Grape prices on the rise

Last year, Ron and Ellie Jones couldn't find a single winery willing to buy their Chalk Hill chardonnay crop, which was left to rot on the vine.

But last year's surplus of grapes has become a shortage. For the first time in years, wineries are bidding up the price of grapes sold on the spot market and signing long-term contracts with growers to ensure a steady supply of fruit in the future.

The Jones family received a three-year contract to sell their bounty to La Crema winery in Windsor.

"We're very pleased," said Ron Jones, whose wife was so determined to avoid a repeat of last year's debacle that she wore a sign on her blouse advertising their grapes at the annual Taste of Sonoma gala last month. "I think supply and demand are back a little more in balance, and I think wineries are starting to line up supply again."

The Joneses' turnaround illustrates changes in the grape market that are providing a boost to growers during one of the most difficult harvests in decades.

"Overall, it's been a very strong market, especially for reds, and especially for things like cabernet sauvignon and zinfandel," said Glenn Proctor, partner at Ciatti Company, a San Rafael wine and grape broker. "We have seen prices, almost across the board, take a jump from what they had been."

For example, cabernet sauvignon grown in Sonoma County sold for $1,700 to $2,300 per ton on the spot market last month, up from $700 to $1,500 per ton a year ago, according to Ciatti Company.

A number of factors contributed to the price increases. The supply of grapes in Sonoma County is down, after unseasonable rains reduced the crop to an estimated 15 percent below its normal size. And bulk wine, which wineries often use to supplement their product when the crop yield is low, also is in shorter supply.

"There's virtually no grapes left over this year, which is the first time in three or four years," said Duff Bevill, founder of Bevill Vineyard Management. "I'm sure there's a buyer for virtually everything that's grown."

With fewer grapes to sell, growers are not necessarily reaping huge benefits from the higher prices. Instead, they're losing less money than they did in recent years, said Nick Frey, president of the Sonoma County Winegrape Commission.

"I don't think anyone will be getting rich this year," Frey said. "Costs were high due to the weather, so it's not going to be a very profitable year for any grape grower."

The price increases come at a difficult time for wineries. Rising grape prices translate into higher production costs, but wineries can't easily pass those costs on to cash-strapped consumers, who are still looking for value.

"For wineries right now, a price increase for their cost of goods comes at a very challenging time," said Andy Frokjer, vice president at Rabobank.

After the stock market took a dip in July, consumer confidence fell, and that began to weigh on wine sales, Frokjer said.

"The recovery has slowed down dramatically," he said.

In a normal Sonoma County vintage, about 200,000 tons of grapes are harvested. Of those, two-thirds are produced by independent growers and the rest are produced by wineries, Frey said.

Until the economic downturn in 2007-08, the vast majority of the grapes raised by independent growers, 90 to 95 percent, were sold to wineries under multi-year contracts, Frey said. But in recent years, only about 80 percent of those grapes were sold in multi-year contracts.

Now, with the crop size an estimated 15 percent lower than a normal year, and prices increasing, wineries looking to stabilize their expenses are entering into long-term contracts with grape growers again.

"Earlier this year when people realized they were going to need to buy grapes again, some were offering to buy not only this year's grapes, but also next year's," Frey said. "That really is a help to growers, when they can count on something for more than one year. It's a lot easier to budget and plan."

Because there were fewer grapes around, wineries were entering into contracts earlier, in some cases over the summer.

"I think everyone agrees that the purchasing in 2012 will be done a lot quicker than it was done this year," said Brian Clements, vice president of Turrentine Brokerage, a Novato wine and grape broker.

Some wineries have responded by adjusting their sourcing to some degree, purchasing grapes from less-expensive regions, Proctor said.

Others are looking at additional ways to reduce costs, like considering bottling wines with screw caps instead of corks and foil, said Corey Beck, director of winemaking and general manager at Francis Ford Coppola Winery.

"Nobody's raising prices right now, so you look at other avenues," Beck said.

Normally, more than 95 percent of the fruit used by his winery is supplied by growers under long-term contracts, he said. But because of the crop shortfall, this year the winery had to purchase 10 percent of its fruit on the spot market, where prices were higher.

The cost of bulk wine also has increased in Sonoma County by 20 to 40 percent over last year, as inventories have depleted, Clements said.

"Three years ago, we had 22 million gallons of wine listed with our company, for all varieties across California," Clements said. "If you look at that same category, we're at about 4 million gallons now."

Custom-crush facilities also are impacted by the short crop and higher prices. At Bin to Bottle, a Napa facility where some grape growers make bulk wine, customers are committing earlier to tasting and buying bulk wine, said John Wilkinson, managing partner.

"I have customers already saying that they want to taste wines as early as December, and that's unheard of," Wilkinson said.

Even so, that corner of the wine business isn't necessarily making more money this year.

"There will be less tons, less wine, and less revenue," Wilkinson said.

Sonoma County's harvest is entering its final weeks, with about 75 percent of the crop expected to harvested by week's end, according to Frey. Looking ahead, Frey expects a slow recovery before prices return to the record highs reached in 2008.

"Wineries will be cautious, because the economy's still fragile," Frey said.

Grape brokers are more optimistic that recovery will happen soon.

"If I was a winery, I would have a contingency plan in place to deal with the possibility that prices may reach 2008 levels in the foreseeable future," Clements said.