Market Update - March 2001

                                                            Vol. 13 No. 2

                                                        Copyright 2001 Turrentine Wine Brokerage

                Confidential - For the exclusive use of clients of Turrentine Wine Brokerage

======================================================================================

e-BAY  FOR WINEGRAPES?________

e-Bay is one of the few e-commerce businesses that makes a profit and which has survived the market crash. So it is not surprising that clients ask us if we are planning to use an auction model, particularly an auction model for grape sales. Some people are already experimenting with grape auctions and wine folks are familiar with charity auctions as a way of getting headline prices for fancy wines.  Many growers have used auctions to buy and sell used equipment.  Auctions can be expensive but in these cases they are often worth the price.  But how about e-commerce auctions as a way to sell premium wine grapes? 

We don’t think so.  Auctions work well for impersonal transactions.  When you buy or sell something on e-Bay, you don’t get, and you don’t need, and you probably don’t want, any relationship with the person on the other side of the transaction.  The buyer needs nothing from the seller but the exact product promised.  The seller needs nothing from the buyer but cold, hard cash. 

That doesn’t sound much like winegrapes.  The buyer of winegrapes is very dependent on the grower to do all of the many things a grower must do to actually deliver the quality grapes the buyer wants.  And, as every winery knows, not every grower does all of these things equally well.  Nor does every winery agree on what they want the grower to do.

The seller of winegrapes is also dependent on the buyer.  Growers need wineries who will be reasonable about viticultural practices, will work with the grower when it starts to rain at harvest time, will take the grapes quickly when they are ripe, are fair about shortages and excesses and pay on time.  The grower/winery relationship is all about give and take and the development of a relationship.

In the absence of such a relationship, some have proposed to reduce the risk of selling to an anonymous bidder over the Internet by using part of the auction fee to purchase third party payment insurance.  This may work well for products that have clear-cut, objective quality standards – which winegrapes unfortunately lack.  If the highest bidder for winegrapes does have trouble making payments – and highest bidders sometimes do have trouble - quality concerns are likely to be invoked as a reason for non-payment.  Third party insurers may be slow making payments in the face of quality disputes, especially quality disputes they don’t understand. 

The best way to insure payment, as well as to find a buyer who is reasonable on the many critical issues of grape growing, is to sell to an established winery with a proven track record.  The best way to purchase grapes, if you are a buyer with a good record of fairness and of timely payment, is to find experienced growers, growers, that is, who know the advantages of selling to solid wineries instead of jumping for the highest bidder, however flaky they may be.  And the best way to make the connection between experienced growers and solid wineries is to call your favorite winegrape brokers (i.e., Brian, Michael, Steve or Bill).

We have sold many tens of thousands of tons of premium winegrapes over the last 28 years.  The key to our success has been personal service matching growers and wineries to facilitate great relationships, relationships that result in quality fruit and good, long-term business.  We are excited to develop e-commerce tools to augment – but never to replace – the key factor of great relationships.  e-Bay, eat your heart out! 

SNOWBOARDER’S  DREAM ______________

“But averages aren’t real,” Milo objected; “they’re just imaginary.”  “That may be so,” the child agreed, “but they’re also very useful at times.  For instance, if you didn’t have any money at all, but you happened to be with four other people who had ten dollars apiece, then you’d each have an average of eight dollars. Isn’t that right?”  “I guess so,” said Milo weakly.  “Well, think how much better off you’d be, just because of averages,” he explained convincingly.

The average price of Chardonnay from Monterey, according to the Preliminary Grape Crush Report, was $1,334 per ton.  Despite the words of wisdom above from the children’s classic, The Phantom Tollbooth, this average was not much help for those who had Monterey Chardonnay vineyards without a contract or had tonnage in excess of contracts.  The spot market grape price dropped to $1,200 per ton, then to $900 per ton, and finally to $600 per ton.  Everyone was amazed by this sudden snowboarder’s ride, but the crush report reveals the hidden topography creating this wild drop: Monterey Chardonnay production climbed a cliff, up 82% from 1999.  That’s an increase of 7.7 million gallons, which makes for quite a mogul.  Like a long line for lift tickets, the bulk market is now crowded with Central Coast Chardonnay.  Asking prices have been in the $5.50 to $9.00 range. 

Chardonnay also carved a snowboarder’s dream slope in Lodi, up 37%, the equivalent of nearly 6 million gallons more than 1999.  There’s a long line for lift tickets here too, with asking prices in the $3.00 to $4.00 range.  Statewide, Chardonnay climbed up a 42% slope, topping 1999’s production by a mountainous 31 million additional gallons. 

Chardonnay sales in grocery stores increased by about 12% in 2000, a healthy rate of growth on a large base.  But the difference between 12% growth in sales and 42% in production produces some interesting topography in the bulk wine market.  Most Napa and Sonoma 2000 Chardonnays have asking prices in the $9.50 to $13 range. But Napa and Sonoma production increased 30%, up 3.8 million gallons from 1999, and there are few motivated buyers. 

Cabernet Sauvignon was not far behind Chardonnay on a percentage basis, up a massive 40%. But Cabernet Sauvignon had both a smaller base and more pent-up demand.  More than half of the 16.7 million gallon increase came from the interior (Lodi up 4.5 million gallons, Central/Southern San Joaquin Valley up 5 million gallons).  But plantings in the coastal areas also kicked in. Really daring snowboarders, of course, will look to Paso Robles, which climbed a 71% wall.  That’s an increase over 1999 of 2.2 million gallons of Cabernet Sauvignon.  Napa and Sonoma were up “only” 30%, but on a bigger base, producing an increase of 3.9 million gallons.  

Nevertheless, the market for Cabernet Sauvignon bulk wine remains relatively strong.  Even from the interior regions, we are seeing fairly good demand for the best wines, although the market for average quality – and for remaining 1999 wines – is slow.  Prices for the top quality wines have been in the $5.00 to $6.25 range.  Coastal demand is also focused on the best quality wines, but coastal 1999 Cabernets are bringing a premium over the much more abundant 2000s.  Prices for Napa and Sonoma 1999 Cabernet Sauvignon are still in the $18 to $24 range, with an occasional spike upwards for a reserve quality lots.  Napa and Sonoma 2000 Cabernet Sauvignon has been mostly in the $16 to $20 range, also with occasional spikes.   Other North Coast Cabernet Sauvignon has been mostly $14 to $18.  Central Coast Cab is bringing $10 to $15 per gallon.

The wine business is always trying to play catch up.  For many years, Merlot was the hottest thing. Everyone planted Merlot and few planted Cabernet Sauvignon.  This resulted rather predictably in a shortage of Cabernet Sauvignon, which began to show up four or five years ago and which shifted the planting activity away from Merlot and over to Cabernet.  Now the shift to Cabernet plantings is beginning to show up with slower growth rates for Merlot production.  Statewide, Merlot increased 27% compared to 40% for Cabernet. The biggest increase was in Lodi, which jumped 38%, the equivalent of 3.6 million gallons.  The Central Coast (districts 7 & 8) claimed the second biggest Merlot increase, 35% or 1.5 million gallons.  Napa and Sonoma weighed in with a 28% increase, or 2.1 million gallons more than in 1999. 

In the interior, demand for Merlot in bulk this year developed more quickly than demand for Cabernet Sauvignon, although demand is still focused on the better quality wines.  Prices for the best wines have been in the $4.50 to $5.25 range. Napa and Sonoma Merlot 2000 has been in the $14 to $19 range. North Coast and Central Coast Merlot 2000 is mostly $11 to $15, with little supply. 

Syrah, of course, is a rocket, up 65% statewide, an increase of 4.7 million gallons.  Interior districts 11 (Lodi), 12 and 13 generously contributed over a million gallons each to that increase.  The Central Coast contributed another 875,000 gallons (up 125%). But the market seems happy with this rocket ride. Prices for the top lots from the interior regions are mostly $5.00 to $6.50, generally higher than for Cabernet Sauvignon of comparable quality.  Napa and Sonoma Syrah is selling in the $14 to $18 range.  North and Central Coast Syrah has been $10 to $14.

Sauvignon Blanc soared in 2000 after two short harvests. Although the production jumped 41%, the equivalent of 3.6 million gallons, it was still 300 tons less than the tonnage produced by the huge 1997 harvest.  So far, the market is responding well – although at lower prices - to the greater availability of Sauvignon Blanc, especially from the Coastal regions. Prices for Napa and Sonoma Sauvignon Blanc have been slow in the $8 to $11 range.  Lake and Mendocino Sauvignon Blanc has been mostly $6 to $8.  Central Coast Sauvignon Blanc has been in the $5.50 to $7.50 range.  Interior region Sauvignon Blanc has been slow in the $2.50 to $4.00 range.

Pinot Noir jumped 45% thanks to the efforts of the Central Coast, which increased production, over a very light 1999, by 119% or 1.8 million gallons. Napa and Sonoma contributed a 22% increase, for an additional 740,000 gallons. Pinot Noir demand is becoming more price and quality sensitive.  Napa and Sonoma Pinot Noir is mostly $12 to $17.  North and Central Coast Pinot Noir is mostly $10 to $14. 

GRAPE  MARKET ALIVE___________________

There are a few more tons of Napa and Sonoma grapes available now and sales are brisk.  We are also seeing some activity in Lake and Mendocino and along the Central Coast.  We even have a few sales cooking for superior quality fruit from the Northern interior. 

Be sure to call Brian “Mr. Grapes” Clements (or any of us) with your grape needs or your quality grapes for sale.  And surf to www.grapes-wine.com for grapes, grapes and more grapes.