Winery sales and profits have slowly started to rebound and North Coast grape growers, who were battered by falling prices and erratic weather last year, should enjoy stronger demand for their fruit if the recovery continues.
"We see measured improvement as we look at 2011," Glenn Proctor, a partner at San Rafael grape brokerage Ciatti Company, told growers Thursday at a conference in Santa Rosa. "It's going to take some time but we see prices coming up, demand coming up."
That would be welcome news for grape growers who endured one of the toughest growing seasons in memory last year. Early mold, unusually cool temperatures, sudden heat spikes and a rainy harvest all made the 2010 harvest a nightmare for many.
Longtime grape grower Jim Murphy described the season in a word: "Horrible."
While bringing in the crop was tough, selling it has become the real challenge, said Murphy, whose family farms 270 acres in the Alexander Valley and owns the former Murphy-Goode winery facility on Highway 128.
"Most wineries aren't buying grapes right now," said Murphy, who ended up turning several hundred tons of grapes into wine when no buyers emerged.
But that could be changing. Wineries are showing some early interest in locking in grape supplies for 2011, particularly red varieties, Proctor said.
"We are seeing buying activity out there, so that is encouraging. They are focused on reds," Proctor said. "People are asking about cab, pinot and zin, even merlot."
Demand for Sonoma County whites like chardonnay, however, continues to be weak because the massive 2009 crop created an oversupply that the market continues to digest, he said.
Overall, however, demand should improve in 2011 for several reasons, Proctor said.
Premium grape acreage in Sonoma County is actually slightly lower today, just over 57,300 acres, than it was 2002, Proctor said.
That means any spike in demand should translate into immediate price increases for existing growers because it will take years for new vineyards to be planted and productive, he said.
There are signs that wine sales improved in 2010, especially in the over $20 category.
Doug Goodwin, a vice president with research firm Symphony IRI, said sales of wines over $11 were up 10 percent by dollar value and 12 percent by volume last year.
The strongest segment of that market was for wines priced over $20 a bottle, which soared 20 percent in dollar value and 24 percent in volume, Goodwin said.
That's coming off a brutal 2009, when panicked consumers traded down to cheaper wines and high-end wine sales swooned.
But that trend has passed, said Rob McMillan, vice president of Silicon Valley Bank.
"Trading down is over," said McMillan, a respected industry analyst. "We actually are starting to see some trading up at this point."
According to a confidential annual survey conducted by McMillan, 84 percent of Sonoma wineries report their financial condition was good or better, while 6 percent said it was weak.
Winery profits have recovered some since hitting bottom in 2009, he said. Pre-tax profits in 2009 were a modest 2.2 percent, meaning many wineries may have dug into savings to stay afloat.
That figure, which is based on tax data from numerous winery clients, has since rebounded to 4.5 percent, a good sign but still well off the 16 percent levels seen just three years earlier.