California Wine Vineyards CALASFMRA Land Values Survey

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1 California Wine Vineyards CALASFMRA Land Values Survey What? When? How? March 30, 2017 Why? Where? Tony Correia THE CORREIA COMPANY

2 What? When? How? Why? Where? HISTORY Those who cannot remember the past are condemned to repeat it.

3 Value in Exchange? I often wonder what the Vintners buy One half so precious as the Goods they sell. The Rubaiyát of Omar Khayyám; Seventy-First Quatrain First Edition of the Translation by Edward Fitzgerald

4 Deep Background Premium Markets Short 2010 and 2011 crops fostered The Great Grape Shortage of > 2017; The New Grape Sourcing Market Wineries have returned to the market, aggressively Contracting for grapes, Buying vineyards and land to plant new vineyards. High grape prices and vineyard income have prompted other buyers [Financials, Lifestyles] to follow suit. Sea Change in grape and vineyard pricing

5 Issues, Risks, Opportunities, and Challenges Premiumization LABOR; WATER Consolidation; the Big get BIGGER Global Economics, Trade, Brexit, Strong US$ Climate Change Empty Brands in search of grapes Too much money chasing too few goods Di- Worse -ification Insti-viduals LABOR

6 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, California Wine Grapes; Production vs Price Average Grape Price; $ per Ton Production, Thousands of Tons $900 $800 $700 $600 $500 $400 $300 $200 $100 0 $

7 $3.0 Total Value of California Grape Crops (Billion US$) $2.5 $2.0 5 Year Moving Average $1.5 $

8 $450 $400 Napa County Cabernet Sauvignon Total Crop Value ($Millions) $350 $300 $250 $200 $

9 $ Growth is at the Top = Premiumization > $20 $15-20 $12-15 $9-12 $6-9 $3-6 < $3 Growth (%) of Wine Sales, by Price Segment -2.7% -2.4% 0.8% 6.0% 8.9% 9.9% 11.8% 52 Weeks ending December 31, % 0% 3% 6% 9% 12%

10 Grape Grief! Finding the Bottom of the Market Cycle by Tony Correia and Richard Brockmeyer Oct 2001 Issue of Wine Business Monthly Magazine

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12 The Wine Cycle; California Chardonnay; 1976 > , , , , , , ,000 Total Tons Crushed Average $ / Ton $1,200 $1,100 $1,000 $900 $800 $700 $600 0 $

13 The Wine Cycle; California Chardonnay; 1976 > ,000 $1, , , , , , , ,000 $1,200 $1,000 $800 $600 $400 $200 0 $

14 Challenges Limited Amount of Vineyards and Land Available Napa essentially planted out Diminishing Supply of Independent Vineyards Fewer grapes available on the open market Integrity of new plant material (Red Blotch) Perception of Premium Grape Shortage Indexed Contracts will continue to drive grape prices up Restrictive Governmental Laws, Rules and Regulations, but still enormous freedom re varieties, vineyard configuration, yields, irrigation, mechanization and technology, management styles, etc.

15 Challenges Arising From Premiumization in Wine Rabobank Report Key Trend Affecting U.S. Wine Industry Long Term Supply vs. Managing ROIC The challenge of securing long term grape supply when vineyard valuations seem prohibitive - Rabobank

16 Strengths Stability of Underlying land Value, Strong land Appreciation in premium areas Premiums; Insulation from extremes of cycles High returns with expectations of continual increases, attracting Financial buyers Freedom to explore changes using Technology Land Tenure; Own Land and Vineyards, or not? When is a vineyard a Lazy Asset? AVAs as Intangible Assets Benevolent climate, Relatively consistent vintages

17 Impacts Increasing recognition of matching varieties to terroir (Cab in Napa, Pinot on Sonoma Coast) following Old World Models = Monoculture Hierarchy of Appellations, and Appellation Creep Vineyard Designations; Classification of Crus? Rising Tide Lifts All Boats; Premium areas expanding, bleeding into Secondary. but Marginal Areas always see greatest Strength and rising prices in Up Markets, but also always Suffer the most in Down Markets

18 RISKS - What keeps you up at night? Global Economic and Political Collapse Global Currency Exchange Rates Changing consumer preferences among Millennials, Gen X, XX, Y, XXLL, Z, and Zombies Imports; Craft Beer and Spirits Labor The next US/Global Recession Vine diseases and pests in monocultures, vine life and attrition

19 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% RISK California Chardonnay Price Volatility vs Average District Price $- $500 $1,000 $1,500 $2,000 $2,500

20 $7,000 $6,000 Average Grape Prices $5,000 $4,000 $3,000 $2,000 $1,000 D4 CS D3 PN $

21 Increase in Grape Prices (1995 = 1.0) D4 CS D3 PN

22 D4 CS D3 PN D13 Avg Increase in Grape Prices (1995 = 1.0)

23 VINEYARD VALUES; PER-ACRE $400,000 $350,000 $300,000 NAPA COUNTY ~~ VINEYARD VALUE RANGES By Location Category vs Average Napa Grape Prices Sources; Annual CALASFMRA "Trends" report, Annual Calif. Grape Crush Reports, Wine Industry Investment Consulting $8,000 $7,000 $6,000 $250,000 $5,000 $200,000 $4,000 $150,000 $3,000 $100,000 $2,000 $50,000 $0 $1,000 Total Range Outlying Secondary Prime Cab Whites $

24 Vineyard Values, Thousands Average Grape Price $175 $150 $125 $100 Sonoma; Dist 3; Vineyard Values vs. Grape Prices $3,500 Pinot Noir $3,000 Cabernet $2,500 $75 $50 $25 $0 Chardonnay $2,000 $1,500 $1,000

25 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Mendocino County District One Chardonnay Pinot Noir All Varieties $3,000 $2,800 $2,600 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600

26 $100,000 $90,000 Anderson Valley Mendocino County District One $3,000 $80,000 $2,800 $70,000 $60,000 $50,000 $40,000 Pinot Noir $2,600 $2,400 $2,200 $30, $2,000

27 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 Lake County District Two Cabernet Sauvignon $2,500 $2,300 $2,100 $1,900 $1,700 $1,500 $1,300 $1,100 $900 $700

28 Vineyard Values, Thousands $72 $62 $52 $42 $32 $22 $12 $2 Monterey; District 7; Values vs. Grape Prices Pinot Noir Cabernet Chardonnay $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 Average Grape Prices Thousands

29 Vineyard Values Average Grap Price SLO/SB; District 8; Values vs. Grape Prices $62,000 $3,000 $52,000 Pinot Noir $2,500 $42,000 $2,000 $32,000 $22,000 $12,000 Cabernet $1,500 Chardonnay $1,000 $2,000 $

30 Vineyard Values Average Grape Price Thousands $40 $35 $30 Vineyard Values vs Average Grape Prices - Districts 11 and 17 - Lodi/Delta District 17 $750 $700 $650 $25 $20 $15 $600 $550 $500 $450 $10 $5 $0 District $400 $350 $300

31 Vineyard Values Thousands Average Grape Price $30 District 13, Fresno-Madera $400 $25 $20 $15 $10 $5 $350 $300 $250 $200 $ $150

32 $120,000 Temecula, Riverside County, District 16 $2,000 $100,000 $1,800 $80,000 $1,600 $60,000 $1,400 $40,000 $1,200 $20, $1,000

33 these values can be expected to, at a minimum, hold, and, perhaps, gain, slowly, as world demand for luxury level wines continues to grow, as the areas capable of growing such wines remain severely constrained. The premiere appellations within Napa valley continue to gain global stature as the wines produced from these grapes continue to shine in the harsh, unforgiving, light of global level competition.

34 The Six States of California

35 It s everything WATER

36 Thank you! And Drink More California Wine!!!