Thursday, October 20, 2005

The Real Impact of a Big Crop

Okay, so California is going to see a record crop. That's good, particularly if you have a brand that subsists on bulk wine supply (which was dwindling pre-harvest). Its bad if you are a grower (spot-market prices have plummeted to, in some cases, "no thanks at any" price) or a long-term player like a bricks-and-mortar winery that buys from outside vineyards.

Why? Well the problem is that once the oversupply started (2001-2002), the market over-reacted, prices fell, wineries stopped giving contracts to grape growers and growers therefore stopped planting grapes. Now in late 2005, with a big harvest coming in, wineries won't be looking to contract for new plantings (they're notoriously short-sighted) and with a normal harvest in 2006 we'll be quickly in short supply with no new plantings on the horizon until 2009/2010 (grapes typically take 3-4 years to reach fruit production).

Ultimately, this will mean a tightening of supply, a slow death for negotiant brands (like Castle Rock), and a gradual return to higher prices. There will still be some value brands ($2 Chuck is largely supplied by Fred Franzia's own grapes and will go on for some time), but ultimately, there will be fewer values and upward pressure on bottle prices as grape prices rise from tighter supply and continued demand. This will likely give more fuel to cheap imports (Chile, Spain, Australia, Argentina, what's left of France by then, and don't forget China) and, depending on where the US dollar goes, could have significant long-term impacts on the California wine industry until we can get more vines in the ground.


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