Napa Cabernet Prices Raise Concern

Experts see risk of variety taking over, grapes grown in non-ideal parcels threatening image

by Andrew Adams
wine vineyard economic seminar tony correia
Tony Correia of The Correia Co. set the grape price index at 1.0 in 1995. Today the price for Napa Valley Cabernet Sauvignon is nearly 4.5.

Napa, Calif.—Prices for Napa County Cabernet Sauvignon have always been exceptional when compared to prices paid for wine grapes from other regions of California and for other varieties, but they are getting so high it’s of some concern to industry experts.

“Any land that’s in Napa Valley, in the watershed of the Napa River, that can be planted to Cabernet and produce a good crop of Cabernet is being planted today, and they can make a call and sell the fruit for $5,000, $6,000 $7,000,” said Tony Correia, president of the real estate appraisal and consultancy firm The Correia Co.

Correia was speaking at the 22nd annual Vineyard Economics Seminar held May 24 in Napa. During his presentation, Correia showed a photo of a sign posted in a Rutherford, Calif., vineyard touting 20 tons of Cabernet grapes for sale. Such a scene would be unimaginable in today’s tight market for Napa Cabernet, but Correia was pointing out that it wasn’t that long ago when the market for high-end wine had shrunk due to the 2008 recession.

Since 2010, however, the price graph for Napa Cabernet has been almost straight up, as consumer demand for premium wines has rebounded in a major way. The same can be said of high-end Pinot Noir grapes, too. “People are talking about prices that are really silly,” he said.

As nearly every available plot in Napa County is getting planted to Cabernet and growers and wineries are also pulling out other varieties rather than absorb the opportunity cost of not growing Cabernet. If too much Cabernet is planted in areas not well suited to the grape, Corriea said it could bruise the image of Napa County Cab. 

That hasn’t happened yet, and with the recent Auction Napa Valley raising nearly $16 million from some of the world’s wealthiest wine collectors, the Napa brand appears as strong as ever.

Furthering tightening the supply of Napa Cabernet is the recent acquisition of the Stagecoach Vineyard by E. & J. Gallo Winery. While Gallo has pledged to honor all existing contracts, Correia said that deal may eventually take about 2,000 tons of high-quality Napa Cabernet off the market.

He said the deal triggered an immediate effect in that he saw vineyard parcels, which had been on the market for a while, come under contract within days of Gallo announcing its purchase. 

In Sonoma County, Correia said Pinot Noir “is driving the bus,” and the average price for an acre of Pinot vines could approach $200,000 this year. “The demand is very strong, and there’s just limited supply of high-quality Pinot Noir vineyards,” he said.

Correia averaged the prices for Napa Cabernet and Sonoma Pinot and set them to an index of “1” in 1995. By 2015 Napa Cabernet had risen to nearly 4.5 and Sonoma Pinot was more than 3.5, while the indexed price for grapes from the interior District 13 had risen to just 1.5 in the same period.

The average price per ton for Napa Cabernet was $2,000 in 1995, and it was nearly $7,000 by 2016. The average dropped from $5,000 to $4,000 between 2009 and 2010 but bounced back by 2011.

Nat DiBuduo, president of the Allied Grape Growers (AGG) also said the market for luxury grapes is particularly strong and even rhetorically asked about a bubble, pondering, “How high is too high?” before quickly adding, “I shouldn’t be saying that.”

DiBuduo’s interest is in seeing AGG’s members receive good prices, but he admitted to some concern about sustaining such a market at the highest price points. He also mentioned there has been “great” Sauvignon Blanc in Napa County ripped out for Cabernet Sauvignon and expressed a concern that some appellations might be in jeopardy of becoming mono-varietal.  “I haven’t seen prices like this in my 17 years,” he said. “There’s got to be a point here where we have to have balance for both the winery and the grower.”

DiBuduo said AGG is projecting California’s 2017 harvest to come in around 4.2 million tons, and the group believes the state’s wine grape yields will stay around that level into 2019. He said the overall market is balanced, but in the long term wine consumption is poised to outpace vineyard development.

California added about 15,000 acres of vines in 2017, and the development is almost exclusively in coastal regions, Lodi or the Delta. “I don’t know of any grapes being planted in the San Joaquin Valley anymore,” DiBuduo said. “In fact, you’re seeing the complete opposite in that grapes are being pulled out of the San Joaquin Valley.”

Based on burn permit data, growers have removed nearly 25,000 acres of wine grape vineyards since 2015 and will pull another 10,000 acres by the 2017 harvest. Most of the vineyards in California support the production of wines priced at more than $10 per bottle, and that number is growing, while the acreage supporting wines priced less than $7 is shrinking. Allied projects that by 2019, acres supporting higher priced wines will increase by 10% to 262,933, while vineyards for lower priced wines will decline by 7% to 182,212 acres.

Several speakers at the conference described how wineries have had to adjust their sourcing to support premium programs. This can mean looking for wine grapes in other appellations, at different price points or even other varieties.

“We’re seeing those programs flex to go where the wine is and protect those margins,” said Marc Cuneo, a partner and bulk wine broker with Turrentine Brokerage.

While there are almost no Cabernet grapes on the market from Lodi, Cuneo noted there is still about 200,000 gallons of bulk wine on the market. He said the wine is a great example of how when the price of bulk goes high enough, sellers find it makes economic sense to just sell it on the bulk market rather than bottle it.

Yet when the price started peaking at around $45 per gallon in 2016, the demand lagged, and it has since dropped down to around $42. “There’s buyer fatigue; we’ve mentioned that before over the last year and a half.”

The Vineyard Economics Seminar is presented by the Wine Industry Symposium Group, which is a subsidiary of Wine Business Monthly. Both Wine Business Monthly and Wines & Vines are part of Wine Communications Group Inc.

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