NAPA — North Coast vintners and grape growers are in the midst of another difficult year. That was the consensus of industry insiders at a wine conference Tuesday in Napa.
The recession that prompted wine drinkers to become more frugal continues to disrupt the high-end wine markets of Napa and Sonoma counties.
"It is going to be a tough year," said Glenn Proctor, a San Rafael grape broker who connects growers and buyers. "The grape market is a big question mark right now."
The turmoil pits wineries against growers, as both sides hope to get the best possible prices during a down market. But this year the advantage is shifting toward wineries, which still have unsold wine from last year's bountiful harvest.
"Buyers are very cautious. They are not buying unless they need it," said Proctor, a partner in Ciatti Company. "And even then they're not buying."
Fewer grape growers are locked into long-term contracts than last year, according to a survey unveiled Tuesday. It found that about 10 percent more growers this year have recently established short-term contracts or are now forced to sell on the spot market, both of which pay far less than the lucrative long-term contracts signed at the peak of the market in 2007.
Growers who don't already have contracts are being told to lock in one-year contracts at whatever price will allow them to limp through the season.
"Maybe we need to accept prices that just let us make a living, maybe make some profit," said Nat DiBuduo, president of Allied Grape Growers. "But do not expect the old higher prices."
But even that is challenging in the current climate, Proctor said. There is an imbalance between how many tons growers hope to sell on the open market and how much wineries want to buy right now, especially if predictions of another large harvest come true, he said.
"In this market, even buyers are trying to sell," he said.
Prices could drop between 5 percent to 7 percent this year for Napa and Sonoma growers, said David Freed, who is chairman of the Silverado Group and co-founder of Vineyard Economics Seminar held Tuesday.
"Clearly grape prices are a major concern in 2010," Freed said.
He released the results of his annual survey of wine insiders, and the results this year underlined the challenges facing the industry.
About 71 percent of the executives believe wine sales will remain flat or even contract this year. That contrasts sharply to the 2006 results, when only 12 percent thought the market would stall or shrink.
The economy was the number one reason cited for depressed sales, followed by wine imports from overseas.
A major topic of discussion at the conference revolved around relationships between growers and vintners, some of which have grown prickly as the two sides try to make it through the recession.
Joseph Wagner, managing member at Caymus Vineyards, said the winery tried to work with its growers to renegotiate lower prices.
"The ones who were willing to work with us we will continue to work with," Wagner said. "The other ones, we'll probably terminate those relationships when we have the chance."
For wineries stuck in high-priced contracts, sometimes playing that relationship card is the best leverage they have, said James Terry, an attorney who represents wineries and growers in contract negotiations.
The other discussion dominating the conference was whether the recession had permanently pushed consumers into being more frugal.
"I think when the market comes back, prices will come right back up too," Wagner said.
But DiBuduo suggested that today's prices may last longer than the recession.
"Today's market might be the new norm," DiBuduo said.
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