AGRICULTURAL FIELDCOLLATERAL INSPECTION DEPARTMENT - PowerPoint PPT Presentation

Title: AGRICULTURAL FIELDCOLLATERAL INSPECTION DEPARTMENT


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• AGRICULTURAL FIELD/COLLATERAL INSPECTION
  DEPARTMENT
• COURTYARD BY MARRIOTT
• FRESNO, CALIFORNIA
• March 10, 2009

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Industry Issues

• A review of important industry issues to growers
• Californias Winegrape Supply
• Will California wine get replaced if we cant
  supply the market?
• Is the current planting behavior managed or
  knee-jerk?
• Will supply/demand be affected by pending
  appellation/labeling issues?
• Economic Sustainability
• Ever-rising costs
• Payment for quality not quantity
• Industry Investment in Ourselves
• Promotion of CA Wine (mandatory assessment or
  voluntary donations?)
• Research (NGWI AVF)
• Sustainability (CSWAs self assessment
  certification programs)
• The Economy
• Its effect on wine sales at the various price
  points
• What implications does that have given what
  varieties and where we are planting new vineyards
• Proposed new excise tax (or should we call it
  excessive tax?)

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Understanding the Market
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Understanding the Market
Californias 17 Pricing Districts
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Understanding the Market

• Understanding the wine winegrape markets will
  help you.
• properly forecast revenue.
• be able to effectively negotiate a contract.
• decide when and what to plant.
• be more decisive about when to sell and at what
  price.
• properly match inputs to revenue.

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The 2008 Crop and California's Production History
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Additional graph source Joseph Ciatti Brokerage
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California Production
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2008 Winegrape Crop
What were the characteristics of the 2008
winegrape crop?

• Estimated to be smaller than 2007 statewide
• Drought, frost, spring winds, heat spells, etc.
• 2008 completed the market balancing trend
  experienced since the large crop of 2005
• The 2008 crop can be categorized as a below
  average crop overall.
• The interior regions produced slightly below
  average.
• The coastal regions produced well below average.

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A review of Production vs. Shipments
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Production vs. Shipments
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Production vs. Shipments
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Production vs. Shipments
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Production vs. Shipments
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Production vs. Shipments
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Production vs. Shipments
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Production vs. Shipments
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Understanding the Supply Planting Acreage
Discussion- By Major Variety
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2009 Nursery Survey

• In January 2009 Allied Grape Growers conducted a
  confidential voluntary survey of California
  nurseries to determine up-to-date planting
  trends.
• The findings include the following
• We believe to have captured data representing up
  to 3/4 of the major varietal vine sales in the
  state, by variety, and region.
• Depending on vine spacing, total planted acreage
  of these varieties identified via the survey
  represents between 14,000 18,000 acres.
• Following are some of the survey results depicted
  graphically

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2009 Nursery Survey
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2009 Nursery Survey
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The following slides break down data into
categories based on three price tiers High, Mid
Value. For each variety, the regions were
placed in the respective price tier based on the
average price for that variety in that region for
the last three years.
Breakdown
High
Mid
Value
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2009 Nursery Survey
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California Chardonnay Acreage
Regional Breakdown
High gt1,300
Mid 700-1,300
Value lt700
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Chardonnay

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 21.5 planted in high end regions
• 50 planted in mid range regions
• 28.5 in value regions
• Contracts currently being offered
• Some speculative planting/grafting
• Could use some in most regions
• Market likely short to balanced in future
  depending on crop size
• Managed growth, not explosive growth

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California Pinot Grigio Acreage
Regional Breakdown
High gt1,500
Mid 1,000-1,500
Value lt1,000
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Pinot Grigio

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 4 planted in high end regions
• 10.5 planted in mid range regions
• 85.5 in value regions
• Contracts currently being offered, but slowing
• Speculative planting/grafting occurring
• Market likely balanced in future depending on
  crop size....but are we moving toward excess??
• Explosive growth a concern
• Still unknown market capacity

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California Sauvignon Blanc Acreage
Regional Breakdown
High gt1,300
Mid 700-1,300
Value lt700
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Sauvignon Blanc

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 65.5 planted in high end regions
• 25.5 planted in mid range regions
• 9 in value regions
• Some contracts may be available in high end
  regions
• No real supply growth needed
• Do not plant speculatively
• Price ceilings for Napa and Sonoma versus other
  opportunities

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California Cabernet Sauvignon Acreage
Regional Breakdown
High gt1,300
Mid 700-1,300
Value lt700
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Cabernet Sauvignon

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 55.5 planted in high end regions
• 27 planted in mid range regions
• 17.5 in value regions
• Temporarily hold planting on speculation
• Evaluate how short 2008 was in reality
• Evaluate longer-term effect of economy
• Market likely balanced in future
• Planting if contract is offered - OK

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California Merlot Acreage
Regional Breakdown
High gt1,300
Mid 700-1,300
Value lt700
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Merlot

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 61 planted in high end regions
• 32 planted in mid range regions
• 7 in value regions
• Plant on speculation if you want to take risk
• Market balancing quickly
• Planting if contract is offered OK
• Evaluate long-term appropriateness of planting in
  your region

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California Pinot Noir Acreage
Regional Breakdown
High gt2,000
Mid 1,000-2,000
Value lt1,000
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Pinot Noir

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 43 planted in high end regions
• 20 planted in mid range regions
• 37 in value regions
• Contracts being offered, but slowing
• Speculative planting/grafting occurring
• Market balanced but moving toward excess
• Explosive growth a concern
• Long-term viability in Value regions?

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California Syrah Acreage
Regional Breakdown
High gt1,300
Mid 700-1,300
Value lt700
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Syrah

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 26 planted in high end regions
• 68 planted in mid range regions
• 6 in value regions
• Plant on speculation in Value region if you
  want to take risk
• Hold planting in other regions
• Market weaker at higher price points

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California Zinfandel Acreage
Regional Breakdown
High gt1,300
Mid 400-1,300
Value lt400
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Zinfandel

• Supply/Planting Considerations
• According to 2009 Nursery Survey
• 27 planted in high end regions
• 47 planted in mid range regions
• 26 in value regions
• Primitivo replacing Zinfandel?
• Market for new plantings is weak
• Hold planting for Red and White Zin
• Shifting utilization in Lodi (white to red)

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California Acreage
Breakdown
High
Mid
Value
Combined data includes Chardonnay, Pinot Grigio,
Sauvignon Blanc, Cabernet Sauvignon, Merlot,
Pinot Noir, Syrah Zinfandel (75 of est. total
bearing acres)
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Acreage Summary

• Total winegrape acreage is not changing
  materially, but the mix of varietal production
  is.
• The hot Pinots, Grigio Noir, may be
  approaching market capacity in regions not proven
  for their long-term production.
• We are seeing renewed interest from growers to
  plant winegrapes as a balanced approach to their
  farming operations.
• Some of the old faithfuls Chardonnay, Cabernet
  Sauvignon maybe even Merlot could experience
  increased demand for planting in the near future.
• As an industry we should focus on understanding
  the planting, production and consumption trends
  so we can experience managed growth over the next
  decade.

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A look at costs Can we justify new planting?
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Grower piggy-bank
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2008 Cost Survey
Explanation of values on following slides

• ROI Return on Investment was figured by
  determining an investment value range based on
  the lows and highs of land cost development OR
  existing vineyard value, then expecting an 8-12
  annual return on those averaged low and high
  values.
• Annual Costs include all costs such as cultural,
  cash non-cash overhead, harvest, etc. and were
  provided by 50 growers statewide.
• Grower compensation was included by AGG.

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2008 Cost Survey

• Napa costs per acre to farm winegrapes
• Return on Investment 4,600 29,100
• Land and Development
• Annual Costs 4,000 12,000
• Cultural, Overhead, etc.
• Grower compensation 1,200 /-
• Total 9,800 42,300
• At the 2007 Napa County average price of
  3,134/ton,
• growers need to yield 3.1 to 13.5 tons per acre.

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2008 Cost Survey

• Sonoma costs per acre to farm winegrapes
• Return on Investment 4,400 13,500
• Land and Development
• Annual Costs 4,000 8,000
• Cultural, Overhead, etc.
• Grower compensation 1,000 /-
• Total 9,400 22,500
• At the 2007 Sonoma County average price of
  2,064/ton,
• growers need to yield 4.5 to 10.9 tons per acre.

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2008 Cost Survey

• Mendocino, Lake, Solano costs per acre to farm
  winegrapes
• Return on Investment 2,000 7,200
• Land and Development
• Annual Costs 3,250 6,500
• Cultural, Overhead, etc.
• Grower compensation 750 /-
• Total 6,000 14,450
• At the 2007 weighted average price of 1,145/ton,
• growers need to yield 5.25 to 12.6 tons per acre.

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2008 Cost Survey

• District 8 costs per acre to farm winegrapes
• Return on Investment 2,400 7,500
• Land and Development
• Annual Costs 2,700 5,200
• Cultural, Overhead, etc.
• Grower compensation 750 /-
• Total 5,850 13,450
• At the 2007 District 8 average price of
  1,114/ton,
• growers need to yield 5.25 to 12.1 tons per acre.

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2008 Cost Survey

• District 7 costs per acre to farm winegrapes
• Return on Investment 2,240 4,740
• Land and Development
• Annual Costs 3,250 4,250
• Cultural, Overhead, etc.
• Grower compensation 750 /-
• Total 6,240 9,740
• At the 2007 District 7 average price of
  1,105/ton,
• growers need to yield 5.65 to 8.8 tons per acre.

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2008 Cost Survey

• Lodi/Clarksburg cost per acre to farm winegrapes
• Return on Investment 1,500 3,720
• Land and Development
• Annual Costs 2,000 3,500
• Cultural, Overhead, etc.
• Grower compensation 600 /-
• Total 4,100 7,820
• At the 2007 weighted average price of 415/ton,
• growers need to yield 9.9 to 18.8 tons per acre.

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2008 Cost Survey

• SJV cost per acre to farm winegrapes
• Return on Investment 840 2,340
• Land and Development
• Annual Costs 1,750 3,000
• Cultural, Overhead, etc.
• Grower compensation 500 /-
• Total 3,090 5,840
• At the 2007 weighted average price of 225/ton,
• growers need to yield 13.7 to 25.9 tons per acre.

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Moral of the story Include a return on
investment Include compensation
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Take Home Messages for 2009

• Oversupply?!..............What oversupply?
• The economic factors should be short term. Plan
  accordingly for 2011.
• Growers, as well as wineries, must fully
  understand growers actual total cost of farming.
  Sustainability includes an economic component.
• Value at all price points is the key. Consumers
  want to get more than what they pay for. Plant
  and grow varietal winegrapes in appropriate
  regions.
• Planning now and managing growth will assure a
  prosperous future for all. Nobody enjoys the
  ups and downs of the market.
• Immediate supply growth is limited which should
  bring sustainable prices back to the market.
• Planting opportunities exist on these conditions
• Economic feasibility
• Long term appropriateness
• With contract and in moderation
• I believe that the grower community and wine
  industry can will work together for the common
  interest of the California Wine/Winegrape
  Industry!

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The final Take-Home Message The Tide is Turning
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The final Take-Home Message The Tide is Turning
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Allied Grape Growers
We're looking for a "few good growers."
This presentation is on-line at alliedgrapegrower
s.org