There is a strong level of optimism in the industry about future growth. But given the past two large crops and the expected average plus crop of 2014 the market for grapes and wine has slowed. These challenges seem to be greatest in the Central Valley where large amounts of bulk wine remain on the market. Three large crops in a row could lead to a significant short term supply correction over the last half of the year.

California Wine & Grapes by Region

North Coast

Grapes

As we look back at the first half of 2014,we can definitely say Cabernet Sauvignon isthe most in demand variety in the North Coast. Current grape inventories, especially in Lake, Mendocino, and Sonoma are verytight. In general terms the overall market for grapes has been as healthy as one could expect coming off of two back to back large vintages. Other varieties have also had some activity, Pinot Noir, Zinfandel, Sauvignon Blanc, and premium appellated Chardonnay have seen relatively strong demand. Transaction activity was brisk from mid January to mid April. The market has slowed somewhat as we seen expectations for an above average crop become more probable. We have seen buyers be more hesitant the last 4 weeks and unwilling to chase anything but Cabernet Sauvignon.No one knows how big the 2014 crop will end being at the end of the season – but the potential for another above normal crop has caused a slow in the early season activity. Also, harvest has the potential to be 2-3 weeks early!

Bulk Wine

The North Coast bulk market has been a bumpy ride depending on what you were selling and from where. Here are some highlights to demonstrate that point:

Cabernet Sauvignon: Strategies to source Cabernet Sauvignon from anywhere in the North Coast continues to dominate the headlines. Sonoma and Lake Counties continue to sizzle with lot after lot continuing to sell withlittle difficulty. After seeing little movement in the first two months of the year, 2012 Napa Valley Cabernet Sauvignon is selling in the $30 - $38 per gallon range with brisk sales and 2013 Napa Valley Cabernet sales are now getting going in the $26 - $32 per gallon.

Merlot: For as hot as Cabernet is, one would think the Merlot market would not be as tepid as it is. There is still carry over stock from 2012 that can at least be used as a Cab blender, can it not? Sonoma County Merlot is readily available at $12-$15 and Napa Valley at $15-$18. Mendocino and Lake County are quiet butthere have been a few sales in the $7-$10 range.

Chardonnay: Mendocino and Lake County Chardonnay sales continue to be sluggish with sellers today willing to take a $5 California appellation price in order to get some inventory moved. Sonoma County Chardonnay sales have really picked up since February with good volumes moving between $12 - $16.

Pinot Noir: Two record harvests in a row? Another good crop on the way? So what? Pinot Noir continues to see demand from all appellations with Russian River and Sonoma Coast leading the way. Pricing has been in the $20-$25 range with some higher end barrel lots exceeding $30. For a buyer, the opportunity for Pinot Noir today looks to be in Carneros, where there is at least decent inventories to build on.

Zinfandel: The two big harvests in a row have not been kind to the Zinfandel bulk market. Prices for Sonoma County Zin has been all over the board. Some larger lots moving in the $12 range and some higher end lots moving closer to $20. But there seems to be limited demand at the moment, soit will be interesting to see what happensover the summer as to whether this product can move at close to a decent price.

Central Coast

Grapes

The Central Coast has seen a lot of activity over the past two vintages. Entering the 2014 season,over 70% of the available fruit has been contracted. This year buyers have continued to look atCabernet Sauvignon, but many sellers are trying to bundle other varieties such as Merlot, Chardonnay, and White Riesling with Cabernet Sauvignon.Buyers have tempered their demand for Central Coast Chardonnay, with potential yields looking healthy and ample supplies on the bulk market. Pinot Noir was a hot item in the first quarter of this year, but activityhas slowed after set. Prices for Pinot Noir have continued to remain steady to date. One area we have seen demand growth in is District 6 (North Section of Central Coast AVA) , with more buyers moving into the area to source their Central Coast labels. Grape activity has slowed on the Central Coast, from earlier in the year. The reduced activity is a combination of both larger amounts of Bulk wine supply and the potential size of the 2014 crop.

Bulk Wine

Bulk wine inventories on the Central Coast still remain in ample supply for most varieties. Most activity has been focused on Cabernet Sauvignon; however asother Coastal regions have seen large price increases, Central Coast supply remains available and prices for Cabernet Sauvignon have remained relatively stable at $12 to $16. Monterey Pinot Noir has also kept up with the action and moves in the $15 to $18 range, whileselect lots of Santa Barbara Pint Noir have commanded considerably more. Early year activity in Pinot Grigio hascleaned out most remaining inventories which had been selling in the $7 to $9 range. On the other side of the spectrum we have larger inventories of Coastal Chardonnay which moves steadily yet moderately at $8 to $12 and Merlot, which has had limited sales in the $7 to $9 range. Central Coast buyers seem to be cautious and watchful of storage space as we proceed towards another harvest. 

Lodi / Central Valley

Grapes

The Interior region vineyards have made it through bloom and appear to have an average set. Bunch counts by variety seem about average with some varieties showing slightly larger counts than last year in the Southern Interior. As you travel North, cluster counts tend to be slightly off versus 2013. Lodi, Chardonnay looks good and seems to have normal berry sizing, but Zinfandel seems to be significantly lighter and have lower cluster counts. Cabernet Sauvignon and Merlot look average at best but have seen some shatter as a result of a mid May heat spell. With summer temperatures approaching and the drought affects still uncertain, individual bunch size may struggle to have average weight. Buying activity has been slow with only a few buyers for select varieties such as Cabernet Sauvignon, Petite Sirah, Pinot Noir, Sauvignon Blanc, and Pinot Grigio. Most of the grapes are under long term contracts in the Valley and selling uncontracted grapes has been a challenge so far this year.

Bulk Wine

Inventories of Central Valley varieties are readily available. Overall movements this year have been less than robust and these inventories are becoming "heavier" as we head into the summer months. We feel the effect of the two large harvests of 2012 and 2013. Wineries with full tanks have been absent from buying on the open market. This is causing concern and capacity problems for many speculative sellers. Specifically we have had demand for Pinot Grigio, Cabernet Sauvignon and other heavy reds, with moderate movement. Many other varieties including Muscat, Zinfandel and Sauvignon Blanc have seen sparse activity, surprising as those were the hottest items a couple of years back. Chardonnay sales have been slow in the valley, hurt by readily available amounts of coastal Chardonnay. An "average" valley crop overall would be welcomed and a hopeful reality given the current statewide drought conditions.

CONTACT INFORMATION

Partner/Broker John Ciatti M.415/264-0762  john@ciatti.com

Partner/Broker Steve Dorfman M.707/321-3843  steve@ciatti.com

Partner/Broker Greg Livengood M.415/497-5032  greg@ciatti.com

Partner/Broker Glenn Proctor M.707/337-0609  glenn@ciatti.com

Partner/Broker Chris Welch M.415/298-8316 chris@ciatti.com

Partner/Broker  John White M.415/250-0685  johnw@ciatti.com

Broker  Todd Azevedo M.415/265-6943  todd@ciatti.com

Broker  Johnny Leonardo M.415/717-4438  johnny@ciatti.com

Broker Greg MaGill M.559/977-4040  gregm@ciatti.com