Global Market Report. November Volume 8, Issue No. 11. Ciatti Global Wine & Grape Brokers. Photo: Ciatti.com Photo: Ciatti.

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1 Global Market Report November 2017 Volume 8, Issue No. 11 Ciatti Global Wine & Grape Brokers 1101 Fifth Avenue #170 San Rafael, CA Phone (415) Photo: Ciatti.com Photo: Ciatti.com Photo: Ciatti.com

2 November 2017 Volume 8, Issue No California 5 Argentina 6 Chile 9 France 11 Spain 12 Italy 13 South Africa 14 Australia 14 New Zealand 8 China Update 16 John Fearless 17 USD Pricing 19 Contacts Moving into late November many markets around the world are generally characterised by a slowness, activity-wise. In the Southern Hemisphere, the high price of any remaining 2017 stock and the prospect of the oncoming 2018 harvests have somewhat paused the markets in Argentina, Chile, and South Africa. In the Northern Hemisphere, buyers are assessing the French and Spanish crushes and due to strong pricing, some scepticism as to the severity of the shortfall, or simply good inventory holding off. This quietness could continue until next year s instalment of ProWein on March, by which time the 2018 Argentinian, Chilean, South African and Australian harvests will be better known. An early, panicked reaction to signs the European harvests were showing lower has since calmed down to activity in specific markets within markets: the international varietals market in Spain; the generic/vin de Table and rosé markets in France; and on many wines in Italy, which seems to have suffered the biggest harvest shortfall of all the big European producers. The availability of generics in France has been squeezed by the prioritisation of production of Vin de France, Vin de Pays, and IGP wines, but generics can be found in Spain (albeit relatively high in price at this time) and Italy (albeit being steadily bought up). The availability of internationals varietals is good in France but under intense pressure in Spain and Italy. Cabernet pricing, for instance, is up everywhere, exacerbated by highly limited remaining 2017 supply in Chile and potentially making Californian Cabernet an option price-wise? Reading online? Use the links above to jump through this document. The loss of life and property in California s terrible wildfires in October is a tragedy and Ciatti s thoughts are with those affected. The state s 2017 harvest will not have been meaningfully impacted by the fires volume-wise or qualitywise, and looks like being average-sized, at around 3.9 million tons. It looks like new plantings and the hot spring and summer weather have served Cabernet volumes well, potentially softening the price on the varietal moving forward while its price in other producer countries is firm to rising. The pressure points on bulk supply around the world can be heavily dictated by China: according to Chinese customs data seen by Chinese media (see the China Update), China imported 56.2 million litres of bulk wine in the July to September 2017 period, a big jump on Q partly because Chinese wine buyers are increasingly importing in bulk and bottling domestically. The Chinese take of Chilean bulk exports in January-September 2017 slumped 45% due to higher Chilean pricing, to the benefit of Spain and Australia. No part of this publication may be reproduced or transmitted in any form by any means without the written permission of Ciatti Company. Come discuss the above and more with us at the 9th World Bulk Wine Exhibition in Amsterdam on November. You ll find us on stand C46, as well as on the Men in Bulk stand, B46/C47. Looking forward to seeing you! Robert Selby 2

3 California Time on target HARVEST WATCH: Average-sized harvest; Cabernet performing well, Chardonnay struggling The loss of life and property in October s terrible North Coast wildfires is a tragedy and Ciatti s thoughts are with those affected. The short and long-term effects on the Californian wine industry, meanwhile, appear to be minor: a handful of small private wine estates were destroyed, no major processing facilities were harmed, and most of the 2017 grapes were already picked and in the barn, safely away from any smoke. Moving forward, the lack of available labor, a pre-existing issue, is likely to have been exacerbated by the loss of housing. The impact of the wildfires on the 2017 harvest size should be minimal: Napa and Sonoma combined account for less than 10% of California s total crop, and the volume still on the vine waiting to be harvested in those areas when the wildfires neared probably represented something like % of California s entire crop. Smoke taint fears got out in front of the reality: at the time the fires broke out, over 95% of the fruit grown in California had been picked. Ciatti has not heard of any significant issues with wine quality brought about by fire. The industry across California pulled together to help out its friends in the North Coast, further quietening what is traditionally a quiet time on the market. Beyond this, the market has been unmoved, either activity-wise or pricing-wise. Outside the North Coast, the harvest proceeded normally through October; there is still some crushing of late grapes taking place on the Coast, but across the state the large wineries have finished. The 2017 crush seems in the region of 3.9 million tons with variable performance across the varieties, reds generally faring better than the whites in the hot spring and summer conditions. The best-performing varietal was Cabernet, mainly due to new acres across California (there are 30,000 new acres in the process of coming on-line), and it should come in average-sized or above in every part of the state: perhaps around 500,000 tons in total. This could lead to a slight softening in the Cabernet price. Merlot and Pinot Noir volumes seem to have come in healthysized too. Rubired appeared down. Chardonnay struggled in the hot temperatures and never really sized-up: it could be perhaps 15-20% down on the average. It s mainly this drop that accounts for an overall Californian crush expected to be down in size from 2016 s 4,000,790 tons. Chardonnay prices will likely firm up on the bulk and spot markets. The Pinot Grigio harvest, meanwhile, will be down in size from last year s bumper crop; Sauvignon Blanc does not look bumper; Muscat will be down; Colombard should be on the average thanks to new plantings; Zinfandel volumes will fall back after growing in Overall, except perhaps on Cabernet, pricing will remain firm. A crop at around 3.9 million tons would be a healthy one for the market. Demand appears to be softening somewhat and distributors continue to carry less inventory; retailers, restaurateurs, distributors and importers are aiming to slimdown their inventories. Many will see how their October, November and December sales perform before re-entering the market in January. The price of California s Cabernet could look a little more attractive to international buyers now that pricing around the world has increased and California can offer volume. Wine imports into the US, meanwhile, remain strong, aided by the popularity of Provence rosé and New Zealand Sauvignon Blanc, among others, as well as the relatively strong US dollar. See next page for more on California. 3

4 Key Takeaways An average-sized harvest of around 3.9 million tons would ensure both that prices remain firm and that California can provide the buyer with pretty much any varietal. It has been a good harvest for Cabernet across the state and this could soften prices on this varietal a little; on the flip-side, Chardonnay struggled with the heat and its prices will firm-up. The North Coast wildfires looks to have done minimal damage to the Californian wine industry and its 2017 harvest. Ciatti Contacts Import/Export Domestic CEO Greg Livengood T Steve Dorfman John Ciatti john@ciatti.com T Glenn Proctor glenn@ciatti.com E. greg@ciatti.com John White johnw@ciatti.com E. steve@ciatti.com Chris Welch chris@ciatti.com California: Current Market Pricing (USD per liter) Vintage Variety Price Trend Vintage Variety Price Trend 2016 Generic White Generic Red Chardonnay /15 Cabernet Sauvignon Pinot Grigio Merlot Muscat Pinot Noir White Zinfandel Syrah Colombard /15 Zinfandel

5 Argentina Time on target HARVEST WATCH: One hard frost in October; November thus far hot A hard frost hit Mendoza s south (the Uco Valley) and north one night in October; an evaluation of the damage should be ready by the end of year. The vines were generally between the budding and flowering stages. The good news is that eastern Mendoza, the bulk wine powerhouse, was mostly if not completely unharmed, and there have been no subsequent adverse weather events. Argentina s summer starts on 21 December, but already November has been hot. The frost season is almost over: hail has not yet occurred but risk of it remains until March hail on average hurts Argentina s volumes by 7-10% per year. Macri has said Argentinians should export tax, education and labour reforms and one post-election tax change the government sought to introduce has already been successfully fended-off by the wine industry. At the start of November the government proposed a tax reform bill that included an increase in the tax on wine for consumers, from zero to 10%, bringing it into line with the tax on other alcoholic beverages. Argentina s wine producers, spearheaded by the governor of Mendoza, Alfredo Cornejo, lobbied hard for the government to backtrack and succeeded. They argued that the tax would further hit domestic wine consumption which has already been on the decline in Argentina in recent years due to inflation, high wine and grape prices caused by successive poor harvests, and changing tastes (with the rise of craft beer). The market in Argentina remains unmoved and activity is quiet. Suppliers are holding onto their wines while they see how the growing season fares. The Malbec price has been on pause since September at USD1.80/ litre: with the frost episode, no peso devaluation forthcoming, and high global prices, there is no downward price pressure in Argentina at the moment. Ciatti Argentina is receiving enquiries about grape juice concentrate, but prices on GJC are high and rising and there is little product available. President Mauricio Macro and his governing coalition triumphed as expected in Argentina s midterm elections on 22 October. The governing party strengthened its position in congress (though fell short of a majority) while the opposition, led by Cristina Fernandez de Kirchner, is divided and being pulled into the political centre-ground by Macri s electoral success off the back of his sound economy ticket: the voters chose to back his government despite the tough economic medicine they are enduring. The peso strengthened off the back of the election result, the opposite of what exporters need, and the government has yet to make any signals regarding a currency devaluation. It will need to find a way to balance sensible economics with the country s export competitiveness. After the climb-down, Macri had a more positive message for the wine industry, telling Reuters on 7 November: We bet on the future of that [the wine] industry. We think we can substantially increase our wine exports in future years if we succeed to open markets because we compete with many other producers. Key Takeaways Bulk Malbec remains at USD1.80/litre; GJC availability is highly limited. Supplier of Malbec are holding while an assessment of October s frost damage continues and there is a better idea of how the growing season will fare. Argentina s government, which cemented its position in the country s midterms on 22 October, is yet to indicate whether or not it will devalue the peso to assist exports. Ciatti Contact Eduardo Conill T E. eduardo@ciatti.com.ar See next page for pricing. 5

6 Argentina: Current Market Pricing (USD per liter; FCA Winery) 2017 Generic White Generic Red Chardonnay Cabernet Sauvignon Muscat Syrah / Merlot Torrontes Malbec Entry-Level Bonarda Malbec Premium Chile Time on target HARVEST WATCH: Frost season has passed without issues The frost season has passed in Chile without any issues. October and early November saw significant rain, more than normal; in recent days it s been warm and sunny. A 2018 harvest yielding 1.3 billion litres of wine was mentioned in some quarters earlier in the spring, but now the talk is of a harvest smaller than that due to some vine removals. Following week-on-week rises for a prolonged period, prices on the Chilean market have stabilised in the past couple of weeks. The high prices for the remaining 2017 wines, and for 2018 grapes and wines, has led buyers to hold off and see where the market is moving, or find alternative sources for their needs. Chilean prices beyond USD1/litre exceed a psychological barrier for some buyers: demand has thus slackened and both the domestic and international markets in Chile are quiet. They will likely remain so until ProWein in March, when the global situation with the Southern Hemisphere harvests then imminent will be clearer. Many purchase requests cannot be fulfilled in Chile at this time anyway, as quantity of 2017 wines is not available and any pockets of availability are expensive for the quality on offer. Meanwhile, approximately 90% of 2018 grapes have been allocated, prices on 2018 grapes continue to rise and the remaining material will be expensive for the quality. Chile s bulk wine exports in the January to September 2017 period reached million litres, practically inline with million litres in the equivalent period of However, this is because Argentina moved onto the Chilean market in 2017 to cover its domestic shortfall, taking 63.9 million litres of Chilean bulk up from zero litres the previous year and making it Chile s biggest customer by volume for the period. This Argentinian custom almost entirely offset a worrying 18.8% decline in bulk exports to the US (from 73.9 million litres to 59.9 million), a 45% decline to See next page for more on Chile. 6

7 China (from 62.3 million litres to 34.2 million), and a 58% decline to Canada (from 23.4 million to 10.1 million). Due to Argentina s custom helping to keep Chilean prices high, the total value of Chile s bulk wine exports in January to September 2017 was USD229.9 million, up 23.5% from USD186.2 million in 2016; the average FOB price per litre was up 25% from USD0.66/ litre to USD0.82/litre. The bottled wine market was more stable in Chile in January to September 2017: bottled exports were up 5% from 39.6 million to 41.7 million cases, total value was up 5% from USD1.104 billion to USD1.163, and the price per case at USD27.87 was in-line. China became the number one client for Chilean bottled wine in the period, taking 5.8 million cases, 25% more than its take the prior year; export volumes to the previous number one customer, the UK, fell 13.5% to 4.1 million cases, while volumes to the US were practically in-line, down 1.5% to 4.4 million cases. Finally, the Chilean wine industry should be commended for having three of its wines appear in the top five of greatly respected wine critic James Suckling s Top 100 Wines of Suckling, formerly senior editor of Wine Spectator, gave top spot in his list of 100 wines to an Almaviva Puente Alto He wrote: This is a wine that epitomizes greatness with its intensity, structure and balance. It [ ] highlights how South America, specifically Chile, has come into its own as a wine area, producing superb wines that can compete with the best in the world. The other two Chilean wines in Suckling s top five were Seña Valle de Aconcagua 2015 (in third spot) and Clos Apalta Apalta 2014 (in fifth): They are both perfect wines. Key Takeaways Prices in Chile have stabilised: the high prices for the remaining 2017 wines, and for 2018 grapes and wines, has led buyers to hold off. Large quantities of 2017 wines are not available: any pockets that do arise are expensive for the quality. Prices on 2018 grapes continue to rise: some 90% of 2018 grapes have been allocated. Bulk exports in January-September 2017 were in-line with the same period of 2016, but only because Argentina s likely one-off custom offset falls to North America and China. Ciatti Contact Marco Adam T or T E. madam@ciattichile.cl Chile: Current Market Pricing (Pricing in bulk; FOB Chilean Port) NV Generic White NV Generic Red Chardonnay (Basic) Sauvignon Blanc Cabernet Sauvignon (Basic) Cabernet Sauvignon (Varietal Plus) Syrah Merlot (Basic) Carmenere Merlot (Varietal Plus) Pinot Noir Malbec (Basic) Malbec (Varietal Plus) See next page for more on Chile. 7

8 Chilean Export Figures Wine Export Figures Million Liters January - September 2016 January - September 2017 Volume Million US$ FOB Average Price Million Liters Million US$ FOB Average Price Variance % Bottled 357, ,36 3,09 375, ,86 3,10 5,24 Bulk 283,92 186,29 0,66 281,62 229,98 0,82-0,81 Sparkling Wines 3,37 13,41 3,98 3,26 13,48 4,14-3,38 Packed Wines 23,94 40,66 1,70 20,01 34,57 1,73-16,40 Total 668, ,73 2,36 680, ,90 2,45 1,85 China Update According to Chinese customs data obtained by Chinese media WBO then translated by the Drinks Business, China imported approximately 56.2 million litres of bulk wine, worth USD47.1 million, in the July to September 2017 period. This represents a 92% increase in volume and a 100% increase in value compared to the equivalent period of WBO attributed this increase to a smaller base in the same period of 2016 as well as a shift in the way wine enters China: more wine is being imported into China in bulk, legally bottled and labelled there, and sold at the lower end of the market. In China this wine category is sometimes called one euro wines the Drinks Business translates and could be doing well due to increased prices on imported bottled wine, as well as increasing demand for wine in those areas where the one euro category already dominates: in the towns and provinces where consumers buy wine via websites, TV shopping and supermarkets. Spain was the biggest source of bulk wine imported into China in January to September 2017, the Drinks Business translates WBO as stating, followed by Chile, Australia, France, South Africa, Italy and the US. Ciatti has seen that the Chinese bulk wine buyer is highly price-sensitive: increased prices in Chile in the past year has upped Chinese demand in Spain and South Africa. According to Chilean figures, Chile s bulk wine exports to China were down 45% in volume in January- September 2017 from the equivalent period of 2016, from 62.3 million litres to 34.2 million litres (see Chile page). In the July 2016 to June 2017 period, South Africa s bulk wine exports to the Far East region predominantly China grew 67% to 28 million litres. And in the 12 months ended 30 September 2017, mainland China accounted for 30% of Australia s total (bulk and bottled) wine exports in terms of value, and 17% in terms of volume (see Australia page). It should be noted that bottled wine still dominates wine imports into China, with 153 million litres of the million wines imported into China in July-September being bottled, the Drinks Business translates. Ciatti Australia broker Simone George, whose purview includes China/Asia Pacific, writes: We are seeing continual demand from the Chinese for red wines, particularly from Australia and France. White wines are still very small in their requests whereas Dry Red, Shiraz, Cabernet and Merlot remain strong. Entry-level material is heavily desired for larger parcels although smaller volumes of top-end Shiraz and Cabernet are still demanded from well-known regions. See next page for more on China. 8

9 As Chinese buyers become more involved in the wine industry, we see them evolving from simply being buyers of bulk wine into purchasers of grapes to process themselves, and into buyers of established wineries. We are also now seeing them build their own wineries on foreign soil. Cash flow from the Asian market never seems to be an issue and whilst many wineries are not actually up for sale, they are all open to discussion here at a price. The shortage of European wine, and South Africa being in a drought, has caused concern for many including the Chinese market. Many are hoping for Australia, Chile and Argentina to have large 2018 crops in order to support their demand at the price point they require. France Time on target HARVEST WATCH: Estimated down 20% on five-year average in Languedoc The pace of activity in France is mixed. The market for the new 2017 reds is calm: they have just finished malolactic fermentation and are undergoing blending in the wineries; negociants and buyers have enough stock to last until spring. There is some activity on the 2017 whites, but a normal level. By contrast, the 2017 Languedoc rosé market is under pressure as big French bottlers seek an alternative source to Provence, where rosé output has been low this year. For buyers of good quality rosé, it s a case of now or never. France has a good supply of 2017 varietal wine to offer, and with prices having risen significantly on Spain s varietals, the price disparity between France and Spain is not as significant anymore. There are some small batches of 2016 Merlot, Sauvignon Blanc and Chardonnay still available in France, with the latter two priced at around EUR0.10/litre less than their 2017 counterparts. down 19% from last year according to AGRESTE the production of Vin de France, Vin de Pays, and IGP wines has been prioritised, leaving less generic wine to go around. AGRESTE s 1 October estimate of the 2017 harvest in France was 36.9 million hectolitres, down 18% on the five-year average. The Languedoc harvest was forecast to be down 20% on the five-year average (see below table), Charente down 17%, Bordeaux down 33%, and Sud-Est down 17%. Because of frost in the Rhone Valley, high-end reds such as Grenache and Shiraz will be sought-after in Languedoc. Key Takeaways French generic and Vin de Table output will be significantly reduced this year; buyers of these should not wait. Similarly, rosé is a hot category. On the flip-side, France has good quantities of varietal wine and, due to rising prices in other countries, they are priced very competitively. Buyers of French generic and Vin de Table wines for French origin programmes should express their needs to Ciatti now: because of the 2017 crop shortfall Ciatti Contact Florian Ceschi T E. Florian@ciatti.fr See next page for pricing. 9

10 France: Current Market Pricing (EUR per liter; Ex-Winery) 2016 Generic White Varietal Rosé IGP Chardonnay IGP Generic Red Chardonnay VDF Cabernet Sauvignon IGP Sauvignon Blanc IGP Cabernet Sauvignon VDF Sauvignon Blanc VDF Merlot IGP Generic Rosé IGP Merlot VDF Generic Rosé VDF Syrah / Grenache French Harvest Estimate by Acre (AGRESTE, 1 OCTOBER 2017, UNIT : 1,000 HECTOLITRES) REGION 5-YEAR AVERAGE / /AVERAGE Champagne 2,463 2,077 1,946-6% -21% Bourgogne-Beaujolais 2,150 2,066 2,150 4% 0% Alsace 1,088 1, % -21% Savoie % -1% Jura % -52% Val de Loire 2,455 2,113 2,288 8% -7% Charentes 8,321 7,830 6,917-12% -17% Sud-Ouest 3,409 4,064 3,261-20% -4% Bordelais 5,519 6,078 3,721-45% -33% Languedoc-Rousillon 12,900 12,362 10,350-16% -20% Corse % -20% Sud-Est 5,448 5,799 4,507-22% -17% 10

11 Spain Time on target HARVEST WATCH: La Mancha s harvest significantly reduced; extent unconfirmed The initial flurry of market activity in Spain caused by news of the smaller harvests across Europe La Mancha s harvest is expected to come in around million hectolitres, down from million in 2016 has abated, on the generics at least. Those with immediate needs bought, but buyers with longerterm needs are waiting for prices to soften or at least stabilise. Prices in Spain continued to increase through October, potentially hurting the price competitiveness of Spanish wine moving forward. Although overall 2017 wine production in Spain was reduced by the adverse growing conditions, it was from a large base: generic wines are in relatively good supply. In addition, the relatively high price for Spanish generics in recent times has reduced demand for them from the distilling and food industries, freeing-up supply, while year-by-year fewer wines in Spain are of a standard intended for the alcohol and vinegar industries. French buyers of generics have held off from making moves in Spain because of the prices. This has meant the Spanish rosé market has yet to become hot despite the prioritisation of red production restricting Spain s rosé volumes. There are also plenty of opportunities on organic wines out of Spain, which should interest German, Scandinavian and Northern European buyers in particular. The picture on international varietals is different: these are almost sold out in Spain. Small pockets of Merlot, Cabernet or Shiraz become available every now and then, but only in modest quantities. Buyers seeking to cover short or medium-term moves should move now. Those buyers needing a varietal to put on labels might consider Spanish varietals (better resistant than the international varietals to the high temperatures seen this summer) as an alternative, such as Bobal, Monastrell, Verdejo or a Tempranillo blend something currently selling at a lower price than a low-end international varietal but potentially of superior quality. The Spanish industry as a whole should see the shortfall in its international varietal stocks this time as an opportunity for Spanish varietals. In general on varietals, though, France could increasingly become a more attractive option than Spain in the months to come, as the price disparity between the two countries lessens. Key Takeaways Spain s international varietal wines are almost sold out, with only the odd small parcel becoming available here or there. Spain is however able to offer good volumes of generic, organic and Spanish varietal wines. Prices continue to increase: at the moment it is difficult to forecast when they will stabilise or soften. Ciatti Contact Nicolas Pacouil T E. nicolas@ciatti.fr Spain: Current Market Pricing (EUR per liter; Ex-Winery) 2017 Generic White Moscatel White Blends (Higher Quality) Generic Red Sauvignon Blanc Generic Red (Higher Quality) Chardonnay Cabernet Sauvignon Generic Rosé Merlot Varietal Rosé Syrah

12 Italy Time on target HARVEST WATCH: Estimated down 23% from 2016 at 39.3 million hectolitres OIV harvest estimate figures released on 24 October support the data quoted in previous Ciatti reports: Italy suffered the biggest production shortfall of the major European producer countries, with its 2017 crush estimated to have come in at 39.3 million hectolitres, down 23% on Prices in Italy are confirmed above the EUR5/hectograde mark for entry-level wines and even the big companies have been forced to pay this in order to tide themselves over. Those who did not believe the price increase are now forced to pay more than they would have a few weeks ago. In some cases supermarkets are not receiving any offers for their tenders, or still struggling to come to terms with not receiving the sort of offers they would like: this tension will likely continue into the first months of Some wines like Prosecco, Chianti, organic Montelpulciano DOC, Nero d Avola DOC, and organic Pinot Grigio are very difficult to find and that which comes available is priced very strongly. At the moment, many big requests are arriving from companies needing to offer some international tender or other, and the sourcing is highly complicated. The market for Pinot Grigio Delle Venezie DOC is stable: pricing ranges from a minimum of EUR1.30/ litre to a maximum of EUR1.50/litre. Pinot Grigio IGT is sold out. The minimum price for Prosecco DOC, meanwhile, is EUR2.50/litre. The DOCG Valdobbiadene is traded at more than EUR3.0/litre, is in strong demand, and short supply. Chardonnay is one of the most requested varietals on both the internal and external markets and there are only small available quantities: prices are increasing towards EUR /litre in general. Montepulciano d Abruzzo DOC is starting to be traded at around EUR90Euro/hectolitre, the cheapest red DOC in Italy at the moment. The minimum price for Nero d Avola DOC Sicilia is around EUR110/hectolitre and supply is short; the medium quality is at EUR120/hectolitre. Given the short production in the north, with IGT at EUR1/litre, all the main companies are switching to varietal Merlot and demand for it has increased strongly: prices start at EUR80/hectolitre and increasing, and lots of contracts have already been closed. Varietal Cabernet is in very short supply, starting from EUR80/hectolitre and increasing. Varietal Moscato is almost sold out and prices have been passing EUR110/kg for the must. Primitivo IGT Puglia/Salento is priced at EUR /hectolitre. Chainti DOCG starts at EUR /hectolitre for the 2017 production, of which volume is a lot lower than it was in There are stocks of 2016 vintage Riserva available. Entry-level, 12% alcohol generic red is trading from around EUR65/hectolitre and there is a shortage of wine at a lower alcohol degree. Prices on generic white start from EUR60-65/hectolitre: there is availability for now but some significant producers are already sold out. Generic white in Abruzzo starts from EUR65-70/ hectolitre, and the price generally increase the further north the buyer goes. Rossissimo at 40 points of colour and 12% alcohol is traded at around EUR / hectolitre. Key Takeaways A significantly reduced harvest has pushed prices up across Italy: Pinot Grigio IGT is sold out, while Pinot Grigio Delle Venezie DOC is at EUR /litre and Prosecco DOC at EUR2.50/litre. Varietal wines are facing great demand pressure; supply is low and prices are high. Generics too are selling fast. Give Ciatti a call to help navigate Italy s fast-moving market. Ciatti Contact Florian Ceschi T E. Florian@ciatti.fr See next page for pricing. 12

13 Italy: Current Market Pricing (EUR per liter; Ex-Winery) 2016 Generic White Generic Red Chardonnay Cabernet Sauvignon IGT Pinot Grigio Merlot DOC Prosecco * 2016 Primitivo / Zinfandel Chianti * *Bottled Price South Africa Time on target HARVEST WATCH: Low water reserves are a concern; some frost in the growing areas The odd small pocket of availability on 2017 wines has opened up here or there in South Africa in recent weeks, but the overall picture remains unchanged from last month: most wines are not available at the moment, and prices continue to rise as and when parcels of wine do become available. There is no feeling that suppliers may be sitting on large stockpiles of wine. Requests have quietened down somewhat, with most being for modest volumes to tide things over or meet new tenders that have arisen. As last month, potential buyers should be aware that all pricing on 2017 wines in South Africa is subject to availability, and can change quickly. The below table thus provides indicative guidance only. Give Ciatti a call for the up-to-the-minute picture on availability and pricing. Thoughts are turning to the 2018 vintage. There has been some frost in the growing areas that may have a small impact on the final harvest size. The Western Cape is getting a day, perhaps a day and a half, of rain per week, which is helping to sustain the current good condition of the vineyards and maintain water levels in the catchment dams though not increase them meaningfully. Cape Town s catchment dams remain at 37% of capacity, unchanged from last month and down from 59% of capacity at this stage of 2016 and 69% in Residents in the cities, Cape Town and Stellenbosch, are receiving circulars from the authorities encouraging the stockingup of bottled water as load-shedding of the water supply could be imminent if dams levels do not rise. Loadshedding would see each district being allocated its own period of time in the week, perhaps a day, in which its water supply is cut-off. Those growing areas that rely on canal water to irrigate, such as Olifants, will be hardest hit by the low water supplies. Overall, the main bulk wine producing such as in Stellenbosch and Paarl look good at the moment, but there are still three months to go until harvest begins. It is thus too early to predict the state of the 2018 harvest, and in turn for growers to set offer prices. See next page for more on South Africa. 13

14 Key Takeaways It is very hard to find 2017 wines in South Africa; some small pockets of availability have popped-up here or there. Prices can rise quickly; the below table is indicative only. Vineyards are receiving some rain each week and their current condition is good, but low water reserves 37% of a capacity in Cape Town could become a factor by harvest time from February. There has been some frost. The uncertainty means it s still too soon for growers to set 2018 offer prices. Ciatti Contacts Vic Gentis Petré Morkel T T E. vic@ciatti.fr E. petre@ciatti.co.za South Africa: Current Market Pricing (SA Rand per liter, FOB Cape Town) 2017 Generic White Generic Red Chardonnay Cabernet Sauvignon Sauvignon Blanc Ruby Cabernet Chenin Blanc Merlot Muscat Pinotage Generic Rosé Shiraz Cultivar Rosé Cinsaut Rose NB: pricing is directly related to remaining available stock and - due to the current short situation - can change without notice Australia & New Zealand Time on target HARVEST WATCH: Frost/hail in some of Australia s growing areas; some frost/snow in NZ Frost and hail has damaged some parts of Australia s wine growing areas. Irrigated vineyards were hit with hail in Griffith and some more premium regions, with Coonawarra, Padthaway and Hunter Valley being affected to some extent by frost or hail. Evaluation of vineyards is ongoing to see what effects these events will have on the region s crush size. Philippines-based San Miguel Corporation is enhancing its presence in the Australian bottling and packaging industry with its purchase of Best Bottlers Pty Ltd in Mildura. Earlier this year, the conglomerate acquired Barossa Bottling and Portavin. Best Bottlers is San Miguels fifth acquisition related to the wine industry in the Australasian region. The latest WEAR report released by Wine Australia shows that, in the 12 months ended 30 September 2017, Australia s wine exports continued to grow strongly by both volume and value. Export value grew 13% to See next page for more on Australia & New Zealand. 14

15 AUD2.44 billion; volume grew by 9% to 799 million litres. The average value of bottled exports increased by 1% to AUD5.53/litre and the average value of bulk exports increased by 3% to AUD1.00/litre, underpinning 4% growth in the average value of all exports to AUD3.06/litre FOB, the highest value since the same period in Australian exports to all regions recorded growth, with the growth strongest to Northeast Asia (up 36%, or AUD248 million, to a record AUD926 million) and Southeast Asia (up 6%, or AUD10 million, to AUD162 million). Exports to Europe grew by 1% (+AUD8 million, to AUD578 million), North America by 1% (+AUD7 million, to AUD646 million), and to the Middle East by 6% (+AUD1 million, to AUD21 million). According to WEAR, mainland China accounted for 30% of total export value and 17% of total volumes, the US accounted for 19% of export value and 23% of volume, while the UK accounted for 14% of value and 28% of volume. Canada represented 8% of both value and volume; Hong Kong had the fifth-largest share of value, with 5%, and Germany the fifth-largest share of volume, with 5%. Australia s five largest markets account for 76% of the value of Australian exports. * Wine growers in New Zealand s South Island have had to cope with potentially highly damaging frosts in early November when a late winter blast swept through the region. According to New Zealand s 1News, which showed vineyards dusted with snow, the icy conditions came as a shock after warm spring-like conditions in preceding days. Helicopters and wind machines were used to try to keep frost at bay. The latest figures put New Zealand wine exports at NZD1.669 billion for the year to the end of July 2017, making wine the country s fifth-biggest export earner. Key Takeaways Evaluation of vineyards in Australia is ongoing following recent frost and hail events. New Zealand s South Island has also been visited by frost. Australian wine exports continued to grow strongly by both volume and value in the year to end of September 2017, with China now representing 30% of total exports in terms of value and 17% of total volumes. Ciatti Contacts Matt Tydeman Simone George T T E. matt@ciatti.com.au E. simone@ciatti.com.au Australia: Current Market Pricing (AUD/litre unless otherwise stated) NV Dry White NV Dry Red Chardonnay Cabernet Sauvignon Sauvignon Blanc Merlot NZ Marlborough SB NZD Shiraz Pinot Gris Muscat Price stated are indicative only; all offers subject to prior sale and subject to volume, drawdown and terms 15

16 Craft Beer Update PROVIDER OF CRAFT HOPS AND PROVISIONS From December John Fearless is expanding its Humuflor hop essence range with the addition of Citra, Mosaic, Amarillo and Centennial hop essences. Fearless will also be receiving the latest batch of used bourbon barrels it has been able to offer periodically over the past couple of years, as well as the second consignment of used rum barrels from the Caribbean island of Martinique. The original Humuflor hop essence, derived from the Cascade hop, has enjoyed great success and John Fearless is responding to feedback from brewers for more choice. The Citra, Mosaic and Amarillo essences meet the big demand within craft brewing for fruitier aromatics in addition to pine/citrus characteristics. Meanwhile, Centennial, like Cascade, is a handy dual purpose essence with pine/citrus characteristics, applicable for bittering or aroma. Humuflor is a 100% natural aroma enhancer made by extracting the aroma compounds from hops and putting them into water at a very highly-concentrated level. Because it is water-based and contains zero vegetative material, Humuflor can be applied in the brite beer tank right at the end of the brewing process, without any subsequent need to filter the beer before sending it off for packaging. Humuflor s addition at this late stage means the beer s aroma is given a highly concentrated aromatic boost after the high-temperature phases such as the kettle, whirlpool and fermentation which normally diminish the aroma compounds. Humuflor can improve a brewery s utilisation of assets: its use means less hops are required Meanwhile, the bourbon barrels Fearless can provide have become a real favourite with barrel-aging brewers. Fearless sources these from the distillery both in good condition and super fresh, as wet barrels sometimes still containing traces of bourbon: they are thus very aromatic. Some barrels become available roughly on a quarterly basis, and the next batch should be available from January. The latest consignment of rum barrels is due in January and now is the time to pre-order what are pretty special barrels limited in quantity: the Dillon rum distillery on Martinique releases only 200-odd barrels a year, and Fearless takes them all. The latest consignment has been slightly delayed by Hurricane Maria hitting Martinique in September, but the Dillon distillery itself was not badly affected. Fearless has narrowed down its barrel suppliers to those who can be trusted to look after them and remove those no longer optimal. Dillon, like many rum distilleries in the Caribbean and Latin America, uses barrels formerly used in aging bourbon: as such, the barrels can be up to 10 years old or more by the time Dillon takes receipt of them and, in turn, nearly 15 years old or more when Fearless receives them. How long will a brewer use an aged oak barrel for? Some reuse each barrel as many times as possible while others will use them once, for one extended aging process. In Fearless s experience, for a heavy spirit addition the beer might need to sit in the barrel for 12 months or more: for a lighter touch, perhaps three months. Whatever your needs, whether they be hop essence or bourbon, rum or wine barrels, John Fearless is there to help. each brewing cycle, and less hops means both less time cleaning out the fermenter and less filtering of the beer (something which can impact on the final yield of beer). The brew cycle is thus more efficient, cost and time-wise. Fearless Contacts CEO - Rob Bolch Sales - Geoff Eiter T T E. rob@johnfearless.com E. geoff@johnfearless.com Key Takeaways John Fearless can provide: base and specialty malt; aroma and bittering hops; a five-strong range of Humuflor hop essences; fruit and wine grape juice concentrate; fresh wine grapes; and former bourbon, rum and wine barrels. Ciatti Global Market Report March

17 Export Pricing: USD per liter Currency Conversion Rates as of October 13, 2017 Argentina (Pricing in bulk; FCA) 2017 Generic White Generic Red Chardonnay Cabernet Sauvignon Torrontes Syrah / Merlot Muscat Malbec Entry-Level Bonarda Malbec Premium Australia & New Zealand AUD Rate: / NZD Rate: NV Dry White NV Dry Red Chardonnay Cabernet Sauvignon Sauvignon Blanc Merlot NZ Marlborough SB Shiraz Pinot Gris Muscat California (Pricing in bulk; FCA) 2016 Generic White Generic Red Chardonnay /2016 Cabernet Sauvignon Pinot Grigio Merlot Muscat Pinot Noir White Zinfandel Syrah Colombard /2016 Zinfandel Chile (Pricing in bulk; FOB Chilean Port) NV Generic White NV Generic Red Chardonnay (Basic) Sauvignon Blanc Cabernet Sauvignon (Basic) Cabernet Sauvignon (Varietal Plus) Syrah Merlot (Basic) Carmenere Merlot (Varietal Plus) Pinot Noir Malbec (Basic) Malbec (Varietal Plus)

18 France (Pricing in bulk; Ex-Winery) Rate: Generic White Generic Red Chardonnay IGP Cabernet Sauvignon IGP Chardonnay VDF Cabernet Sauvignon VDF Sauvignon Blanc IGP Merlot IGP Sauvignon Blanc VDF Merlot VDF Generic Rosé IGP Red Syrah / Grenache IGP Generic Rosé VDF Varietal Rosé IGP Italy (Pricing in bulk; Ex-Winery) Rate: Generic White Generic Red Chardonnay Cabernet Sauvignon Pinot Grigio Merlot Prosecco Primitivo / Zinfandel Chianti South Africa (Pricing in bulk; FOB Cape Town) Rate: Generic White Generic Red Chardonnay Cabernet Sauvignon Sauvignon Blanc Ruby Cabernet Chenin Blanc Merlot Muscat Pinotage Generic Rosé Shiraz Cultivar Rosé Cinsaut Spain (Pricing in bulk; Ex-Winery) Rate: Generic White Generic Red White Blends (Higher Quality) Generic Red (Higher Quality) Sauvignon Blanc Cabernet Sauvignon Chardonnay Merlot Generic Rosé Syrah Varietal Rosé Moscatel

19 Contact Us Argentina Eduardo Conill T E. Concentrate John Ciatti T E. Germany Christian Jungbluth T E. Australia / New Zealand Matt Tydeman Simone George T E. matt@ciatti.com.au E. simone@ciatti.com.au California Import / Export CEO Greg Livengood Steve Dorfman T E. greg@ciatti.com E. steve@ciatti.com California Domestic T John Ciatti john@ciatti.com Glenn Proctor glenn@ciatti.com John White johnw@ciatti.com Chris Welch chris@ciatti.com Canada & US clients outside of California Dennis Schrapp T. 905/ E. dennis@ciatticanada.com Chile Marco Adam T or T E. madam@ciattichile.cl China / Asia Pacific Simone George T E. simone@ciatti.com.au France / Italy Florian Ceschi T E. Florian@ciatti.fr Spain Nicolas Pacouil T E. nicolas@ciatti.fr UK / Scandinavia / Holland Catherine Mendoza T E. catherine@ciatti.fr South Africa Vic Gentis T E: vic@ciatti.fr -or- Petré Morkel T E. petre@ciatti.co.za John Fearless CO. Craft Hops & Provisions CEO - Rob Bolch Sales - Geoff Eiter T E. rob@johnfearless.com E. geoff@johnfearless.com To sign up to receive the monthly Global Market Report, please info@ciatti.com 19