unfilled market capacity in the short term.




•#3: Forethought by buyers• Buyers needed to secure mid-term supply via aggressive contract

offers• Translates into competition for existing grapes

• Thought or tip:• Growers have had the opportunity to “play the market” a bit the

last two years. While less grapes on the spot market creates higher spot market prices, at some point wineries choose to go without or look at alternative supply sources when the price for “those last few tons” gets too high.

• Outlook:• Price seems to be stabilizing based on supply/demand factors.

External factors may limit further substantial price increases.




•#2: The re-establishment of the “mid-market” (post-recession)• Simply put, the $7-14/bottle is hot, but wineries depleted inventories!• Market challenges exist in changing price on current brands

• Thought or tip:• Don’t under-estimate the importance of the wine market at price

points higher than those in which SJV wine traditionally goes. Watch grape markets in other areas of the state.

• Outlook:• Large Lodi and coastal 2012 crop will help supply $7-14 programs.

Demand for SJV fruit will come in the interest of averaging down price.




•#1: Overall supply balance, or “shortage”• Not just domestically, but globally.

• Thought or tip:• The moderate planting of new grapes will serve to preserve

market share while protecting us from sudden surplus due to excess production.

• Outlook:• Planting will continue in moderation. Speculative planting will be

at a minimum, while contracted planting may slow down just a bit in the immediate term.

• With the exception of a few “smaller” world producers, like Chile and California, most winegrowing regions are not expanding their acreage.

• Does anybody know the size of the 2013 crop? Please advise if so.



Conclusion:

Factors that drive winegrape prices have

been in the grower’s favor lately. The market is always searching for

equilibrium, and it feels like we are there, at least

for now.


Part 4:

Planting Trends


2012 California Nursery Survey• In January of 2012, Allied Grape Growers conducted

a confidential & voluntary survey of California nurseries to determine up-to-date planting trends:

• Data represents at least 85% of the major varietal vine sales in the state, by variety, and region.• Dependent upon vine spacing, total potential

planted acreage identified via the survey represents between 17,000 and 23,000 acres.• Survey participation was slightly skewed toward

the larger state nurseries. Smaller, coastal nurseries were not as likely to participate, therefore the resulting data is likely missing a minor level of coastal influence.


White Winegrapes 55%

Red Winegrapes 45%

Breakdown of Vines Sold by California Nurseries -2011

2012 California Nursery Survey


Chardonnay, 11.5%

Pinot Grigio, 2.4%Sauvignon

Blanc, 1.1%

Muscat of Alexander,

22.1%

Muscat Canelli, 2.8%

French Colombard,

9.9%Other White,

4.8%

Merlot, 3.6%

Pinot Noir, 9.5%

Zinfandel, 2.4%

Rubired, 1.5%

Malbec, 3.1%

Petite Sirah, 2.8%

Other Red, 9.2%

Cabernet Sauvignon,

13.2%

Breakdown of Wine Varieties Sold by California Nurseries, 2011

Other Reds Include:GrenachePetite VerdotCab FrancSyrahBarberaRuby Cab

Other Whites Include:Various FloralsViognierChenin Blanc



Categorical Allocation of Vines Sold by California Nurseries, 2011

High

Mid

Value

Note the amount of green on this chart vs. burgundy or gray.



California Acreage Trends

-

100,000

200,000

300,000

400,000

500,000

600,000

Estimated Coastal & Interior Bearing Acreage, 2000-2015

Interior Coastal

61% 50%

Acres

39% 50%

52%

48%


Conclusion:Planting has been

moderate, targeted (via contracts) and

concentrated in the SJV. Contracts will continue to be offered. There is no

recommendation to plant on speculation.


Take Home MessageLike most ag crops in the San Joaquin

Valley, winegrapes look promising for the immediate future. Our industry will

continue to face the everyday pressures of global competition, economic

uncertainty, regulation and taxation, fluctuating crop sizes (Mother Nature) and indecisive and fickle consumers. But the

underlying factors that create a stable market look to be in our favor, at least for the foreseeable future. Here’s to a great

2013!


View this on-line at:alliedgrapegrowers.org

Documents

Jeff Bitter 2012