There continues to be lots of market activity around most red varietals (we’ve sold over 22,000 tons of grapes on the Central Coast in the last 5 weeks); although, for the most part, prices continue to be well below what growers were hoping for.  As wineries strive to produce the value wines that recession-weary consumers are demanding, they are watching the bottom line and trying to control costs.  Crushing capacity doesn’t appear to be an issue (although there are concerns that multiple varieties may be ripe at the same time) and several wineries are offering creative partnerships or revenue-sharing deals in addition to traditional custom crush.  So far, however, relatively few tons have been committed to custom crush, with most growers deciding to sell their grapes given the uncertainties of the overall economy.

If you still need to purchase grapes or if you have not listed your grapes for sale – give us a call.  There are still opportunities to purchase most varieties (not much Muscat or Malbec available!) and there are wineries actively looking for most varieties (we could use a few more Chardonnay buyers – at any price).  We’re also here to discuss the bulk wine market and help with custom crush or partnership arrangements.  Here’s to a successful vintage!

Well….there may be a few things to consider first….

1) Supply and Demand:

Presently, the North Coast markets are oversupplied for grapes and prices for all major varieties are soft.  Most wineries are not currently active and sellers are very concerned.  At this time, we have a limited number of clients looking to purchase Napa Valley Cabernet Sauvignon, Dry Creek and Alexander Valley Cabernet Sauvignon and Dry Creek Valley Zinfandel, respectively.

2) Weather:

I’ve worked in the North Coast since 1994 and this is the coolest summer I’ve experienced.  For the last several weeks, the marine layer hasn’t burned off until around 11:30am and temperatures in the vineyards are barely reaching 85ºF (usual temperature is over 90ºF).  As a consequence of this unusal weather, most varieties are at least two weeks behind in ripening, leaving growers and wineries concerned.

3) Economy & Consumer Buying Habits:

The luxury end of the wine business has been dramatically affected by the collapse of the U.S. economy.  Consumers have (temporarily) traded down to below $10/bottle wines and those sales have increased. North Coast wineries and growers are hoping the economy rebounds and consumers trade back up; however, most accept the probability that it won’t occur in 2010.

So….all may not be perfect in the North Coast but the area is still beautiful.  Let’s hope (and pray) for an Indian Summer, an improved economy and increased consumer spending!

Brian Clements
Vice President/Partner

Consider a thought experiment in the bulk wine market. Imagine 100 sellers of bulk wine and 100 buyers. The amount the sellers want to sell happens to be exactly the amount the buyers need. In the first scenario, however, all of the players think (falsely) that the market is short of supply. Because of this perception, buyers are eager to purchase as soon as possible and they snap up any wines offered, often paying full asking price in order to secure the purchase. Sellers take this as absolute proof that the market is short and they are convinced that prices will increase over time. Most of them wait to put up wines for sale. Buyers get increasingly anxious as few wines are listed and they bid up prices, confirming the sellers’ perception of a short market and rising prices. By the time most sellers list their wines, buyers are ready to pounce on whatever they can get their hands on in order to finish blends prior to harvest.
In the second scenario, the market is again perfectly balanced but this time buyers and sellers perceive the market as long. Sellers are worried that they might not be able to sell their wine and so they rush to get the wines listed as soon as possible after harvest. Many wines come on the market but buyers figure that the longer they wait, the lower the prices and the better the selection. Few wines sell and sellers drop their asking prices. A few buyers cherry pick the best lots and three or four make low-ball offers. Most buyers wait and sellers get increasingly desperate. By the time buyers are ready to make their move, the sellers will take just about any offer, especially if they need to empty tanks prior to harvest.

The same amount of wine changes hands in both of these scenarios. Exactly the same balance between supply and demand was made to act like a short market or a long market, depending entirely on perception. But perception can do even more than that. Perception can for a while make a short market behave like a long market and visa versa. In this case, however, reality gets the last laugh. If most players think there is a shortage of supply even when there is really a developing excess, buyers will rush to buy and sellers will be slow to sell and the market will act like a short market, confirming the initial perception. This can only last for awhile, however. Before long, more sellers will emerge and buyers will fulfill their needs and step out of the market. Sooner or later, the excess of supply will become evident and perception will come into line with reality, often with a violent correction. The same short-term mix-up and eventual correction will happen with a short market that is perceived by the overwhelming majority to be long. Sellers will be anxious to sell, buyers will delay buying and the distressing symptoms of a long market will appear. Eventually, heel-dragging buyers will make their move, only to discover that many other buyers are making the same move at the same time and they all want the same lots of wine.

How does this apply to the current market? Unfortunately, there is no way to get an absolutely objective view of the total balance of supply and demand (although our publication, The Turrentine Outlook, does provide the most comprehensive overview). The market is certainly behaving like there is a significant excess. Grape sales in general are very slow even as summer begins and crush draws near. The bulk market is also slow for most varieties. Sellers are very anxious to sell. A few buyers are cherry-picking the best quality lots but most buyers are pretty quiet. What no one knows for sure, however, is what volumes and price-points of wine our old friends, Connie & Conrad Consumer, are going to want. More than any other factor, the ultimate direction of the market during the next year will be determined by this unknown consumer demand. If past patterns prevail, at some point, Connie and Conrad may feel that the worst of the recession is over and that they can splurge at least on little things, like good wine. This may not happen for six months or twelve months or eighteen months or twenty-four months. When it does happen, however, it will catch the wine business short. Consider the following factors:

1. Banks are still under pressure to enforce lending standards and credit remains tight. This forces everyone from restaurateurs and retailers to wholesalers and wineries to keep inventories unusually thin. This often leaves growers stuck with inventory because there is no one else upon whom they can push it back. An improvement in consumer sales would help ease the credit-crunch and cause the supply chain to replenish.

2. We are not likely to see the same big imports of Australian Chardonnay this year as there was last year. The 2010 Chardonnay crop was down in Australia and the Aussie dollar is stronger against the U.S. dollar than it was at the time of the big influx, increasing the cost of importing Australian wine. Supplies of the main varietals from other global producers most competitive with California are not way out of balance.

3. Rain, wind and cloudy weather in California during bloom for many earlier varieties in many regions may have reduced the expectations for a big 2010 crop and could also affect bud fruitfulness for 2011.

4. There are ample quantities of 2009 reds on the bulk market. In tough markets, however, sellers do not always invest in oak and other finishing that costs real, out-of-pocket dollars. When winemakers finally get the green light from finance to purchase 2009 red wines, they may not have time to finish the wines before bottling. In the midst of an excess of supply, there could be a shortage of red wine that is actually usable as just-in-time inventory.

The grape and bulk wine markets are likely to be tough until consumer sales have established a clear trend towards both increasing consumption and increasing price-points. And nobody knows for sure when that will happen. In times like these, growers and wineries need to remain flexible, doing what is necessary for short-term survival but also keeping an eye on future opportunities. You could compare the challenges to a hike across a glacier. For safety in perilous conditions, it helps to consult with a guide who has explored much of the glacier and knows where the crevasses are and how to find the best passages around them. Give us a call to identify the opportunities for your unique situation over the next few months, and years, in a constantly changing supply and demand equation.

Bill Turrentine
Chairman/Partner

The grape market in the Interior was steady early with prices similar to last year.  The Southern SJV is buttoned up except for Thompsons, which is in a world of its own, where a grower has a decision to make as to whether to lay down on trays for raisins or deliver green as grapes.  In the Northern SJV, all reds and Pinot Grigio are tied up.  But the North SJV still has some grapes that are looking for a home, particularly Chardonnay, Zinfandel and a spattering of Merlot.  The Northern Interior Grower, who has either or both Chardonnay and Zinfandel, which currently that lack demand are faced with prices that are not sustainable and are facing the uncertainty of the future in hopes of a turnaround.  What has done a turnaround is Muscat, any kind of Muscat!  Who would have thought that this floral would bring more than Chardonnay and Zinfandel!

Each year brings its share of challenges.  Depending how prepared we are to meet those challenges will determine our success.  Having a good team that has experience and knowledge that you can trust, is important in business and in life.  We put this to use with our clients to guide them through the ups and down of the wine road.  And this year, I used more tools creatively to help me with clients and life challenges in 2010!

Best wishes to all for the upcoming harvest.

Erica Moyer
Grape Broker/Partner

The Turrentine blog will be extending and expanding that source of key market insights and information into a new format, which will be accessible on a more frequent basis. In gathering valuable and relevant information regarding the wine industry coupled with our team’s opinions and analysis, the aim of our blog is to share information to enable companies as well as individuals to obtain a better understanding of the current wine market.

Don’t worry, we will still be publishing the Turrentine Market Update newsletter! Look to the Turrentine Blog for industry updates and interesting writing on market trends from our team of brokers:

The harvest of 2010 is rapidly approaching in California; in fact, in most years it would have already started in the southern San Joaquin Valley. The cool Spring and moderate Summer to date have grapes in most regions behind normal ripeness, however. The harvest delay is (mostly) OK with coastal grape buyers and bulk wine buyers. Clients are all playing the “Just In Time inventory” game in addition to trying to be 100% correct in a decision. It’s difficult to blame them, with challenging consumer markets over $10.00/bottle, conflicting information on crop size and inventories, conservative sales projections and “just in time” inventory orders making it challenging.

A recent article in the Wall Street Journal outlined a Just in Time inventory battle in the garment industry with retailers requesting smaller orders from manufacturers with the right to reorder at the last minute if a style takes off. They are battling over the increased costs, who will accept the risks of last minute orders, and how and when do manufacturers ramp back up idled production. View this article at:  “Tug-of-War in Apparel World”

A similar challenge is playing itself out in the wine industry as retailers, distributors, wineries and growers sort out who holds inventory and the risks associated with too much inventory. The focus is on avoiding too much inventory, but there are risks of too little inventory also. As we point out in the Turrentine Wine Business Wheel of Fortune, our lead times for production are longer than a few weeks or months, and can be years to change production of wine.

We see a lot of clients obsessing on the trees but unable to look at the forest. The more they analyze, the more unsure they become. In these times of uncertainty, we have always found it best for clients to make smaller decisions in order to insure some quality and dollar cost average their purchases.

It seems most buyers are waiting until the last minute to decide. Our experiences have taught us that buyers lose in the end as they battle over the best quality lots and eventually either pay more or have to accept lower quality wines or grapes than if they had acted sooner.

Since July 1^st of this year, we have moved well over 2,000,000 gallons of wine in bulk (from California and imported). The grape market has also picked up with a fair number of negotiations being completed, some of which had been dragging on for a while as buyers held out, waiting for more market information. Future blogs from the Turrentine team of brokers will address specific market information.

Our Company is known for thinking ahead and bringing opportunities to our clients. Our market knowledge is the best in the business due to the time our brokers spend in the market negotiating and completing deals, and the hundreds of hours we put in crunching numbers and dissecting respective markets. This gives us the ability to quickly update clients on the exact supply and demand dynamics for both grapes and bulk wine.

It is important to remember that no one strategy works for all clients. Each client has their own unique situation and our broker team is experienced at seeking customized solutions for individual situations. Our goal is to provide results that allow our clients to retain their competitive advantage.

Contact us to discuss the current market. 415-209-9463. Be sure to check back for updates or go to www.turrentinebrokerage.com for additional information.

Steve Fredricks
President

Consider a thought experiment in the bulk wine market…

2009 was the second largest crop in California history…