| In early 1996 a stampede began for small vineyard estate sites. Prices on a per acre basis began to climb as the cost, per ton, for grapes began to hit record highs.
Sonoma County vineyard prices hit all time high
In the same year, sale prices for Sonoma County vineyard land jumped 40% over the previous year and even prices for raw land suitable for grapes is up to as much as $30,000 per acre with producing vineyards selling for more than $50,000 per acre.
Wall Street gets interested
In 1997 the wine industry looked so rosy that a number of REIT's (Real Estate Investment Trusts) were created with the specific purpose of buying vineyard land and then leasing them back to the farmer on a long term agreement. The advantage to the farmer is that it allows him to conserve his cash while still controlling his property.
The coming grape "glut"
Also in 1997, industry watchers forecast a grape glut in 3 to 5 years due to increased vineyard planting world-wide. In my view the demand for premium wines will remain strong as the regions where premium varietals can be grown is severely limited. So if you're about to invest in a vineyard, the golden rule is that a small premium vineyard will give you a better return than a large mediocre one.
SOME PREMIUM GRAPE PRICES IN NAPA AND SONOMA COMPARING
1996 TO 1998 AND PROJECTED FOR 1999 ON A PER TON BASIS
| Year |
1996 |
1997 |
1998 |
1999 |
| Zinfandel |
$ 1,500.00 |
$ 2,200.00 |
$ 2,550.00 |
$ 2,800.00 |
| Sangiovese |
$ 1,750.00 |
$ 1,900.00 |
$ 2,300.00 |
$ 2,750.00 |
| Pinot Noir |
$ 1,450.00 |
$ 2,300.00 |
$ 3,000.00 |
$ 3,100.00 |
| Petite Sirah |
$ 1,300.00 |
$ 1,850.00 |
$ 2,400.00 |
$ 2,550.00 |
| Napa Gamay |
$ 700.00 |
$ 1,000.00 |
$ 1,500.00 |
$ 2,000.00 |
| Merlot |
$ 1,650.00 |
$ 2,350.00 |
$ 2,400.00 |
$ 3,000.00 |
| Cab. Franc |
$ 1,650.00 |
$ 2,250.00 |
$ 2,400.00 |
$ 3,000.00 |
| Cab. Sauv. |
$ 1,850.00 |
$ 2,450.00 |
$ 3,300.00 |
$ 4,000.00 |
| Chardonnay |
$ 1,500.00 |
$ 2,000.00 |
$ 2,500.00 |
$ 3,000.00 |
| Chin Blanc |
$ 750.00 |
$ 950.00 |
$ 1,500.00 |
$ 1,700.00 |
| Sauv. Blanc |
$ 1,000.00 |
$ 1,300.00 |
$ 1,500.00 |
$ 1,800.00 |
| Semillon |
$ 1,050.00 |
$ 1,250.00 |
$ 1,500.00 |
$ 1,700.00 |
| White Riesling |
$ 650.00 |
$ 1,000.00 |
$ 1,200.00 |
$ 1,350.00 |
Source: Napa Valley Grape Growers Association
At present, there are only 2 apellations in California that produce "ultra premium" wines: Napa and Sonoma counties. This is not to say that there will not be other apellations that will be in the running soon. There are some fabulous wines coming out of other areas recently and it appears that wine drinkers are in for better quality from a lot of sources.
However, my bet for insurance on how to protect your vineyard investment dollar is to invest it in the finest areas known. I hear about the wine glut that has been supposed to come for the last 3 years. So far the sky has not fallen, and I know for a fact that there will never be a glut on the "ultra premium" wines such as Cabernet Sauvignon and Chardonnay in areas such as Carnaros and Stag's Leap, Howell Mountain, Mount Veeder, and other "micro appellations" where only a few acres of these top of the line grapes can be grown.
In all of Napa county there are only a little over 36,000 acres of grapes grown, while only 10,600 of them are the Cabernet Sauvignon varietal. In Sonoma county there are over 40,000 acres of vine grown and only 13,300 acres of Cabernet Sauvignon.
Out of all of these acres, there are about 2,750 acres that are considered "ultra premium" growing areas. In mid-1998 Napa Valley broke the record be selling one of its ultra premium vineyards for over $100,000 per acre. As more wine drinkers become educated on the finer wines, the demand will grow. The land that produces these grapes will become more scarce and the values will do nothing but climb.
I do, however, believe that there will be a glut for the jug wines, or the inder $8.00 per bottle wines. If you want to buy into these volume driven grape growing ventures, be prepared to pay big time when the bottom drops out of the market.
The average grape prices for each grape producing county in California, taking into consideration all varietals, are as follows:
COUNTY AVERAGE PRICE PER TON PAID
| |
1998 |
1999 (EST) |
| San Luis Obispo |
$ 992.00 |
$ 1,150.00 |
| Monterey |
$ 1,144.00 |
$ 1,350.00 |
| Mendocino |
$ 1,175.00 |
$ 1,475.00 |
| Santa Barbara |
$ 1,318.00 |
$ 1,650.00 |
| Sonoma |
$ 1,359.00 |
$ 1,775.00 |
| Napa |
$ 1,510.00 |
$ 1,870.00 |
Source: SBC Agricultural Commissioner,
California Department of Food & Agriculture
Where are grape prices heading?
Most vineyard properties in Napa and Sonoma counties have some sort of grape purchase contracts with wineries. Most of the contracts call for paying a percentage of the average per ton sales price. Either over the average, under it, or right on. The average is based on the prior year's per ton sales price in a given area, or appellation. All one has to do is look at the per ton prices for 1998 to see where the prices will be for 1999.
If you are about to plant a new vineyard, I recommend dependable Cabernet Sauvignon. Varietals growing in popularity include Syrah, Malbec or Zinfandel.
Have a great holiday, and I wish everyone an extremely successful new year in 1999.
If you are interested in buying a vineyard, I suggest that you go to my web site http://www.bergmanvineyards.com and click on the link to my questionnaire. Fill in the blanks and click on "submit" to send your information to me. I will be happy to help you create your dream of living in the wine country.
Vineyard Shoppers Questionnaire
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