As the first quarter of 2022 draws to a close, California’s bulk wine and grape markets are active, in some areas and on some varieties more active at this point than they have been for a few years. Last month’s 2021 grape crush report confirmed, at 3.61 million tons, a second-successive short crop, while the ongoing dry winter in California is raising the prospect of a third. Set against this, wine sales at US retail continue to fall back as pandemic pantrystocking recedes into the past and inflationary pressure is going to be felt by all businesses and individuals this year.
The crush report revealed a state-wide average tonnage price of $884/ton in 2021, well up from 2020’s $680/ton. But from an historical perspective the 2020 price was anomalous, as smoke exposure concerns led to downward adjustments. The 2021 price of $884/ton could be said to mark a return to normal pricing, in line with 2019’s $827/ton and 2018’s $856/ton, and was a product of three factors: Reduced wine supply from the 2020 vintage and smoke exposure perceptions around it; a spike in retail demand lasting for at least 15 months from March 2020 onwards; the expectation of another shorter crop in 2021 (which ultimately proved correct).
Crucially, only one of these three factors was down to consumer demand, and even that was a temporary spike triggered by a pandemic, a – hopefully – once-acentury phenomenon. We are now seeing 2021 bulk wines being put back onto the Central Valley’s market, indicative of sales projections being revised downward post-spike, as wineries – seeking to cover rising input costs – increase shelf prices amid the wider inflationary environment. The portents for consumer confidence this year are not good: the US 12-month inflation rate reached 7.5% in January, the highest since 1982, and the prospect of it falling back quickly has been diminished by the outbreak of the Ukraine-Russia conflict. Furthermore, the crush report showed that 2021 marked the fifth year in a row in which grape volumes from the southern San Joaquin Valley declined – the lack of water is partly responsible but vines have been also removed. The Californian wine industry has a profitability problem in some growing areas and a sales problem both in the short term (a tough 2022 ahead, economically) and long term (the average US wine drinker is growing older). We continue to feel that if the last three crops had been more average-sized the bulk wine and grape markets would not be in the – relatively – balanced position they are today. Even with that relative balance, we are seeing a few Lodi growers replacing their vines with almonds.
Meanwhile, the crush report showed the Central Coast and Lodi having goodsized grape crops, the latter gaining over 100,000 tons versus 2020, partially attributable not to new plantings but conversions to high-efficiency quad or double canopy vineyards. Such efficiencies are likely to be one of the ways wine grape-growing in California can be made more sustainable for the longer term.
The next three quarters at least are going to be challenging but, as always, opportunities will develop. Ciatti can draw on its decades of experience to help you find and harness them – don’t hesitate to get in touch. Read on for more information on the bulk wine and grape markets, and stay safe.