OIV Wine Marketing Program Selling Winegrapes : Pricing, Market, & Contracts

Transcription

1 OIV Wine Marketing Program Selling Winegrapes : Pricing, Market, & Contracts Grape Supply and Economics of Production July 21, 2016 University of California, Davis

2 21 DEDICATED BROKERS IN 8 COUNTRIES GLOBALLY BASED TO BUILD YOUR BUSINESS WORLDWIDE

3 The Ciatti Company 21 Brokers Worldwide Argentina, Australia, Canada, Chile, France, Germany South Africa, USA 9 within California North Coast, Central Coast, Lodi, Central Valley & Foothills Grapes, Juice, Bulk Wine, Case goods, Juice Concentrates, High Proof, Spirits, Storage & Processing

4 Pieces of the Puzzle Sellers/Suppliers Growers Wineries Negociants Buyers Wineries Negociants Grower Processors Distributor Broker Retail Consumer Products Grapes Bulk Wine Case Goods Other Service Providers Custom Processors Storage/Barrels Bottlers

5 Points to Discuss Overview Grape Market/Bulk Market Grape Contracts Questions/Thoughts

6 Sales Demand

7 Year End 2015 Statistics 2016 (thru March) California Sales California Sales (Domestic & Export): + 1% + 5% Imports Casegoods : + 4% + 8% Imported Bulk by Wineries: - 4% + 18% Total (All) US & Import: + 2% + 4.5% Premium Sales (All) Coastal Warehouse US Shipments: + 6% - 3% Sourced from Gomberg-Frederickson

8 2015 California Table Wine Volume & Revenue Retail Price/ 750ml Price Segment Nine Liter Cases Sold (Millions) % Chg % of Total Winery Sales Revenues (Millions) % of Total Over $25 Luxury 6.2 3% 3% $1,410 12% $14 up to $25 Super- Premium % 12% $2,750 23% $10 up to $14 Premium % 11% $1,950 17% $10 & Over Subtotal Premium $7 up to $10 Popular Plus % 27% $6,110 52% % 21% 2,430 21% $3 up to $7 Popular % 32% $2,310 20% Up to $3 Economy % 20% $920 8% Up to $10 Subtotal Everyday Total Table Wine % 73% $5,660 48% % 100% $11, % Sourced from Gomberg-Frederickson

9 2015 CRUSH

10 Supply/Demand Dynamics Before 2015 Harvest Long to Balanced Questions: Bulk Market Sales Growth Crop Size? Buyers Buying Selling Buyers

11 Tons in Millions Statewide Grape Crush Winegrape Other Crush

12 California Crush Districts and Regions North Coast, Districts 1-5 Central Coast & South State, Districts 6-8, 15 & 16 Northern Interior Districts 9-11 & 17 Central & Southern Interior, Districts 12-14

13 TONS Total State Tonnages 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Total Winegrapes Total Crush

14 TONS State Regional Total Tons 2,500,000 2,000,000 1,500,000 1,000, ,000 0 North Coast Central Coast & So. Cal North Interior C & S SJV

15 TONS State Tonnage Totals by Variety 800, , , , , , , ,000 0 Chard Cab Sauv Merlot Zin

16 PRICE PER TON Statewide Average Prices $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Chard Cab Sauv Mer Zin Total WG Total Crush

17 California State Results State Tonnage Totals % chg ( ) % chg ( ) Total Wine 3,892,796 3,704, % $766 $ % Total Red 2,138,294 2,040, % $891 $ % Total White 1,754,503 1,633, % $607 $ % CH 718, , % $909 $ % SB 110,420 88, % $977 $ % CS 510, , % $1,424 $1, % ME 282, , % $791 $ % PN 245, , % $1,792 $1, % ZN 355, , % $657 $ %

18 Sonoma & Napa Sonoma District % chg ( ) % chg ( ) CH 87,381 64, % $1,973 $2, % CS 45,772 32, % $2,566 $2, % ME 16,990 12, % $1,628 $1, % PN 47,677 30, % $3,259 $3, % Napa District 4 ZN 15,597 13, % $2,554 $2, % % chg ( ) % chg ( ) CH 30, , % $2,392 $2, % CS 69,530 53, % $5,836 $6, % ME 18,923 14, % $2,907 $3, % PN 9,579 6, % $2,518 $2, % ZN 4,602 4, % $3,393 $3, %

19 Central Coast Monterey District % chg ( ) % chg ( ) CH 124,957 84, % $1,210 $1, % CS 31,709 18, % $1,141 $1, % ME 34,324 24, % $1,043 $1, % PN 62,980 31, % $1,677 $1, % SLO/SB District % chg ( ) % chg ( ) CH 46,011 33, % $1,300 $1, % CS 51,837 32, % $1,452 $1, % ME 19,131 15, % $1,032 $ % PN 27,494 17, % $2,646 $2, %

20 Supply / Demand Dynamics Short to Balanced Questions: Sales Growth Cost Future Crop Size? Buyers Buying Selling Sellers

21 GRAPE MARKET

22 Psychological Adjustment

23 2016 Grape Market Early/Mid Season Very active in the North Coast Active in Central Coast Cautious activity in the Valley Buyers aggressive once they determined needs Focus on Cab Sauv, Pinot Noir, and Chard, Sauv Blanc

24 2015 Grape Market Late Season?? Crop size Avg Minus in Coast; Avg in Valley Hard to find any in demand varieties Still some fruit available in Valley and specific varieties in Coast. Some growers considering making wine Are sellers asking for too much?

25 Alternative Crop Choices Value in Billions of Dollars Sourced from United States Geological Survey, USDA, NASA

26 Supply Potential - All Wine Est. California Winegrape Bearing Acres, , ,000 Includes 2% Coastal Attr ition Rate and 6%Interior Attrition Rate -1% 1% 0% 250, , ,000 1% 2% 2% 6% 6% 5% 100,000 50,000 - High Mid Value Sourced from Allied Grape Growers

27 BULK MARKET

28 Bulk Market Overall balanced market Movement of bulk inventory, pricing up Activity levels are positive Current Bulk Market: CH high demand RRV and other areas SB Large volume of demand, Light 2015 Crop helped ME Older vintage inventory; limited demand ZN Large 2013 vintage still looms; bulk market slow PN Short in all areas of CA CS High Demand, especially Sonoma & Napa

29 Bulk Market Pricing INTERIOR COASTAL SONOMA NAPA CHARDONNAY SAUV. BLANC $3-5 $7-9 $9-15 $10-14 $4-7 $10-16 $15-20 $15-20 $3-4 $4-8 $5-8 $7-10 $6-10 $10-15 $14-18 $15-20 $Prices Pre-Harvest $Prices Post-Harvest

30 Bulk Market Pricing INTERIOR COASTAL SONOMA NAPA CAB SAUV MERLOT ZINFANDEL PINOT NOIR $6-8 $11-16 $21-26 $32-40 $7-10 $16-22 $23-30 $ $3-5 $6-8 $8-14 $13-18 $5-7 $10-14 $13-16 $20-25 $5-7 $7-11 $14-18 $15-20 $6-9 $10-16 $19-25 $18-25 $6-8 $9-14 $15-23 $16-20 $8-10 $15-22 $22-32 $22-28 $Prices Pre-Harvest $Prices Post-Harvest

31 Brand Adjustments New Supply Market Wineries Rationalizing Supply & Brand Positioning Maintain Margin/Brand Growth Options Considered Raising Bottle Price Limit Sales Growth Adjust Sourcing Strategy Competitive Wine Market

32 Appellation Migration Napa Sonoma North Coast Lake Central Coast Multi County Coastal California

33 The Market Has Changed! Buyers back to being buyers again for now Shorter supply could push producers to take bottle price increases or change sourcing plan Sellers selling too cheap; Buyers paying to much The Dance Continues Relationships Beneficial to Both Parties Still The Objective Global dynamics of wine business with a strengthening dollar What is a normal crop? That answer has a big effect on the future supply/demand?

34 GRAPE CONTRACTS

35 Wine / Grape Market Long or Short Grower Need a home! Please! Grapes For Sale Cheap! Help! The other buyer had a more comfortable chair

36 Management of Quality & Return Return per Acre = (Tons x $/Ton) Farming Costs Winery Value = Quality / Price per Unit($/Ton) What opportunities exist to maximize return per acre and winery value to benefit both the grower and winery and deliver consumer value

37 Basic Goal & Objective of a Winegrape Contract To clearly and accurately document the intent of the buyer and seller at the time of the agreement (recognizing the supply/ demand forces in place).

38 Length and Types of Contracts Spot Market Contracts - Less than one year to harvest. Based upon short term demand. S/D usually clear to both parties. Intermediate Contracts - Generally two to five years. Both sides trying to out-guess S/D. Long Term Contracts - Generally five to fifteen years. Both sides can see that near and intermediate supply is short. Seller looks to protect investment while buyer looks to secure of supply.

39 Key Elements of Winegrape Contracts Location - How much flexibility? Quantity - Is it acreage or tonnage? Pricing - Fixed, formula, reference, or at discretion of buyer? Payment - Terms can impact effective price. Standards - Sugar, ph, acid, MOG, rot, etc. Key word is reasonable. What about adverse weather?

40 Key Elements of Contracts (2) Grower Warranties - What you can and cannot warrant. Deliveries - When, where, how long and who makes the decisions. Weighing and Testing of Grapes - Are third parties involved and what about deducts? Allocation of Risk - Timing of title change as well as risk of loss. Liability after delivery.

41 Key Elements of Contracts (3) Renewal and Assigns - Does the contract go with the grower or the land? Is there an evergreen provision? Whose option? Security Interest for Grower - The importance of the grower s lien. Remedies for Breach and Disputes - Litigation, arbitration or liquidated damages? Where?

42 Contracts year contract terms? Pricing based on Regional Winery Prices Min/Max pricing limits Bonuses/Quality incentives for particular standards met or practices performed Farming Plans within contract structure and update on annual basis Higher Brix ranges defined in contract and with Color and Flavor Ripeness parameters Limited use of Reference pricing

43 Contracts year contract terms year planting Contracts Pricing with fixed or min pricing and an upside on contract if market improves Min more discussed than Max Bonuses/Quality incentives but wineries willing to accept fruit Wineries more willing to work with growers on quality parameters Brix, Color Reference pricing used in Coastal areas for future price adjustments

44 GLOBAL COMMENTS

45 Shifting Supply Paradigm SA BRANDS SA AR BRANDS NZ BRANDS AR NZ CH BRANDS CA BRANDS EU BRANDS CH CA BRANDS EU AU BRANDS AU OLD CONSUMER PERCEPTION NEW CONSUMER PERCEPTION

46 Tons in Millions WORLD PRODUCTION

47 EUR-USD, Jan 14- Nov 16 Sourced from Rabobank

48 Current Market Conditions International World production was balanced after now tight due to 2016 southern hemisphere Casegood imports up; Bulk imports down Everyone wants into US market; Casegoods are the priority Prosecco continues growth, NZ Sauvignon Blanc New plantings everywhere

49 Final Thoughts Always be open to new information and changes in the market When you have it figured out is usually when you stumble Relationships still matter Don t leave a dollar on the table but a nickel is worth the investment Small Industry Conduct yourself as such

50 Ciatti Reports / Publications California Market Report World Report THANK YOU FOR YOUR TIME AND ATTENTION Glenn Proctor glenn@ciatti.com

51 Current Market Conditions Domestic 2015: Tale of two harvests Past vintage bulk inventories being depleted Supply Balancing Interior grapes in demand: Coastal buyers looking for availability and lower cost Big demand for Coastal Cab; Napa/Sonoma grapes/bulk Sales of premium bottle segments ($12-$20+$20+) rise Sales of value bottle segments ($7 and under) struggle Domestic Casegoods sales flat overall (+1%); but better in 2016

52 Wine / Grape Market Short to Long? Grapes For Sale Cheap! Help! Three Years of Healthy Crops has filled our tanks IS THIS GOOD or BAD?

53 2015 Grape Market Mid Season No frost; Cluster counts and crop expectation - average plus Buyer giving notice on contracts Wineries putting own fruit on market Market activity slowed in all regions; Very limited activity Buyers waiting, do not want to set market

54 Acreage & Grape Supply AGG Winegrape Acreage Estimates Bearing Non-Bearing Total , , , ,000 * 90, ,000 *2015 non-bearing acreage includes an assumption that approximately 20,000 acres will be planted this year. Sourced from Allied Grape Growers

55 New Grape Seller Remaining Growers have learned to Survive Bulk Market Diversification vs. Desperation More Price Maker than Price Taker Bulk Private Label/ Own Label Lengthened selling period providing options Not as reliant on traditional buyers Grape prices are compared to other options

56 California State Results State Tonnage Totals Total Wine % chg ( ) % chg ( ) 4,245,852 3,892,796 3,704, % $749 $766 $ % Total Red 2,405,942 2,138,294 2,040, % $836 $891 $ % Total White 1,824,625 1,754,503 1,633, % $623 $607 $ % CH 758, , , % $908 $909 $ % SB 127, ,420 88, % $946 $977 $ % CS 524, , , % $1,334 $1,424 $1, % ME 346, , , % $764 $791 $ % PN 259, , , % $1,734 $1,792 $1, % ZN 469, , , % $668 $657 $ %

57 Sonoma & Napa Sonoma District % chg ( ) % chg ( ) CH 87,884 87,381 64, % $1,917 $1,973 $2, % CS 44,256 45,772 32, % $2,426 $2,566 $2, % ME 18,785 16,990 12, % $1,598 $1,628 $1, % PN 54,827 47,677 30, % $3,077 $3,259 $3, % ZN 20,172 15,597 13, % $2,452 $2,554 $2, % Sonoma District % chg ( ) % chg ( ) CH 87,884 87,381 64, % $1,917 $1,973 $2, % CS 44,256 45,772 32, % $2,426 $2,566 $2, % ME 18,785 16,990 12, % $1,598 $1,628 $1, % PN 54,827 47,677 30, % $3,077 $3,259 $3, % ZN 20,172 15,597 13, % $2,452 $2,554 $2, %

58 Central Coast Monterey District % chg ( ) % chg ( ) CH 116, ,957 84, % $1,186 $1,210 $1, % CS 36,015 31,709 18,777-12% $1,058 $1,141 $1, % ME 37,927 34,324 24, % $1,016 $1,043 $1, % PN 56,044 62,980 31, % $1,692 $1,677 $1, % SLO/SB District % chg ( ) % chg ( ) CH 55,400 46,011 33, % $1,231 $1,300 $1, % CS 56,464 51,837 32, % $1,358 $1,452 $1, % ME 24,734 19,131 15, % $1,029 $1,032 $ % PN 28,956 27,494 17,012-5% $2,629 $2,646 $2, %

59 Global Wine Supply (MHL) GLENN TO ASK RABOBANK FOR UDATED SLIDE Sourced from Rabobank

60 Global Bulk Market Pricing CA CHILE AUSTRALIA SOUTH AFRICA CHARDONNAY $4.00 NA $2.95 $2.40 PINOT GRIGIO $6.50 $3.80 $3.65 NA CABERNET SAUVIGNON $7.00 $2.50 $3.00 NA MERLOT $5.00 $2.50 $3.00 NA

61 Gallons in Millions Bulk Wine Imports Into The US Source: US Department of Commerce, Gomberg, Fredrikson & Associates

62 Final Thoughts Lighter 2015 crop has helped balance; contrasting harvest Value brands struggle, premium segment rising Bulk Imports replace lower end grapes; will continue Import casegoods up Strong Dollar Premium brands evaluate sourcing strategy New Acres Loom More Acres Needed?? Competition for Consumer