Source: USDA National Agricultural Statistics Service
—For years following the recession that began in 2008, “you couldn’t give vineyards away,” but all that has changed, according to speakers at the recent Vineyard Economics Seminar.
Vineyard appraiser Tony Correia, owner of The Correia Co., moderated a panel discussion that covered grape values and yields, vineyard pricing and the vast changes that have occurred in vineyard buying and buyers during the past few years.
He was joined by Joe Ciatti, a principal of vineyard and winery broker Zepponi & Co.
and himself a former grape broker; Mark Couchman, CEO of Silverado Investment Management Co., and portfolio manager Dana Sexton Vivier, who buys, manages and sells vineyards for GI Partners
, owner of Duckhorn Vineyards
Big yields impact business
Joe Ciatti said that the biggest factor impacting the wine business recently has been the “enormous” recent harvests.
GI’s Vivier concurred. “We had a 14% increase from 2005 to 2013—from 3.7 million tons to 4.2 million tons. Much of this isn’t the result of more acreage, but better yields.”
A lot of grapes that went into the large harvests of 2012 and 2013 resulted from new plantings. Ciatti said that replanting could result in much higher yields. “We estimate it can be up 40% to 50%.” He also said that winemakers are also willing to take bigger crops from the vines now than they were in poor times when they didn't need the grapes.
This is particularly true in the San Joaquin Valley. “Many vineyards in the Central Valley were replanted to higher yielding varieties and cultivars,” noted Silverado’s Couchman. “Thirty tons to the acre is about the norm in southern San Joaquin Valley Muscat.”
Joe Ciatti started the discussion of vineyard sales. “From 2009 to 2011, labels had traction. It was tough to sell wineries, and you couldn’t give vineyards away. Now, except for a few hot brands like Mark West, vineyard sales are far stronger.”
The reason: “Both grapes and vineyard prices are responding to a scarcity of grapes,” Vivier noted. “Wineries are paying more for vineyards.”
In fact, wineries are buying up vineyards at a record pace to ensure their grape supplies. “Of the past 16 properties we’ve sold, 15 went to wineries,” Vivier said.
Silverado was one of few buyers that were actively scouting and purchasing vineyards during the recession. “They had the market to themselves three years ago,” Ciatti said. Now investment buyers like Silverado are largely shut out. “We can’t compete,” Couchman explained.
“It was hard to buy good properties three years ago. We didn’t have competition, but we didn’t know where we could sell the grapes or what price we could expect. With the increased demand, wow, we can push prices.” Couchman assured the audience, “We continue to buy and
He added, “Vineyard values have lagged grape prices. It has taken one or two years to catch up, but they have now.”
Ciatti noted that the present buyer pool—wineries—is willing to finance land to get grapes. “If a winery wants the grapes, they can pencil it out.”
Buying without contracts
Another big change in the market is that buyers no longer want contracts for the vineyards they buy. “In the past, you needed a contract for the grapes to sell your land. Now wineries want to buy vineyards with no contracts. They want the grapes themselves,” he said.
That’s not true for financial buyers like Silverado or GI. “As a buyer, from a financial perspective, long-term contracts are OK,” Vivier said.
Ciatti added, “If you’re developing a vineyard, get a contract first. If you plan to sell, stay away from contracts.”
In other vineyard issues, Ciatti noted a shift from white to red grapes in the cooler parts of the southern Napa Valley. “It costs the same to grow white or red grapes, but reds pay twice as much. Growers can grow good Cabernet in well-drained, rocky soils, even in the cooler south. Some buyers don’t care what vineyard or AVA the grapes come from as long as they say, ‘Napa’ and taste good.”
Couchman noted that the planning department in Napa is now asking where you’ll get the grapes if you want to build a winery there. “Two-thirds of the vineyards in Napa are owned by wineries,” he said, adding that there are plenty of lifestyle buyers who want to buy 10 or 20 acres for an estate and small vineyard, however.
He also said that big public companies are moving away from owning vineyards, as Diageo and Constellation have done, while big family wineries like E. & J. Gallo Winery and Jackson Family Wines are buying land
, but mostly outside prime areas like Napa Valley. Gallo, for example, has bought big tracts in California’s Solano
and Lake counties
as well as Washington state, and Jackson in Oregon
Finally, because of a shortage of production capacity, Couchman sees custom-crush wineries expanding. “Every custom winery is adding capacity. It’s easier to add 10% or 15% than build a new winery.”
Vivier also sees wineries moving bottling and case goods storage to less-valuable industrial space rather than further develop valuable vineyard land; Caymus is building a large plant in Solano County, for example.
Ciatti thinks some underutilized facilities in Napa will change hands as a result of demand. “Shortage of space can hurt grape prices, particularly toward the end of harvest.”
Couchman, anticipating a good harvest, warned, “If you’re in the wine business, start bottling!”