Napa, Calif. -- With increasing anecdotal and numeric evidence for selective shortages of grapes, many growers are starting to talk about planting again after a five-year hiatus. Among the facts: nonbearing acres in most prime grapegrowing areas are at 5% below sustainability.

Whether--and when--to plant was a major theme of the 13th annual Vineyard Economics Seminar, held yesterday in Napa by the Wine Industry Financial Symposium Group. Perennial speaker Tony Correia, an expert in vineyard values, provided his analysis, though he admitted that the residuals from the glut of 2005, the recent frosts that decimated California vineyards and the current economic climate--call it recession if you want-- might confuse growers in the short term.

Like other speakers at the conference, Correia used Bill Turrentine's "Manic-Depressive Wheel of Fortune" 10-year wine cycle as a prop, indicating that we're about at 6:30 in transitioning from excess supply to shortages, though this differs by area and among different grape varieties.

Some grapes like Merlot and Syrah are still in excess, but interestingly, though shortages of Pinot Noir are well known, Chardonnay is in short supply, too.

Correia noted that many major issues drive growers' decisions to plant or not. He commented that many growers are entering generational transitions and have no heirs willing or able to take over their vineyards. Silicon Valley Bank and Scion Advisors estimate that more than half the family-owned wineries it recently surveyed expect an ownership change in the next 10 years.

Farming land of all types, not just vineyards, is in great demand, too, from vast acreage in the Midwest being planted to corn for ethanol to land for specialty vegetables, nuts and fruits. Correia said that vegetable farmers are paying more than competitive prices in the Salinas Valley and elsewhere where vineyards might be considered, for example.

Land is also getting more expensive as professional investors, major public companies and speculators discover the attraction of vineyard land.

Meanwhile, large companies are consolidating brands, but at the same time, many are selling vineyard holdings to improve their return on investment.

As always in real estate, Correia said location is vital, not just by regions but by specific AVAs and sub-AVAs. "Everyone wants to be in the right place--not 20 miles away." He noted that this even reaches Napa Valley, where prime locations in sub-AVAs--and the grapes they produce--sell for far more than property in the Napa County or even Napa Valley AVA in remote locations. Correia quoted land in the heart of Napa Valley (Stags Leap, Rutherford, Oakville, etc.) at $150,000 to $300,000 per acre and in remote Pope and Chiles valleys at $45,000 to $75,000 even though they're legally part of the Napa Valley AVA.

At the high end of those prices, it's difficult make a reasonable (10%) profit and pay off procurement and development costs just by selling grapes. "The price vs. costs are not high enough to generate the profit you should get in agriculture," Correia said. The return comes when you sell the property, but that doesn't satisfy the desires of many buyers who want to create a legacy.

Ironically, it's easier to make money on an ongoing basis in areas with lower land costs and grape prices like Monterey, and obviously by leveraging funds, a situation enhanced by today's historic low interest rates. "The market accepts the lower return in the North Coast since they expect the payback when they sell," Correia said.

In the extreme, the North Coast--even including less pricey Lake and Mendocino counties--produces 12% of California's grapes, but 46% of the value, while the San Joaquin Valley produces 54% of the tonnage, but only 19% of the value--and that's excluding Lodi.

While demand is growing, and land values have been soaring, grape prices on average haven't kept pace. Statewide, the price per ton (which is heavily influenced by the Central Valley) has been stable--even trending down a bit--since 1997, a year of huge production, as were 2000 and 2005.

Meanwhile prices for grapes are up in Napa and other top locations, but costs of not only land but development are up sharply. For one thing, suitable land is largely already planted in Napa, though some is available in Sonoma.

"Environmental constraints and entitlement processes are becoming real ugly factors," Correia said. Trellis metal and plastic irrigation materials as well as labor are also high and rising.

Yet if California growers don't plant, imports will surely take even more of the market. And local supply is favorable for lower transportation costs including carbon footprint, too, even aside from the future of local farming.

A hidden cost for coastal growers is that vineyard property comes with the right to build a home, a significant value even for growers who don't intend to exercise that option. "Homesite values add cost but no income to farmers," Correia noted. Shedding that right through an environmental easement can provide a big tax savings. Rep. Mike Thompson included an extension of this procedure in the farm bill just passed by Congress.

The elephant in the room continues to be water, which everyone expects to become an increasing concern, especially with population growth and projected global warming. There's not enough water for fish, people and farmers, it seems, and most people expect the latter to suffer.

In sum, California growers need to plant more grapes, but it's becoming increasingly difficult to justify--except on the land's appreciation. That's fine for investors, but not for those who want to create lasting family traditions.

The Wine Industry Symposium Group will host the Wine Industry Technology Symposium July 14-15 at the Napa Valley Marriott; the Wine Industry Financial Symposium Sept. 22-23, also at the Napa Marriott and the Green Wine Summit Dec. 1-2 at the Hyatt Vineyard Creek in Santa Rosa. Find more information at winesymposium.com.