Do You Have Uncommitted Fruit?
by Jim Gordon
If, as you read this in early August, the 2009 winegrape crop is as big as expected in early July when I was writing this, then potentially a whole lot of growers will be facing tough decisions. Those left with uncommitted fruit will have to do one of three things: 1) Sell cheap. 2) Let it hang. 3) Make wine.
The first two options are certainly not going to make growers any money, but the third might. That word "might" carries a lot of risk with it, however. Bill Turrentine, the grape and wine broker based in Novato, Calif., raised the issue in his Market Update newsletter on July 1. I contacted him for further comments and spoke with a few growers to get their words of advice for growers stuck with homeless grapes.
First, how big might the crop be in California? Nat Di Buduo of the Allied Grape Growers cooperative, based in Fresno, predicted recently that 3.45 million tons of winegrapes could be harvested. That's way up from last year's modest 3.05 million tons but still well under the whopping 3.76 million tons of 2005.
As the economy has tanked, wineries have backed off on their commitments for 2009 fruit, and winegrape prices this year have softened. I kept hearing that fear of inventory is the main driver throughout the grape/wine supply chain. The demand for grapes is down just as we are expecting a relatively large supply to ripen on the vine. That's a classic price-depressing scenario.
What's a grower to do? Turrentine wrote, "High-end growers with uncommitted fruit may be faced with a tough choice: either take a much lower price than they expected or assume the risk themselves by custom-crushing their grapes. Custom-crushing is a big risk, but it could prove to be a great choice if the economy improves, high-end wine sales revive and wineries, distributors and retailers start scrambling for supply. But it takes guts and access to capital to double down your bet in these perilous times."
Jeff Bitter, who is vice president of operations at Allied Grape Growers, said, "The spot market for grapes, for lack of a better term, is non-existent." He added that in the current depressed economy, growers should expect wineries to pay them later, and should also expect some to fail to pay at all. So even a grower with a buyer lined up faces risks.
The responsibility for financing the harvest "all rolls downhill," from a marketplace that doesn't want inventory to the banks that don't want to lend, to the wineries that hold off on buying, and finally to the grower, who owns the land. "It's really an issue where the grower is forced to be the banker," Bitter said.
He offered a creative solution. Custom-crush wineries normally need their payments 30 days after the fruit arrives. But a grower can offer the winery a partnership and avoid a cash payment. The grower provides the grapes, the winery makes and sells the wine, and they split the revenue. "It's also a good way for the grower to know that the winery is going to do a good job with the wine, because they have a stake in it," he said.
Logistically, a grower can make basically an overnight deal with a willing winery. Better prepared vineyard owners, however, get the proper licenses in advance to give them more control over the wine, such as certain aspects of marketing, sales and money collection, Bitter said.
One Paso Robles grower who said he's never had to custom crush in 57 years still had empathy for people caught in the bind this year. Richard Sauret in Paso Robles advised wineries to keep in mind that much of the fruit they're buying in 2009 will not be sold as wine until 2011, when consumers may have resumed their purchases of high-end wines. Wineries will need the inventory, and they can choose high-quality fruit now and be sure they have it later.
As for the custom-crush option, Sauret said, "If you don't have a buyer, that's the only other choice and it's better than letting it hang on the vine. Especially if your fruit is good quality, it will find a buyer later (in bulk.)
"A lot of growers will sacrifice at a very low price," Sauret continued, because it drives down prices for everyone. "It's a shame. If they give it away, they're not doing any favors for their neighbors."
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