Coming Up Short, The 2006 Grape Harvest?

Spring 2006

John Bergman & David Ashcraft

As we move into the full growing season amid the summer sun, some sneezing and great expectations for the 2006 harvest the wine and vineyard market continues to improve. Vineyards and wineries continue to sell as noted by such high profile sales of the Cult Winery Screaming Eagle in Napa and the Chateau Souverain facilty in Sonoma County to Francis Ford Coppola. Many other sales of vineyards and wineries have taken place albeit to a bit less fanfare. Cautious optimism remains high throughout the wine country.

Wine Sales Up

We continue to see excellent growth for sales of California wines in the United States. It is important to note that California wines from the super premium ($7 - $14 / bottle) and ultra premium ($14+ / bottle) categories have shown an impressive 13% increase in sales back in 2005 according to Wine Institute and Gomberg-Frederickson & Associates.

This obviously translates into good news for grape growers, especially in Napa and Sonoma Counties where top tier grapes are grown. We have also seen a transition in the popularity of wine as it has become the beverage of choice, actually displacing it’s long time companion beer at the top of the heap.

Another sign that wineries are anticipating continued growth and expansion is the shortage of available tank space. Especially after last years large crop and increased sales wineries are ramping up tank capacity and many of the local tank manufacturers are booked solid with orders for new tanks through the 2006 harvest and beyond.

So with all of that good news about continuing winery sales, vineyard sales, and increasing wine sales we have to look forward and wonder what will happen with this years harvest. The short story is we expect this year’s harvest to be lighter than last for various reasons.

Soggy Bottoms

In mid April driving down River Road in the Russian River Appellation, there were hundreds of acres of Chardonnay and Pinot Noir vines treading water with just the tops of the vines showing through. If you looked closely enough you would notice that the top of the vines were pushing small green leaves out. There is an old saying in our industry, that while the vines are dormant, they can be submerged, but when they begin to wake up and push leaves, their feet must be dry. Can you imagine coming out of a 3-month hibernation to find that you are waist high in water. Wow, what a shock that must have been.

Since Chardonnay and Pinot Noir grapes bloom earlier than most other varietals one would think that they have received the brunt of our late and heavy 2005/2006 winter. These “early bloomers” surely lost buds during the record breaking torrential rains and flash floods that took place in March and April of 2006 while millions of wine grapes were beginning to form after their winter hibernation. This leads us to believe that some their production should be curtailed from last years record breaking crop. The “bigger” red varietals that bloom later in the season should fare a little better in the 2006 harvest than their counterparts having avoided most of the rains.

What Goes Up Must Come Down

Historically, it has usually been the case after a record-breaking crop that the following years harvest is a short crop. After producing such a vast amount of fruit, essentially having triplets, the vines typically need to recuperate and rebuild their strength the following year. Thus putting energy back in the vine and not so much into production gaining strength for future harvests.

If you remember, the 1997 crop produced almost 30% more grapes than the previous year benefiting from “El-Nino” weather conditions that helped create the largest grape crop in California history at that time. People were scrambling around looking for extra tank space and talking of the impending grape glut. Then in 1998 we had the reverse due in part to a “La Nina” weather cycle that was one of the coldest winters in history and helped cause one of the lowest crops ever. In fact, the grape vines were so stressed out from the 1997 crop and La Nina that they didn’t recuperate until 2000. Then in 2000 they produced another banner year of a high yield crop.

So, if Mother Nature repeats herself like she did in 1997 through 2000, we may be looking at a very short harvest overall for 2006. It’s too early to tell at this point, but the indications are there based on history repeating itself.

Here are some interesting graphs derived from the California Department of Food and Agriculture Grape Crush Reports;

It is interesting to see the peaks and troughs of high and low yield years. From 1996 to 1997, there is almost a 30% increase in the grape crop, a record at the time. Then in 1998 and 1999 the vines where very tired and took a couple of years off before producing another bumper crop in 2000. Notice each year that the crop spikes up it then goes down, almost like the stock market. This is nature’s way of protecting the mother vine and allowing her to gain strength back again.

Reviewing these graphs clearly shows the delicate balance of supply and demand. We have waded through the glut of 2002 – 2004 and hope to keep better control of the different factors that affect our industry. We obviously can’t control the economy, geopolitical issues or mother nature but there are factors we can manage. Hopefully we will keep the lessons of the recent glut in mind as the state of California pulled out more than 50,000 acres in wine grapes. Also, we must remember that newer, younger, more densely planted vineyards, and advanced farming techniques are coming on-line.

If the 2006 crop comes in short as expected we feel that this will be a good thing for the market overall. It will create greater demand for grapes and drive up prices paid per ton. By doing so it should bring things back to business as usual and keep in check the balance of supply and demand. Hopefully it will also allow the retail wine market to stay strong for all of us to enjoy.

The Vineyard and Winery Sales business has been very kind to us, as we can claim that since 2002 our firm sold approximately 40% of all vineyard related properties priced over $1,000,000 in Sonoma County. With 800 licensed real estate offices and 11,000 agents and brokers in Sonoma County, we are very proud to hold such a distinction.

If you have ever thought that you may wish to sell your vineyard or winery property or just wish to get an idea of its value, we would be happy to come out and give you an opinion of fair market value in today’s economy. Whatever we discuss stays between us until we are told differently. We look forward to hearing back from you. Have a great 2006 and a happy harvest.