In the current drastic economic downturn, source prices for barrels nonetheless are increasing by 2% to 5% for the 2009 vintage, presenting winemakers with some tough decisions. Industry observers say that wineries with flattening or decreasing sales are likely to curtail their use of expensive French oak for mid-range wines, which in turn could lead to the increased use of Eastern European and American oak, while the use of alternative wood products should continue to soar. Additionally, if the 2009 grape harvest in California is below average in volume after a short 2008 vintage, cooperage and distributor execs predict that the barrel industry may even see some failures and/or consolidations.

Coopers that Wines & Vines interviewed for this article were generally bearish on the economic forecast for the barrel industry in the upcoming year. One is Phil Burton, whose Barrel Builders cooperage is in St. Helena in Napa Valley. In addition to the poor economy, Burton cited the small crop size in 2008 (down 10%-40%) as a major factor for his business. If 2009 sees another harvest shortfall, the barrel industry, he predicted, is in trouble.

"Wineries have tight budgets. Even premium wineries are stagnating in terms of sales. Wineries are running scared," he said. "We had a lot of cancellations this year--300 to 400 barrels."

Going into 2009, Burton claimed, "A of lot wineries have leftover barrels. One (high-end Napa Valley winery) has 40 unused French barrels, and they're trying to sell them. There will be a lot of surplus around. A lot of wineries are stretching their allotment now over four years, instead of three."

Peter Molnar of California's Tricycle Wine Co., and part owner of Kádár Hungary cooperage, also is concerned about the outlook for this year. "Nobody knows what's going on," he said. "With my conversations in Europe and in the Southern Hemisphere, the general outlook is pretty grim. Considering that barrels are the second-largest capital expense for wineries, if they are cash flow-challenged then wineries will come into 2009 with a lot of inventory and not a lot of money to buy things. The cheapest way to save on barrels is not to buy one."

Average Barrel Prices

	2002	2008	2009 est.
French Oak	$520	$945	$900*
European Oak	$450	$600	$625
American Oak	$310	$352	$360
*The reduction in price is due to a lower euro value

Molnar said that alternatives and American oak "possibly" will do well. But he cautioned, "Some people who have been carrying French and European oak into a $20 bottle of wine are going to turn around and say, 'We can't justify this kind of wine with this oak.' People will change their buying patterns.

"In the Napa Valley we have a 'GM problem,'" he continued. "It's hard to build cars when you pay $80 an hour, and it's hard to make wine for $20 when grapes are $4,000 per ton, and a barrel is $1,000. You end up with a wine you have to sell for $50. Is there room for $50 and above wines? The U.S. barrel market has been the largest in the world, and I have a feeling things are going to change."

Molnar boldly predicted that expensive barrels "will be reserved for upper-tier wines, and everyone else will most likely move toward alternatives. We won't see barrels at the lower end anymore…(or) people will buyer fewer barrels, but they will buy at higher quality."

Barrel Builders' Burton, who is very concerned about this year's crop size, can still joke about it, however. "One winemaker in Yountville has already told me the '09 crop will be good," he said with a laugh. "Let's pray for it. But it's been a difficult year, no question about it. Come April, when we know what the crop will be, I think we'll be OK. I have high hopes; but if not, there's going to be some failures in this industry."

One cooper who was cautiously optimistic for 2009 is Jason Stout, wine barrel sales director of World Cooperage in its Napa office. "I believe that customers--the public in general, and winemakers--are looking for value, and opportunities exist in the market if you have a good value proposition. World Cooperage has a great value proposition with a focus on quality, consistency and service. I believe that these are the tangibles customers are looking for."

Another upbeat voice is that of Rick DeFerrari of Oregon Barrel Works, a cooperage in McMinnville, Ore. DeFerrari opined that his company will continue to see its sales increase. "So far, everyone in Oregon seems to be fairly insulated from the slowdown," said DeFerrari, whose company produces both French- and Oregon-sourced barrels. "We sold out last year, and we will probably be sold out next year.…Pinot Noir is a hot variety, and Oregon is capitalizing on that." Nonetheless, DeFerrari will be holding his prices this year. He may even reduce them if the exchange rate stays the same or falls.

Also holding prices while business has increased is Kelvin Cooperage of Louisville, Ky., which produces only American oak and French barrels. "We think so far it's looking pretty good," said Kelvin's Paul McLaughlin. "Currency fluctuations are helping, and we think American oak represents good value."

Kelvin sells its American barrels for $320, compared to the going rates of about $945 for French and $625 for Hungarian or "European" barrels. McLaughlin said Kelvin, which harvests its American oak from Minnesota, Kentucky and Missouri, is planning for growth "for the foreseeable future."

Statistics from reliable industry sources show that American barrel prices, while increasing, have gone up more slowly than the Consumer Price Index, while at the same time the cost of American oak logs has increased significantly. In France, the price of cooperage logs also has risen much more sharply than the price of finished barrels.

The euro remains historically high, which makes French and other European barrels relatively expensive, yet the euro has descended from a high exchange rate of $1.59 in summer 2008 to $1.35 in mid-January. This recent drop could cushion French barrel price increases.

Mel Knox, who sells French barrels to U.S. wineries, said that if the French coopers increase their prices by 4%, and the euro stays at $1.35, then his French barrels will actually decrease from the 2008 price of $1,080 to $960 for 2009.