As North Coast grape harvest nears end, wine industry frets about oversupply
As he walked around a cabernet sauvignon vineyard along a hilly stretch just west of Lake Sonoma this week, Clay Mauritson couldn’t help but be bullish about his 2018 grape vintage.
Mauritson, owner of his family’s Mauritson Wines in the Dry Creek Valley, said the almost perfect weather has allowed him to dial in the right time to conduct a pick during this year’s North Coast harvest - which still has about three more weeks.
“We are just getting into cabernet. I feel our cabernet crop is heavy, which we are ecstatic about because our crop in 2017 was so small,” Mauritson said.
The yield for his winery this year is expected to be about 10 percent more than his historical average.
Mauritson’s enthusiasm about his predicted bumper crop, however, is not shared by some others in the local industry, especially the larger wine companies, analysts said. The concern is the American wine companies could be at capacity given the leveling off of sales in the marketplace, they said.
“It’s a million-dollar question,” said Rob McMillan, executive vice president of Silicon Valley Bank’s wine division. “The question is declining consumption. ... Is this a short-term or a long-term thing? I think it’s a medium-term or a longer-term issue.”
Growth has slowed and volume has flattened in the U.S. industry, of which California produces roughly 90 percent of the wine with $35.2 billion in domestic sales in 2017. The sector has about 1 percent volume growth now and a 2.5 percent increase in retail sales, though the North Coast premium wine market should experience sales growth from 4 to 8 percent this year, McMillan said.
One telling point: It’s a buyer’s market this fall on the spot wine grape market - which represents around 15 percent of the overall market - where growers sell their excess grapes that have not been locked into contracts with wineries. Prices are now about half on the spot market of what they were one or two years ago, said Mike Needham, a broker at Turrentine Brokerage in Novato.
“I’ve talked to some wineries that said, ‘Our (sales) projections were too high,’” said Brian Clements, vice president at Turrentine. “It’s supply and demand. Demand has ebbed and supply has crept up.”
Another troubling signal is excess wine sales on the bulk market also have been sluggish for the past six months.
In addition, Clements said, wine from the 2018 vintage already has started showing up on the bulk market - which typically doesn’t happen until the new year. Still, he added that this year’s harvest is “not quite as bad” in terms of finding buyers compared with 2008 when the U.S. economy was in recession.
Brokers are seeing the real-time activity in oversupply all across the state.
“The lack of market activity, together with the fact the 2018 crop is looking big, means prices are softening across the board; it has also meant that space in the wineries for the new crush is at a premium. The market for grapes, and for bulk wine, continues to be slow,” according to a report this month from Ciatti Global Wine and Grape Brokers in San Rafael.
The issue has come to the forefront in Lake County, where large wineries have rejected fruit they contend has been damaged from smoke taint as a result of this summer’s Mendocino Complex wildfires, the largest based on acreage in U.S. history.
Clay Shannon, one of the largest grape growers in Lake County with 1,600 vineyard acres, said he had his fruit rejected by large companies such as Treasury Wine Estates and Constellation Brands Inc. for such reasons - claims which he said weren’t true.
Shannon, who also operates Shannon Ridge Winery in Lower Lake, said he conducted third-party tests on his fruit and those results have not shown a large concentration of smoke chemicals on the grapes.
“We are not seeing the issue they suggest,” he said of the smoke taint. “The lab analysis is fine.”
The wine companies canceling contracts the most - Constellation and Treasury - both are publicly traded firms under more investor pressure to show quarter-over-quarter growth than privately owned businesses, growers said.
“It’s a fact they’re using the smoke as a reason to get out the contract,” Shannon said of the large winemakers.
Constellation did not respond to a request for comment. Treasury used a third-party lab to test grapes in areas affected by wildfires this year, said Brent Dodd, company spokesman.
“If the grapes do not meet our quality standards then they will unfortunately be rejected,” Dodd said in a prepared statement.
“Our decision around rejecting grapes is strictly tied to quality as stated above and speculations around ‘oversupply’ is inaccurate.”
The Mauritson family also has a separate business that manages vineyards - Mauritson Farms Inc. of Healdsburg - in Sonoma County and Lake County. Cameron Mauritson, Clay’s brother who is a vineyard manager with the company, said he has experienced different reactions from wineries regarding Lake County fruit: Some who accepted it; others looking for a discount, and some cancellations.
Like Shannon, he defended the quality of the county’s grapes this year. “We got a high level of confidence that the wines will be fantastic,” Cameron Mauritson said.
Besides smoke taint, analysts also cited other reasons for the general bearishness in the wine sector, including whether the U.S. economy is heading for a downturn to the effect that legalized cannabis will have on wine sales. Canada, the second-largest export market for California wineries, this week legalized marijuana for recreational use.
There are other considerations, too, such as wineries only having a limited amount of tank space to ferment crushed fruit before reaching full capacity.
“That’s a real-world logistical issue,” Clay Mauritson said. His boutique winery averages production around 10,000 cases annually, but the 2018 vintage is projected to be almost 12,000.
Still, Mauritson said it was unexpected to hear reports of wineries refusing fruit for smoke taint or only accepting minimum levels of grapes called for in contracts with wineries, especially given that 2017 was a much lighter crop.
Federal figures show 467,157 tons were picked in the North Coast counties of Sonoma, Napa, Mendocino and Lake last year, a 7 percent decrease from 2016.
“I’m a little surprised compared with how small 2017 was,” Clay Mauritson said of grape refusal this year.
“It leads me to really question with the exceptional harvest we are having this year, why aren’t more people stocking up on this high-quality crop?”