2009 The Year of Volatility in the Wine Industry

With 2009 wrapping up I must say it’s been a difficult year for most wineries and growers alike. As projected the premier wine growing regions of NorCal had an average to larger than average crop year and with wine sales in the premium markets sluggish, many wineries are still shaking off excess inventory and are not looking to sign up new fruit. Some growers who had previously been selling their fruit on the spot market to high end boutique wineries at well over district average pricing, had to settle for less this year as the consumer “down shelf’s” in their quest for value orientated wines in this new economy. For wine drinkers and buyers looking to get into the wine business, this is good news as lowering grape prices means better values for both real estate and wine. For instance, there is currently an opportunity to purchase a quality vineyard in the famous Russian River appellation at $50,000/acre where just two years ago the vineyard would have been selling for $100,000/acre. Homesite values are really taking a hit too as growers that were willing to accept high prices for homesites, are now focusing on just income generating vineyards.

Unlike the residential markets there are not waves of foreclosures in vineyard and wineries partly due to financing. Vineyard financing has stayed on the conservative side with many buyers paying all cash. American Ag Credit (one of the largest Ag lenders in the nation) stayed true to their model of 65% max loan to value during the good times and haven’t seen the defaults like the more aggressive residential lenders.

Cash flow is king with vineyards once again and the most discerning buyers are welcoming this time as the “right time” to get into the game. I refer to this as the “shift of wealth” and buyers that have assembled their “war chest” of liquidity are out picking up opportunities at prices we haven’t seen since the 90’s. We are also seeing a lot of winery buyers out looking to acquire quality brands that cannot reposition themselves due to sales in premium wines down and capital being tougher to tap into. Now is the time when many wineries will change hands due to banks tightening up their lending standards and operating capital becomes tougher to tap into. This could be the best time in over a decade to be a buyer…

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Looking Ahead to a Shortage in Premium California Vineyards?

With the 2009 crop being harvested off the vine as I write this first entry of the NorCal Vineyard blog, it is expected that the 2009 crop will be a big one in California. Most wineries have been sitting on the fence this year wondering just how big this crop might be? In 2005 the California vineyard crop hit its largest year on record with 3.76 million tons produced and the 2009 crop may reach $3.5 million tons. Up until a potential larger than average crop in 2009, we have experienced three light crop years in a row which had been a welcomed relief in light of the current economy.

The threat of a large 2009 crop has discouraged most growers and wineries from planting new vineyards, although this may be the perfect time as 80% of California’s vineyards are more than 9 years old, 37% are 17 years and older, with the typical productive life of a vineyard being 20 years. Andy Beckstoffer, Northern California’s largest vineyard grower is also feeling bullish as he just planted 150+ acres in Lake and Mendocino County (Chardonnay and Cabernet Sauvignon).

If you look at any wine sales trajectory charts, you will see that demand will exceed production of California grapes in a few years unless growers expand plantings. This deficiency will likely be met by cheaper imports unless California becomes pro active and quickly starts planting.

I have attached a handout titled “sample costs to establish a vineyard and produce wine grapes” for both Lake County and Napa. The information is very useful for someone considering getting into the vineyard industry and the time may never be better. If you have interest in planting a vineyard or acquiring a vineyard in the wine country, please give us a call.

"Sample costs to establish a vineyard and produce wine grapes" - Lake County

"Sample costs to establish a vineyard and produce wine grapes" - Napa

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