It´s Always Darkest Before Dawn

By John Bergman & David Ashcraft, August 2003

Doom and Gloom are the words that we have been hearing on a daily basis in the wine country over the last few years. Below is a list of some doom and gloom headlines that we’ve encountered since the beginning of 2003.

However, there are many other articles that indicate we have seen the worst of our problems in the wine industry such as:

We have all recently been reminded that the wine business is not immune to tough times which in turn, effects vineyard values. With that in mind it is important to understand the past to help predict what will be in the future.

Business As Usual

In September 2002, we wrote an article called “VINEYARD CYCLES, AND THE NEXT DECADE”. In that article we talked about the set backs encountered within each decade. If you recall, the early 1990’s was one of the worst economic periods in the last 50 years with almost as many bankruptcies as was seen during prohibition. In 1993 none of the grape growers would have believed that his/her vineyard would more than double in value by the end of the decade. Nevertheless, by the end of the 10 year cycle from 1990 – 2000 vineyard values jumped 123% in Napa County and 191% in Sonoma County.

The article also pointed out our thoughts concerning the current vineyard/winery business cycle from the year of 2000 well into 2004 and 2005.

You will see that a “Buyers Market” began to develop in early 2000 and has continued through today. The reasons are/were clear, they are/were:

It is now one year since the vineyard cycles article was written, so let’s see how close we are to turning the corner toward better times. Looking back at the graph, it shows in 2003 –2004 we should be at the bottom of the cycle, and should begin to see signs of a turnaround.

All Aboard!

We are nearing the end of the third quarter of 2003 and it is our opinion that we (as grape growers) are in the worst of the bad times right now. There are indicators that the economy at large is beginning to turn around. If our predictions were right a year ago, by mid 2004 vineyard owners should begin to see the light at the end of the tunnel. The wineries should be paying more money for our grapes starting in 2004, and wine sales should be gaining ground as well. Since we will be a lagging indicator one must think of our upward momentum like a locomotive slowly starting and gaining steam over several years. At this point the train conductor is checking tickets and getting ready to yell out “All Aboard!” It won’t be long until vineyard values start to increase again and new comers will not wish to miss this train.

Some of the items that appear to be strong indications that a turn around may follow soon;

1. The DOW component of the Stock market has climbed 30% since the beginning of the year to or near it’s all time high in 3 years.
2. Unemployment is showing signs of easing after 2.5 years of job losses.
3. Grape prices are coming back in some varietals.
4. Very few grape vines have been planted in the last 3 years.
5. Tens of thousands of acres of grapes planted in Central Valley have been ripped out to be planted to other types of agricultural products.
6. July 2003 was the strongest economic growth in the USA in 3 years.
7. The American public spent more disposable income on GNP in July 2003 and used fewer credit cards than in the last 3 years.
8. Wine sales in the higher quality and priced wines are growing faster than the middle and lower priced wines.
9. Last but not least, it appears that Two Buck Chuck will have to be renamed Four Buck Chuck

So, what are the predictions for Vineyard Values in the next year or two? That is “The $64,000 question.” The answer is that each vineyard will vary in value depending on Appellation, location, condition, age of the vineyard, varietal, quality, contract, and demand. Grape sales prices for each varietal will be a determining factor as well.

What’s hot and What’s not?

Let’s look at the latest suggested grape prices for the 2003 crop and compare them to last years per ton sales prices. These recommendations were just released by the North Coast Winegrowers. This information will give us an indicator which grape varietals are vulnerable and in turn will help us to determine vineyard values.

(Per ton prices)

It appears that Chardonnay is getting back to being in balance and big demand. Two years ago Chardonnay was a four letter word, you couldn’t give the grapes away. Sonoma is running about even, while Napa has been hit hard. Wow, look at the direction that Mendocino is headed.

Can you say “Sauvignon Blanc” is coming back? It appears that Sauv/Blanc in Napa is gaining ground again, while Sonoma is holding strong, and Mendocino has taken a back seat.

I have been saying for about 10 years now that with the younger fresh palates coming of age with their love for Zinfandel, Pinot Noir and Syrah, Cab/Sauv is beginning to take a back seat. It appears that the lighter, fresher Cab’s coming from Mendocino are gaining ground, while Sonoma and Napa are headed for a readjustment.

This is an oxymoron when Napa the king of the Bordeaux Varietals including Merlot is seeing a price reduction in contrast to Sonoma and Mendocino. This is another indication that the cooler areas that produce lighter wines are beginning to be recognized by our new younger wine consumers.

These statistics reflect the over planting of Pinot Noir in Napa and Sonoma. This varietal may have a few years of problems ahead. However, I do know that the finest quality Pinot Noir Grapes are still in high demand by the small “Cult” quality wine makers. Top quality Pinot Noir is the hardest grape to grow and is the hardest wine to make. It is either very good or very bad to the taste, there are no in the middle of the road Pinot Noirs out there.

Guess what varietal is the hottest varietal of them all? You are so smart, you guessed Zinfandel, you’re right! Sonoma Counties “Old Vine Zin” is King especially in the “Dry Creek Valley Appellation” and we all know that Howell Mountain Zin in Napa is especially good as well. Zinfandel saw a suggested price increase in all three counties for 2003 so it’s safe to say that Zin is in.

This years harvest is expected to be lighter than last due to Mother Nature and the wineries request to drop fruit on the ground for higher quality. The result should be less inventory and higher quality wines. Alas, the winner is always the consumer as there are some great buys on great wine these days.

VINEYARD VALUES PROJECTED:

We have seen a 20% - 30% drop in Napa, Sonoma and Mendocino County vineyard values over the last few years. These percentages are not bad considering what has happened to the Central Valley and Southern California vineyard values. We predict that within one year from today we will see 7.5 % to 15% increases in the strong varietals, and that we will recoup our losses within 2.5 years. Remember, in the last 50 years vineyard have increased in value every decade no less than 100%, and there’s no reason for that to change now.

It is our opinion that we are at the bottom of this cycle and we will soon see some better times. This doesn’t help those that have been devastated over the last few years, but the good news is that eating beans will slowly change to Steak and Caviar again.

Hang on tight to your grape stakes, the ride is about over. If you may be thinking of selling your vineyard property, and would like to get an idea of its value, call and we would be happy to talk to you on a confidential basis. There is no obligation. We hope to hear from you soon.