San Rafael, Calif.—The tough market for growers in the San Joaquin Valley persisted through the 2015 harvest, as wineries remained flush with wine from the previous two vintages and most wine sales growth has been at premium price points.

Wine grapes from the southern half of California’s interior valley are fetching as little as $150 per ton on the spot market, and the low prices are not even prompting vintners to snatch them up on the gamble that 2016 ends up as light or lighter than this year.

“I can tell you there’s still thousands of tons of wine grapes unsold in the San Joaquin Valley,” Nat DiBuduo told Wines & Vines last week, adding there had also been thousands of tons sold at low prices.

DiBuduo is the president of Allied Grape Growers, which represents more than 600 growers throughout California. He said it’s been a very early year with the Napa County Cabernet Sauvignon harvest beginning in earnest in mid-September. Problematic conditions during fruit set, the drought and the previous years’ bumper crops all contributed to lighter yields. “The crop just did not materialize,” he said. “Everything is getting ready at one time and that’s an indication of a light crop.”

Still, this year’s light harvest should reach 3.8 million tons, DiBuduo said. Growers have been able to maintain crop yields and quality despite the drought by “being smart irrigators and sustainable farmers.”

Smart irrigation, however, doesn’t help when the market has swung against you. In July, speaking to an audience of AGG members in Santa Rosa, Calif., DiBuduo detailed how the market has grown cold for the low-cost, high-volume grapes of the interior regions, while it’s remained hot for coastal grapes.

Growers pull up vines
That trend has been driven by large bulk wine inventories and strong demand for premium varietal wine priced more than $10 per bottle. The downturn has persisted through harvest, and DiBuduo said growers in the San Joaquin Valley have responded by tearing up vineyards. “They’re pulling these out to put in some kind of a nut crop. That’s scary,” he said.

AGG has estimated that growers pulled out 35,000 acres of vines in the San Joaquin Valley since the end of the 2014 harvest. While about a third of those acres likely were raisin varieties, he expects the valley will lose at least that much once the 2015 harvest is done by mid-October. “The sad part is that even that is not going to be enough to satisfy the oversupply.”

The vineyards getting pulled may not purely be a result of the market, said Peter Vallis, executive director of the San Joaquin Valley Winegrowers Association in Kingsburg, Calif. He said some of those vineyards could just no longer be economically viable because of their age or water constraints. “Right now it’s easier to pull out (a) 50-year vineyard that’s already paid for itself,” he said.

Grapes will always have a place in a well-diversified farming operation, Vallis added. He said right now nuts are the hot crop, but a very strong dollar could put a crimp in that demand.

Vallis said growers in the region experienced a variable crop with quantity and quality different from vineyard to vineyard. “Some grapes are absolutely beautiful and some are a little water stressed,” he said. “That’s sort of the nature of the beast when you have water stress issues.” .

Market for wine grape sales
Right now the market for un-contracted grapes is weak, but Vallis said that could change in the relatively near future as the state gets more restrictive on the use of water for irrigation and pumping groundwater. He said as water becomes scarce the San Joaquin Valley could have an advantage as it already has an extensive infrastructure in place for moving and distributing water.

In terms of the market, Vallis said California is still the only state in the United States that can supply wine nationwide. At the San Joaquin Valley Winegrowers’ meeting in November, Vallis said one issue up for discussion is how to best serve that market. “What do we want the California brand to look like?,” he said. “Who is our target consumer, and what are they drinking, and how can we match that need?”

He said it’s strategically important to match a product to every price point, or U.S. consumers could come to perceive California wines as too expensive. “There’s a reason every carmaker has different levels for every consumer,” he said. “It’s very difficult to be Rolls Royce.”

DiBuduo said while sales for wines priced less than $10 are dropping, those wines still account for more than half of the off-premise market and the consumers who enjoy them aren’t likely to make the move up to $25 bottles any time soon. As California wines get pricier, he said they also make low-priced bottles from South America, Spain, Portugal and other importers even more attractive.

He said he can’t object to any growing pulling vineyards in favor of more profitable crops, but wine grapes need to remain a key component of the San Joaquin and greater Central Valley so that California can continue to provide quality wine at affordable prices.