what happened to the market? - bitter, towers, magill

Allied Grape Growers, 2014. All rights reserved.

The 2014 Crush –

What Happened to the Market?

SJVWA Annual Meeting

And Industry Forum

Jeff Bitter, Allied Grape Growers

Matt Towers, O’Neill Vintners and Distillers

Greg Magill, Ciatti Company

November 21, 2014


Panel Discussion Outline -

•The goal will be to answer this -

• What happened to the market in 2014 and why was

this year so different from recent crop years?

•Three sections developed to address this

• Supply – SJV and worldwide

• Imports and availability/competition

• Shipments at the lower end of the market

•Closing Discussion:

• What is the future of the SJV winegrape business, and

do any competitive advantages exist that help secure

our future?


Section 1:

Supply


Supply

0.00

0.50

1.00

1.50

2.00

2.50

2006 2007 2008 2009 2010 2011 2012 2013 2014Est.

1.471.58 1.59

1.741.83 1.80

1.88

2.03 2.00

Tons(in Millions)

SJV Winegrape Crush 2006-2014 Estimate

SJV Winegrapes

CAGR = 4.03%Record statewide harvests


•Winegrape Planting:

• 2012 plantings for <$7 per bottle is estimated by AGG

at 15,000 acres. Those will begin producing material

crops by next harvest.

• 2013 planting for <$7 per bottle is estimated by AGG at

20,000 acres. Those will begin producing material crops

by 2016.

• 2014 planting for <$7 per bottle will decline significantly

and is expected to be <5,000 acres. AGG annual

nursery survey data will be released in January of 2015

to confirm.

•Winegrape Pullouts

•Estimated by AGG at 15,000-25,000 acres over this

winter, preceding the 2015 harvest

Supply


Supply

•What’s the impact of current supply on the CA Wine Market?

Year

TOTAL CA WINE GRAPES

Harvested (000,000'S)

EQUIVALENT CASES

(000,000'S)

CALIFORNIA CASES

SHIPPED (000,000's) LONG/(SHORT)

2010 3.58 243 243 0

2011 3.35 228 256 -28

2012 4.02 273 250 23

2013 4.25 289 260 29

2014E 3.9 est. 272 270 2

25.6

• Based on shipments of CA wines over last 5 yrs, CA is

in a structurally long position ~ 25.6 million cases

• Equivalent of about 365,000 tons.

• Equivalent of about 36,000 acres (using 10 tons/acre)


International

• Decreased production in most countries (AUS,

ARG, CH*)

• Everyone wants into US market; Casegoods are

the priority

• Vine removals in Europe

• New plantings everywhere

Supply


Supply

0

1

2

3

4

5

6

7

8

9

Ton

s in

Millio

ns

2012

2013

2014


Section 2:

Imports


Imports

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2008 2009 2010 2011 2012 2013 Tracking2014

Imported Wine - Bottled and Bulk(In Millions of Cases)

Bulk Imports

Bottled Imports

Data obtained via the Gomberg Fredr ikson Repor t

Total-1%

Total+12%

Total+0%

Total+7%

Total+16%

Total-7%

-5%

+27% +92%

-2% +7% +3% -2% +3%

-20%+26%

+71% -25%

-1%

-1%

Total-1%


Imports


Imports

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15

Exchange Rates (Value to $1 U.S.), January 2011 - December 2014

Chilean Peso Argentine Peso Australian Dollar Eur o Br itish Pound

ChileanPeso

Aust $Arg Peso

Euro & Pound

Thru June, bulk

Argentine imports were

up 51% from previous

year


Imports

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014

Thompson Seedless & Rubired Crush2004 - 2014 Estimate

Thompson Seedless Rubired

Tons

Relative strengths and weaknesses in California concentrate production


0

5

10

15

20

25

30

Argentina Chile Australia Spain South

Africa

New

Zealand

Italy France

Gallo

ns

in M

illio

ns

2011 2012 2013

Source: US Department of Commerce & Gomberg, Fredrikson & Associates

Imports


CABERNET SAUVIGNON - Global

Market $/Gallon Availability

California $6.50 – 9.00 Balanced

$/Gal Delivered/Duty

Paid

Availability

Chile $2.75 – 3.25 High

Australia $3.50 – 4.75 Moderate

Spain $3.50 – 4.50 Moderate

Imports


CHARDONNAY - Global Market$/Gallon Availability

California $3.00 – 5.00 Long

$/Gal Delivered/Duty

Paid

Availability

Chile $4.75 – 5.50 Low

Australia $2.50 – 3.00 High

Spain $2.75 - 3.25 Moderate/Hig

h

Imports


Imports

•Impact of Bulk Wine Imports on CA grape market

Year

BULK STILL WINE IMPORTS

EQUIVALENT CASES (000's)

EQUIVALENT

TONS

EQUIVALENT

ACRES

2011 25,494 367,349 45,919

2012 43,553 627,571 78,446

2013 32,872 473,662 59,208

2014E 31,886 459,452 57,431

•Typically used for the <$7 category.

•Typically used as a cheaper alternative to Interior CA grapes.

•Consumer does not care.


Factors That Influence the

Import Market

•Supply / Demand

•Exchange Rates

•Interchangeability of product from any country around the

world.

•Tax Incentive – “Drawback”


Equivalent Import Grape

Pricing

Agrentina Australia Chile France S. Africa Spain

Generic Red 243$ 249$ 287$ 568$ 293$ 231$

Generic Wht. 200$ 324$ 374$ 674$ 225$ 218$

Chardonnay 431$ 324$ 665$ 936$ 324$ NA

Chenin Blanc 259$ NA NA NA 237$ NA

Cabernet 431$ 431$ 431$ 662$ 374$ 331$

Merlot 431$ 399$ 381$ 662$ 374$ 331$

Muscat Alex 293$ 356$ NA 805$ 262$ 449$

Syrah 431$ 437$ 368$ 671$ 381$ 318$

EQUIVALENT GRAPE PRICE PER TON BY COUNTRY

Agrentina Australia Chile France S. Africa Spain

Generic Red 67$ 73$ 110$ 391$ 117$ 54$

Generic Wht. 23$ 148$ 198$ 498$ 48$ 42$

Chardonnay 254$ 148$ 488$ 760$ 148$ NA

Chenin Blanc 82$ NA NA NA 60$ NA

Cabernet 254$ 254$ 254$ 485$ 198$ 154$

Merlot 254$ 223$ 204$ 485$ 198$ 154$

Muscat Alex 117$ 179$ NA 629$ 85$ 273$

Syrah 254$ 260$ 192$ 494$ 204$ 142$

EQUIVALENT GRAPE PRICE PER TON BY COUNTRY w/ EXCISE TAX DRAWBACK


Section 3:

Wine Shipments


Wine Shipments


Wine Shipments

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2006 2007 2008 2009 2010 2011 2012 2013 2014Est.

106.8 107.2113.2

117.0 118.1123.9 122.8

118.0 115.6

Cases(in Millions)

Shipment Volume Below $7/ Bottle, 2006-2014 Estimate

Wine Shipment Volume <$7/ Bottle

CAGR = 1.37%


Wine Shipments

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2006 2007 2008 2009 2010 2011 2012 2013 2014Est.

106.8 107.2113.2

117.0 118.1123.9 122.8

118.0 115.6

Cases(in Millions)

Shipment Volume Below $7/ Bottle, 2006-2014 Estimate

Wine Shipment Volume <$7/ Bottle

2006-2011 CAGR = 3.15%


Gomberg Fredrikson Report

August 2014Quote:

“The continuing low growth rates for

California winery shipments reflect a

bifurcated market where weaker sales

of everyday brands, priced below $9 at

retail, mask gains of higher-priced

premium wines.”

Wine Shipments


Closing Question/Discussion

What is the future of the SJV

winegrape business, and do any

competitive advantages exist that

help secure our future?

what happened to the market? - bitter, towers, magill

Economy & Finance

supplyallied grape growers

market closing discussion

sjv winegrape business

thissupply sjv

winegrape planting

panel discussion outline

oneill vintners

distillersgreg magill