Napa and Sonoma Estimate Harvest

Grapegrower representatives project healthy 2012 crop is up 30% or more

by Paul Franson
wine grapes sonoma napa harvest
Nick Frey and John Wilkinson discussed the 2012 growing season and harvest in California's Sonoma and Napa counties.
Sonoma, Calif.—The wine services arm of Moss Adams LLP, the large nationwide accounting and consulting firm, held a seminar in Sonoma on Nov. 14 to report about this year’s harvest in California’s North Coast counties of Napa and Sonoma.

Nick Frey, president of the Sonoma County Winegrape Commission, kicked off the discussion with a report from Sonoma County. “We had ideal weather after two difficult years for growers. The quality was superb, the fruit was clean with great flavors and great yields.” The usually low-key official summed it up with an unexpected exclamation: “Wow!”

He predicted that the county would harvest 220,000 tons of grapes compared to the 166,000 tons harvested in 2011, which would be an increase of more than 3o% and bring an additional $100 million of grape revenues—great news not only for the growers but also for local merchants. “People haven’t been spending their dollars the past few years,” Frey said.

Early buying began at prices above 2011, but prices weakened as it became apparent that the crop was going to be bigger than expected.

Pinot Noir and Cabernet Sauvignon were very strong; Chardonnay yield wasn’t up as much, though it was good.

Overall, county average prices increased, but the extra grapes were often sold at discounted prices.

Current inventories of bulk wine are at historic lows, but this year’s bountiful harvest will return stocks to more typical levels. With that, the market is in balance for this year.

Market effects
Forecasts of light crops and shortages earlier in the year worried many wineries, but one result of the ample crop is that negociants seem to have enough wine.

Global wine production is down 6%, meanwhile, due to short crops in Europe, Argentina, Australia and New Zealand.

Frey expects a return to normal yields in 2013, with less ideal weather than in 2012.

He also reminded the growers and winery executives in the audience that California remains short of planted vineyard acres to meet the forecasted demand. He estimated that Sonoma County growers would replant 3,000 acres for a total of 63,000 acres.

Who are the growers?
Independent growers produce two-thirds of all grapes in Sonoma County; as a representative of growers, Frey also discussed the choice wineries have between buying vineyards or contracting for grapes:

He pointed out that owning vineyards increases assets and ties up cash, though it gives more control over supply and can provide tax benefit to family-owned wineries.

By contracting, wineries can adjust the quantities they buy annually and better manage inventories, and they can still specify vineyard practices. Many wineries both own and contract, of course.

Napa County
For the report from Napa County, grower John Wilkinson, a director of the Napa Valley Grapegrowers, summed up the year: great growing conditions, quality and quantity.

Wilkinson said, “2012 will be remembered as a Goldilocks growing season compared to 2010 and 2011: just right.”

“It was an easy year to be a grower with very few problems at bloom and set, few if any heat spikes and very low disease and pest pressure. Fruit quality is excellent across all varieties,” he said. “Some growers may have liked to see a little bit more heat in August, but they are hardly complaining.”

And that was capped off by high demand at good prices throughout the growing season.

Wilkinson also noted that growers who dropped less fruit expecting heat saw much longer hang times to achieve ripeness. One problem that developed was that the harvest season became more compressed as growers and winemakers waited for ripening. “Reds and whites came in together, putting pressure on all cooperage. Labor, tank and barrel shortages prevailed through October and into early November. Workers logged lots of overtime in both the vineyard and cellar.”

Some fruit remained in the vineyards until tank space became available; fortunately the weather cooperated. Wilkinson also is president of custom-crush winery Bin to Bottle, which is continuing to process late fruit.

Wilkinson said that yields across most varieties were up 10 to 15%—though not Napa’s signature grape, Cabernet Sauvignon.

Pinot Noir, Chardonnay, Zinfandel, Syrah and Petite Sirah had high yields, while Merlot and Sauvignon Blanc were “average-plus,” and Cabernet Sauvignon, Malbec and Petit Verdot were just average in size.

Wilkinson provided recent tonnage:
2010: 139,000 tons
2011: 122,000 tons
2012: 160,000-180,000 tons (early estimates)

This showed that tons per acre were up dramatically from the past two years, partly due to growers leaving a few more buds on the vine or dropping a little less fruit this year in the early anticipation of a shortage. The average yield was 3.2 tons per acre last year; this year it could be about 4 tons per acre.

For a grower, the year was a trifecta:
• Higher prices and early selling;
• Higher tonnages, up by at least 30%;
• Lower farming costs per ton due to crop size and low pest and disease pressure.

Winery demands
Wilkinson reported that in Napa County, prices for grapes started strong and held throughout the growing season: “There was very little early spot pricing as harvest progressed, and it was a very dynamic market with lots of activity both early and late.”

He added that the depth and breadth of the market was strong, with multiple buyers for fruit. “Wineries were looking for more than one variety as well.”

In addition, excess fruit from the large crop eventually caused late spot-market pressure. “Cabernet held up strongly with much less downward movement, though some wineries went overboard buying in fear of shortage, leaving them to offer excess grapes for sale. The early re-offers found good prices,” he said.

Wilkinson noted that the bulk market for 2011 wines was brisk, with people snapping up all the 2010s early, and shortages drove prices in 2011 up 20% to 60%. “There’s little quality 2011 inventory out there,” he said.

He believes that the 2011 bulk red wines are going to do fine, but there will be a shorter window to sell than in the past. “The majority of the reds will probably be sold by March or April.”

He added that the lower perceived quality of the 2011 wines means that high quality 2011 reds could go at premium. “They will be hard to find.” He thinks that 2011 whites will be a tougher sell. “Winemakers can buy the 2012’s quicker with perceived higher quality.”

Wilkinson, who partners with growers to make wine and sell excess inventory, said more buyers have entered the market in the past three years due to shortages of grapes and wine. “A mix of grape contracts and bulk wine purchasing is now an integral part of many wineries’ inventory solution.”

Shortage ameliorated
He believes that prices will most likely be down for 2011 and 2012 bulk wines. The shortage is gone thanks to 2012’s bountiful crop. “Pricing will be calmer, more normal as long as we see some growth in case sales, and distributors are looking for new projects with $108- to $180-case prices.”

In addition, he also noted that the poor harvest in Europe could help improve market condition in the United States.

Wilkinson also said that more replanting is expected in Napa County. “Significant investment started about 18 to 24 months ago. There are not many ‘new’ acres in Napa Valley, but replanting will cause higher yields on under-performing vineyards. Many are over 20 years old since the last replanting. With this year’s big harvest, growers can pay off debt and slowly bring on the replanting projects previously planned.” He predicted, “Expect to see a significant investment in vineyards over the next five years barring a recession.”

Labor isn’t a big problem in Napa Valley since it’s considered a prime place to work, but Wilkinson said that Napa is starting to embrace mechanical solutions for harvesting, leafing and sorting. It’s a large capital investment. It’s also slow to catch on in Napa due to the valley wineries’ marketing focus on “hand-crafted” wines.

Sonoma’s Frey noted that good properties would continue to sell, providing an exit strategy for owners. “There are fewer distressed property sales than in the past few years.”

Wilkinson concurred. He said that distressed property sales went from more than 20 in 2010 to less than six in 2011. “The real estate market is more fluid than 12 months ago due in part to anticipated generational changes, and banks have loosened their wallets and are offering historically low rates.”

He added that interest in properties is up particularly from international buyers from Asia. “Much of the demand is for smaller vineyards in the $5 million-$20 million range. Vineyards in general are what buyers are seeking, more so than winery properties.”

Wilkinson is most optimistic that wine consumption is on the rise in the U.S., and consumers continue to move up in price and quality. He added, “Napa is well positioned to benefit from these trends.”

Sonoma grower president Frey also said he expects continued growth in wine sales and added, “Wines selling for above $20 per bottle are critical for Sonoma County.”

Frey stated that the keys for 2013 prosperity would be economic recovery in the U.S. and Europe as well as consumer acceptance of likely price increases.

Wilkinson is most concerned about global warming and the impact on the crop, global recession and U.S. government gridlock and its impact on our economy.

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