Wine Grape Prices Spurt Higher

Wine grape prices shot to near record levels last year, and wineries--frantic for greater supplies in a second consecutive year of drought--are scurrying to beat yet another price leap in 1988 and and contemplating a rise in wine prices.

Figures from the just-released California Department of Food and Agriculture’s 1987 grape crush report show the demand for three key varieties has shot up in the past few years partly due to a short crop in 1987 and to increasing demand for wines in the so-called pop premium segment of the market.

“We’re in danger of becoming a three-wine industry,� said Richard L. Maher, president of Christian Brothers Sales Co. in the Napa Valley. Maher said the demand for Chardonnay, Cabernet Sauvignon and White Zinfandel has been intense in the past three years, and that at the same time, the demand for many other premium wines, made with different grape varieties, has slid.

And the upward spiral of wine grape prices in the past six years doesn’t appear to be over, say industry leaders, because demand hasn’t slackened and the drought that began in wine regions in 1987 hasn’t ended.

The state grape crush report showed that the statewide average price paid was $220.53 per ton of grapes in 1987, up 18% from 1986 and up 37% since 1985. The average price paid in 1987 was the second highest on record, surpassed only by the $249.40 paid in 1981, at the height of a mini-boom in wine.

The most recent demand, however, has been in premium wine, any wine that sells for $3 or more per 750-milliliter bottle.

In 1981, there was strong demand for as many as a dozen premium grape varieties. By last year’s harvest, the state report showed, demand was greatest for Chardonnay, Cabernet and Zinfandel, with demand sinking for at least three varieties. The latter grape has largely been crushed for production of a white wine, White Zinfandel. And in spite of much greater tonnage available last year over 1981, prices were still at near-record levels.

The report said the statewide average price paid for Chardonnay last year was $921.98 per ton, up from $855.50 the year before; the statewide average price paid for Cabernet in 1987 was $630.99, up from $550.17 in 1986, the report showed.

One reason for the increase in prices, the report noted, was that the statewide crop last year was down 11% in size, to 2,486,631 tons. Tonnage was off because of a May heat wave that destroyed potential grape clusters, and a drought that reduced berry size.

“If the drought continues, and it looks like it will, we’ll have another short crop this year and that will drive prices up even further,� said Mike Moone, president of Wine World, parent company of Beringer and Chateau Souverain.

“We’re bidding on Cabernet right now,� Maher said, “and we’re talking $1,300 a ton.� Moone predicted that Cabernet prices could rise by 30% to 40% within the next two years.

However, many growers, realizing that they are in the drivers’ seat, are sitting back and not signing contracts for this year’s harvest, as they typically would do by spring. Said one industry source: “Growers are reluctant to sign contracts. They’d prefer to wait to see what happens. Why sell for $1,200 a ton when you might be able to get $1,400?�

Higher Prices Anticipated

Industry analyst Jon Fredrikson said: “There’s no question that some growers have done extremely well in the last year, especially Zinfandel growers, and it’s about time. Many were hurt badly in the early 1980s when they could barely give Zinfandel away.

“But it’s unlikely that situation will last for a long time. The economics of the market will dictate a change. New plantings will come on line.�

Both Maher and Moone said they anticipate price increases on some products this year, and Fredrikson said some price increases already are being seen.

“There is a risk in taking price increases, but the industry generally has had no significant price increases in five years,� said Fredrikson, president of San Francisco-based Gomberg, Fredrikson & Associates.

“Now that market conditions have changed, you can’t expect wineries to swallow a major increase in grape costs, and many have already taken price increases. We’ve seen more more (price increases) in the first quarter than any first quarter in the last five years.

“But these are not obscene increases, the way the French took them when they had such strong demand in the early 1980s. These are reasonable price increases.� He said typical price hikes by premium wineries were between 5% and 10%, meaning that a wine that sold for $12 last year may well sell for $13.50 or $14 this year.

“Yes, prices have to be forced up, but I think we’re a couple of years away from major increases,� said Maher, who pointed out that there have been large plantings of key varieties in the past few years in areas such as the Stockton Delta and in some of the cooler regions of the northern San Joaquin Valley.

“We’ll all hold our prices,� said Wine World’s Moone, “because the new plantings are right around the corner.� But Fredrikson said smaller producers can’t afford to hold prices down over the short term.

“The one that’s been hurt most is the smaller negociant (broker), anybody who has not contracted long-term to protect his supply and his price,� said Fredrikson. He said the major players in the pop-premium Chardonnay business--labels such as Beringer’s Napa Ridge, Glen Ellen and Belvedere’s Discovery series--will dominate that segment of the market. Smaller competitors will have a harder time competing.

Pinot Noir Popular

The demand for some other grapes also is increasing, Fredrikson said. He said Pinot Noir prices have risen recently because of the demand for that grape, which is used in the production of premium sparkling wine.

“There’s a booming demand for champagne-quality grapes,� he said. “(The champagne) market grew 21% last year, and I’m pretty bullish on that segment. And the increasing demand for Pinot Noir for sparkling wine may force the price of red Pinot Noir up, too.�

Moreover, Maher predicted that Merlot was a “hot star with plenty of potential. There’s just not enough of it planted.�

At the same time, demand is off for such wines as Riesling, Gewurztraminer, Chenin Blanc, and even the once-rising Sauvignon Blanc, meaning static shelf prices or even discounts.

Fredrikson said that three of every four bottles of premium wine sold last year were either Chardonnay, Cabernet Sauvignon or White Zinfandel, and that when wholesalers realize that 25% of their sales are taken up by hundreds of cases of slow-moving wines, “they will become concerned about all this inventory, and we’ll see discounts on wines like Pinot Blanc, Petite Sirah.�

GROWERS RECEIVE HIGHER PRICES

Wineries crushed 2.49 million tons of grapes last year in California, down 11% from 1986 and 20% from the record 1982 harvest. White wine varieties continued to make up the largest share of grapes crushed.

LEADING VARIETIES CRUSHED IN THE 1987 CROP

French Colombard: 25%

Thompson seedless: 16%

Chenin blanc: 12%

Cabernet Sauvignon: 3%

Carignane: 3%

Barbera: 3%

Flame Tokay: 4%

Chardonnay: 4%

Grenache: 4%

Zinfandel: 6%

All other varieties: 21%

NAPA VALLEY GRAPE GROWING

Average grower prices per ton in California’s premium growing region in 1987 and 1981.

Grape Variety 1987 1981 Chardonnay $1,107.75 $1,346.09 Cabernet Sauvignon 1,082.84 798.79 Merlot 1,118.76 698.89 Zinfandel 480.97 550.56 Sauvignon Blanc 594.42 998.90 Pinot Noir 800.62 602.23 White Riesling 503.12 690.96 Chenin Blanc 341.63 627.36 Gewurztraminer 473.37 759.08

Tons of grapes sold in the valley for crushing by wineries.

Grape Variety 1987 1981 Chardonnay 27,724 9,905 Cabernet Sauvignon 16,669 15,604 Merlot 2,456 2,532 Zinfandel 8,369 7,202 Sauvignon Blanc 11,907 4,360 Pinot Noir 8,428 8,344 White Riesling 2,777 3,911 Chenin Blanc 10,153 8,929 Gewurztraminer 1,200 1,503

Source: California Food and Agriculture Dept.