Market turns for grape growers

It's been a long time since grape growers felt coveted like a hot commodity, but after two years of weather that pummeled the crop, wineries are pursuing them again.

Grape growers are suddenly like the popular girl on the cheerleading squad, while wineries are the pursuer, competing for their attention - and hoping they will agree to go steady for a while. And it's setting up a dynamic where some growers want to hold out and wait for the best offer.

"The wineries have pens in their hands, but I don't know that growers have yet," said Glenn Proctor, partner and grape broker at Ciatti Company. "People want to date me. So do I go back with the person I took to the prom last year? Or these five other people want to date me, should I talk to them?"

Many grape growers are being offered multi-year grape growing contracts from wineries seeking to buy their grapes, and some are being offered contracts to plant new vineyards, agreements that can last a decade.

The trend comes in sharp contrast to the past two years, when a faltering economy, lower grape prices and a relatively abundant crop meant that wineries could easily find quality grapes to buy when needed.

The impact on growers was painful. Some saw multi-year contracts cancelled. Others spent more growing and harvesting the grapes than they could recoup by selling them. Some left their grapes to rot on the vine, unable to find a buyer willing to pay them enough to harvest their fruit.

"We have moved from what I would call a pure buyer's market to a pure seller's market, in six months," said Brian Clements, vice president of Turrentine Wine Brokerage.

Back in 2007 and 2008, 90 to 95 percent of the grapes in Sonoma County were grown under a contract with a winery that committed to buy the grapes, and many of those were multi-year contracts, said Nick Frey, president of the Sonoma County Winegrape Commission. In 2009 and 2010, the grapes under contract dropped to about 80 percent.

"We've had a declining number of long-term contracts for the past six to seven years," Proctor said. "Wineries were unsure about what they needed in the future, and they were unsure about the price. You saw either contracts ending or (cancellation) notices being given to evergreen contracts."

But after a 2011 harvest where the crop yield was down 20 to 30 percent, wineries are eager to secure their supply.

"All our grapes are sold moving forward with a waiting list," said John Balletto, president of Balletto Vineyards and Winery west of Santa Rosa. "We're at a magical turning point. The shortage that's going to be upon us here, it's here now. Wineries were calling us in December to try to contract grapes in December, and I haven't seen that in seven years."

At the same time, the short supply of grapes has led to higher prices for growers. In some cases, prices offered in multi-year contracts are doubling or more than doubling, depending on the varietal and region, said Vernon Crowder, vice president and agricultural economist at Rabobank.

"It's changed very quickly," Crowder said. "You've got the big wine companies that are really beating up on each other to secure the varietals that they need for their wines. They're trying their best to retain their contracts."

Beyond better prices and longer contracts, growers also are enjoying the return of planting contracts. For the most part, Sonoma County hasn't been planting any new grapes since 2002 or 2003. The number of productive vineyards, which peaked in 2005 at 57,050 acres, is down about 3,000 acres, Frey said.

Pete Opatz, vice president and senior viticulturalist for Silverado Premium Properties, a grower that works with about 90 wineries, said he has recently secured contracts to plant 500 acres of cabernet sauvignon in Sonoma, Napa, San Luis Obispo and Monterey counties. He said his company began signing agreements right after the harvest of 2011, when everyone's fears were confirmed about the diminutive size of the crop.

"It's been kind of nice," Opatz said. "Planting is a significant capital expense."

The productivity of vineyards declines over time. If a grower decides to replant, he must take existing vines out of production. And it will take about three years for the vines to develop and produce a first vintage. That's three years with no income from the vines, Opatz explained.

Another reason wineries are looking to secure supply is because inventories of bulk wine, which wineries sometimes use when grape supply is short, are down. Statewide, the stockpile has dwindled to 4 million gallons of wine, down from 20 million gallons four years ago, Clements said. And inventories are also down in the wineries.

Constellation Brands, which owns several North Coast wineries including Clos du Bois, Ravenswood and Robert Mondavi, is not panicking over the decline in supply, but it has started offering planting contracts this year, said Steve Smit, vice president of grape management.

"The good news is there's more demand from a lot more wineries," he said. "I don't want to be paying more for grapes, but it's better for the industry as a whole, if you look at it from the standpoint of the survival of growers."

Francis Ford Coppola Winery also has been entertaining planting contracts in the past few months, especially for cabernet sauvignon, said Corey Beck, general manager and director of winemaking.

"Given the unknowns of the market and the whole economy, we were reluctant to sign up and put new grapes in the ground, because who knew what was going to happen?" Beck said. "But now we know there are still people drinking."

Even so, making money as a vintner or grower continues to be a challenge.

"Grape prices might be going up, but the wine prices probably aren't going to follow that quickly, so that's going to mean some margin erosion in wineries," Smit said.

And the sea change for grape growers comes after years of tumult.

"Sellers are going to do better than they have in the past, but the last three years have been devastating," Clements said. "Some of these growers who have been doing this for 20 years, they're just hanging on."