IS THE GLASS OF WINE HALF FULL OR HALF EMPTY?

By John Bergman & David Ashcraft, January 2003

(Graphs Updated May 2003 To Reflect 2002 Grape Crush Report)

I am sick and tired of hearing from the news media and self pro-claimed experts how bad the California wine and vineyard market is. They paint the entire California canvas with one broad stroke of their brush creating a muddy portrait without analyzing each distinct winegrowing region. This is like comparing a brand new sleek S500 Mercedes Benz with a Chevrolet. While the Chevy has provided a trusted workhorse the Mercedes is known for top quality and outstanding performance.

To answer the question “Is the glass of wine half full or half empty?” one must consider each wine growing region in California. In the Central Valley and Central Coast as well as other regions of California the glass of wine is “Half empty”. However, in Napa and Sonoma Counties the glass of wine is “Half full”.

To allow you to see actual facts, let’s look at the grape prices in all 17 districts of California. The “California Department of Food and Agriculture,” publishes the annual “Grape Crush Report” that spells out actual grape prices from the least price per ton to the highest price paid per ton. They also place the weighted average sales price per ton by varietal in each District. These undisputable statistics plainly explain what each district is doing on an annual basis.

The way to tell what the grape prices will be for the following years harvest is to look at statistics from the previous year. With this in mind we have prepared a number of graphs with actual data from the California Department of Food and Agriculture Grape Crush Reports for the years 1999 – 2002 to illustrate who has the “Half Empty and Half Full Glass of Wine in the State of California”. The following is an actual comparison of each district in California that will allow you to see just how the various districts have faired in the last few years.

District 1 - Mendocino County District 2 - Lake County District 3 - Sonoma & Marin Counties District 4 - Napa County District 5 - Solano County District 6 - Alameda, Contra Costa, Santa Clara, San Francisco, San Mateo, and Santa Cruz Mountains District 7 - Monterey & San Benito Counties District 8 - San Luis Obispo, Santa Barbara & Ventura Counties District 9 - Yolo County north of I80 to junction of I80 and US50 and north of US50: Sacramento Co. north of US50; Del Norte, Siskiyou, Modoc, Humboldt, Trinity, Shasta, Lassen, Tehama, Plumas, Glenn, Butte, Colusa, Sutter, Yuba and Sierra Counties District 10 - Nevada, Placer, El Dorado, Amador, Calaveras, Tuolumne & Miraposa Counties District 11 - San Joaquin County north of State Hwy 4; and Sacramento County south of US50 and east of I5 District 12 - San Joaquin County south of State Hwy 4; and Stanislaus and Merced Counties District 13 - Madera, Fresno, Alpine, Mono, Inyo Counties; and Kings and Tulare Counties north of Nevada Ave. District 14 - Kings and Tulare Counties south of Nevada Ave. District 15 - Los Angeles and San Bernardino Counties District 16 - Orange, Riverside, San Diego, and Imperial Counties District 17 - Yolo county south of I80 from the Solano County line to the junction of I80 and US50 and southUS50 and Sacramento County south of US50 and west of I5

Chardonnay	Pinot Noir	Syrah	Zinfandel

(Click on the graph above for a larger image)

As you can easily see grape prices have taken a dip in almost every district with the exception of Napa and Sonoma Counties in the last few years. In fact in nearly every year and varietal, Napa and Sonoma Counties have gained in their average sales price per ton right through these “Bad Times”, while almost every other district has lost ground.

Why does this happen? The answer is Quality, and Premium Status. You can tell who has the highest quality by the sales prices per ton of the various grapes being sold in each District. It’s pretty easy to see that Napa and Sonoma Counties are the “Ultra Premium” leaders in the state.

While we anticapte the results of the 2002 Grape Crush Report results will show more price declines from the previous years we are certain that the North Coast Region will remain heads and shoulders above the rest of the pack. Check back around the end of the March for updated charts with 2002 pricing and tonnage information.

Napa and Sonoma Counties represent approximately 8% percent of the entire California wine grape sales. On the other hand, Napa and Sonoma Counties represent nearly 100% of the Ultra premium Wine sales in California. It is easy to see that the demand out-weighs the supply in most cases.

One of the other important aspects to understand is the amount of grapes coming from each district. By just looking at the Weighted Average Price Per Ton Graphs one might think that District 15, Los Angeles and San Bernardino Counties, would be a great place to grow grapes since the weighted average price for Cabernet Sauvignon was nearly $1,500/ton in the year 2001. However, upon closer inspection one would find that there were only a total of 4 tons produced. Obviously, the Cabernet in District 15 is a novelty. On the other hand, you might conclude that since 34% (nearly 107,000 tons) of California Cabernet Sauvignon is grown in District 11, San Joaquin County north of State Hwy 4; and Sacramento County south of US50 and east of I5, that it would be an excellent area to grow Cabernet. While District 11 does grow the largest percentage of California Cabernet it tends to fulfill the more inexpensive wine market demand. This is reflected in the weighted average price per ton for Cabernet grapes in 2001 for District 11 which was at just under $500/ton. Compare that to Napa Counties nearly $3,750/ton for Cabernet. Here are more statistics showing how many tons by varietal were produced each year in each district. Then equate these actual tonnages with the average price per ton, and the picture will really start to come into focus.

Chardonnay	Merlot	Pinot Noir	Syrah	Zinfandel

(Click on the charts above for a larger image.)

The premium growing regions certainly haven’t gone unscathed in the most recent downturn of the vineyard business cycle. However, these regions have fared much better than their less quality oriented counter parts. Recent data from wine analysts suggest that the under $7 bottle of wine market has been hardest hit (Jon Fredrickson – Wine Analyst, San Francisco Chronicle) and this is reason why up to 50,000 acres of vineyard will be ripped out and replanted with a different crop in the central valley this year. Other statistics show that shipments of $15- plus bottles of California wine were up more than 7% - 10% in the year 2002 (Motto Kryla Fisher, Wine Business Monthly.)

This data supports our theory that the wine drinker who drinks his/her $50 to $100 bottle of wine each evening with dinner will continue to do so through any economic set back providing a market place of ultra premium fruit. The glass of wine is always half full for “Ultra Premium Wine Makers”, that can’t make enough of their sweet nectar for the demand, no matter what the economy is doing.

My vineyard investment dollars are going into Napa and Sonoma Counties where I know that I will be able to sell my grapes each year for top dollar, and be able to resell my property in 10 years for 100% to 200% more than I paid for it.

For the potential vineyard buyer that is interested in investing in a good future secure return, I recommend paying strong attention to the facts and hedge your bet by buying in premium regions. Of course you will pay a little more for your vineyard, but my old theory of “It Only Cost A Nickel More To Go First Class” has given me that nice insurance policy against failure.

While the entire wine market faces increased pressure from an international supply of wine and as we go through our third year of an economic down turn one thing remains clear, quality is king. Soon we will see the tables turn and when they do, they will turn quickly. When our economy turns to a Bull Market again, it will be too late to grab that good opportunity. Now is the time to buy. Don’t wait until everyone is in a frenzy and bidding the prices up, which has happened in every decade for over 50 years. Vineyard values have increased in value over 100% every 10 years, no matter what the economy has been for over 50 years.

The doom and gloomer’s should be ashamed of themselves for their pessimistic out look on our wonderful industry. All one has to do is to sit back and wait. Things will change and when they do, where will your money be invested?

Our firm, Bergman Euro-National represents Vineyard Buyers and Sellers in Napa, Sonoma and Mendocino Counties. If you believe what I am preaching, and wish to buy or sell, I would be honored to help. You may wish to check out other articles that I have written over the last 15 years, as well as see our inventory and educational attitude on buy/selling vineyard/winery related properties. Our website receive from 200 to 5,000 new readers on a daily basis.

I deal very confidentially, and if you just wish to discuss your situation, I would be happy to meet with you. Remember to always drink from a glass that is half full.