Barrel Orders Herald Winery Optimism

Coopers report strong order activity, have concerns about American oak supply

by Andrew Adams
Cooperages are reporting good sales this year in spite of price increases tied to oak supply and exchange rates.

San Rafael, Calif.—Robust barrel orders for the 2013 vintage provide another sign the wine industry has made it through the economic doldrums of recent years.

“This is a big year. This will be our biggest year since 2007. We’re up 15% over last year,” said Phil Burton, who owns Barrel Builders in Napa Valley. “It speaks well for the industry in general, because if wineries aren’t buying barrels they’re not making money.”

Jason Stout, Napa-based international sales director for Cooperages 1912, said the company had posted a double-digit sales increase of “good, solid, organic growth from our core customer base.”

Stout said wineries have cleared out back inventory, and with a good vintage in 2012—and one expected for 2013—wineries in the United States are looking to take advantage of growing domestic and global demand for fine wine. “Certainly the American wine industry has really bounced back from the recessions of ’08, ’09, ’10,” he said.

Strong demand for American oak
Bruno Remy, vice president of sales for Canton Cooperage in Windsor, Calif., said orders are up 5% from 2012, with the promise of another good vintage prompting wineries to order more barrels.

But Remy said the French-owned cooperage, which produces only barrels made from American oak, has had issues with supply. Wood keeps getting pricier, and it has not been easy to secure oak. “It’s becoming a real problem,” he said, noting the cooperage raised its prices 3-5% this year.

Remy said there’s a bottleneck in the supply chain from forest owners being less willing to sell, fewer loggers cutting wood and the mills being picky about what staves they want to produce. Since the home building collapse in 2008, Remy said the entire U.S. wood market has stalled, causing forest owners to simply hold on to their trees, including oak.

And on the tail end of the supply chain, mills prefer to run wood for whiskey barrel staves because they can cut them quicker, cheaper and don’t have to worry about quality as much. The demand for Bourbon and craft whiskeys has also surged in the United States, fueling greater demand for whiskey barrels.

For example, Remy said winemakers in Australia like the 300-liter hogshead American oak barrels, and Remy said Canton saw an opportunity to order long staves to meet this growing demand. The mills, however, aren’t eager to take a contract for the longer staves because they have to readjust their machines, and the staves require stringent quality control. “For them, that is not interesting,” he said. “We are missing wood. It is crazy because the wood is there.”

Remy said he’s noticed more of his clients are opting to lease their barrels through a third party such as H&A Financing and Services. http://www.winesandvines.com/buyersguide/?eId=25705 Winemakers also seem to be more interested in a lighter touch of oak for their wines. Canton is offering a new 36-month seasoned “Vintage Premium” barrel, and Remy said the cooperage is experimenting with a 60-month seasoned barrel.

Barrels for higher acid wines
T.W. Boswell, part of Cooperages 1912, released its “Cool Climate Series” of barrels designed to showcase the fruit of higher acidity wines. Stout said the “low-impact” barrels are a direct response to the growing popularity of that winemaking style. “The purpose of an oak barrel is never to be front and center in the bottle of wine; it’s to show the fruit,” Stout said. “These barrels are a little more conscious of that.”

Stout said American oak is in high demand but pointed out that barrels represent just 6% to 7% of the entire market for American white oak. “I don’t know if I would say the spirits industry is stealing oak from the wine industry,” he said.

Tree harvesting is also subject to the weather, and Stout said the rainy summer endured by the Midwest interfered with logging. “This has been one of those years when climate has been a real factor in getting wood,” he said. Cooperages 1912 did make a slight price increase that Stout said was in line with the Consumer Price Index.

Chris Hansen, general manager of Seguin Moreau Napa Cooperage said his prices for French and American oak rose slightly (by 2% and 1.5%, respectively) and he also said it’s a bit harder to find American oak. He said he was in Missouri a few weeks ago and suppliers there said they just didn’t have logs to cut.

Seguin Moreau has sold out of its Icone specialty barrels for this vintage, and Hansen said he’s waiting for more orders to come in as winemakers get a better sense of what their red varietal grape yields will be. “This year compared to last year we have a lot more orders in at this time,” he said.

Demand and prices strong for French, European
Burton, owner of Barrel Builders, sells Tonnellerie Marchive barrels and vats. He said the cost of French wood went up slightly, but the price to U.S. wineries for French barrels is still most dependent on the dollar to euro exchange rate—and the dollar has weakened through the summer.

In addition to French oak, Burton also sells Hungarian and American barrels. He said the price of Hungarian has stayed stable, but American oak is up between $5 and $10 per barrel.

Mel Knox, San Francisco, Calif.-based representative for Taransaud, Francois Frères, Francois Frères Hungary and Kadar Cooperage said his prices went up about 2.85% for French oak and 1% for Hungarian oak due to supply costs and the exchange rate.

Like the other barrel suppliers though, Knox had an optimistic view. “We’re having a very good year right now. The wine economy is very strong and very competitive,” he said. “Compared to where we were four years ago, we’re in paradise now.”

Paul Frommelt, who sells barrels made by Francois Frères’ subsidiary cooperages Trust Hungarian, Treuil and AP John, said his prices went up in the range of 3% to 4%, with American oak climbing up closer to 5%. “Whiskey takes a lot of American oak, which takes our prices up,” he said.

He mentioned that Trust just released its new 100% French oak Ingénieux barrel available in Rouge and Blanc versions. Because it’s coopered in Hungary, the barrel offers a bit of a discount for French oak, he said.

So far, Frommelt also said 2013 has been a good year for orders. “This is above last year already, which is good, we’re pleased with the sales of all the brands.”

French barrel production figures
In July the Tonnelleries de France, a trade group representing coopers in various regions of France, released a statement based on remarks by the organization’s president Jean-Luc Sylvain on 2012 barrel production at the group’s annual meeting.

Member coopers produced 525,100 barrels in 2012, recording just less than 330 million euros (or $441 million) in sales. The association reported 66% of total production was exported to its major markets of the United States, Italy, Australia and Spain. Total exports represent a 5.4% increase in volume and a 9.5% increase in value.

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