Global Market Report. March Volume 8, Issue No. 3. Ciatti Global Wine & Grape Brokers

Transcription

1 Global Market Report March 2017 Volume 8, Issue No. 3 Ciatti Global Wine & Grape Brokers 1101 Fifth Avenue #170 San Rafael, CA Phone (415) Photo: Ciatti.com

2 March 2017 Volume 8, Issue No. 3 3 California 6 Argentina 7 Chile 10 France 12 Spain 13 Italy 15 South Africa 16 Australia 18 New Zealand 9 Show preview: ProWein and China Food & Drink 19 Craft Beer Update 20 USD Pricing 22 Contacts Reading online? Use the links above to jump through this document. The Southern Hemisphere harvests are now fully underway and the picture is mixed: while Australia, New Zealand and South Africa are each currently on course for good-sized crops with quality looking excellent, Argentina and Chile have for a second-successive year been dogged by unfavourable growing conditions and their crop sizes have been downwardly revised. Meanwhile, the buying campaigns in California, France, Spain and Italy have been somewhat characterised by a slowness as buyers hold off on all but their immediate needs. There is no accounting for Mother Nature: the harvest in Argentina commenced 15 days earlier than normal, those in Chile and South Africa are progressing rapidly and will be over well before normal, while Australia s is running 3-4 weeks late. In Argentina and Chile the weather has simply not fully normalized since El Niño, with very high summer temperatures being the latest climactic difficulty they ve had to tackle, and which have brought on early, rapid and at times haphazard harvests. Argentina s harvest is now forecasted to be between 1.8 and 2 million tons, only slightly above last year s El Niño-affected crush of 1.7 million tons and down on even the new, downwardly-revised average of 2.5 million tons. There is some talk in Chile that its 2017 harvest could come in 15 20% down on the normal. Thus prices in both countries are high and firm: in Chile there are now no 2017 grapes left to be allocated, while entry-level Malbec tonnages in Argentina could start at close to USD1,000/ton. Buyers have thus been seeking to switch supply from Chile to Spain, but France (which can play on its wines cache) can offer good opportunities too on non-premium Provencal rosé, dry whites from the South West, and Vin De France reds from all across southern France. The market in France is active but, like in Italy and in Spain, is nowhere near as frenetic at this stage of the campaign as in recent years. Buyers seem to be covering only their immediate needs: the latest assumption is that they are waiting for the full picture on the Southern Hemisphere harvests, but next it will be that they are waiting for indications of the North Hemisphere s early growing conditions. It seems to be that, contrary to predictions from some quarters of an imminent global bulk wine shortage, it is (situations in Chile and Argentina apart) a buyer s market at the moment. Prices go up and down (they are up 14% in California, for example) but there seems a quiet confidence that, globally-speaking, you will find the wines if you need them. The bulk wine world now turns to ProWein in Düsseldorf, March, No part of this publication may be reproduced or transmitted in any form by any means without the written permission of Ciatti Company. where perhaps some of the issues above will become a little clearer. Ciatti will of course be attending in force: come find us in Hall 9, on stand A13. We look forward to seeing you all! Robert Selby 2

3 California Time on target HARVEST WATCH: 2016 returned to normalcy with a size of 4 million tons; 2017 should benefit from this winter s very large snowpack Given the publication last month of the preliminary 2016 crush report that showed a harvest size at 4 million tons returning to normalcy after small 2014 and 2015 harvests, plus good continuing weather patterns in the growing areas that bodes well for the future 2017 harvest, the Californian market is a little slow as buyers hold off on all but their immediate needs. Many businesses bought a lot of inventory and have that in hand right now, and there has been one of the highest percentages of contracted fruit in California that Ciatti has ever seen, on multi-year contracts. The 2016 crush, at 4,000,790 tons, was 8% larger than 2015 s, while the average wine grape price was up 14% from USD692/ton in 2015 to USD789/ton this time. The price increase outpacing volume growth can be explained by a number of factors, not simply demand. Firstly, the 2014 (3.89 million ton) and 2015 (3.70 million ton) harvests came in on the short side, and 2016 was a return to normality, not bumper. Thus, some of the 2016 harvest was needed to help meet last year s orders. Secondly, there is a high number of multi-year pre-harvest fruit contracts, with fewer uncontracted grapes available. Thirdly, the return to a normal crop size in the premium coastal areas, whose grapes are priced higher than the Valley s, offset a drop back in the Valley from 2015 to 2016: there was thus a much higher percentage of coastal product in the overall tonnage this time, bringing the overall average price up. For example, the Valley s major growing districts of Modesto (+1.6%), Fresno (-7.8%) and Bakersfield (-3.2%) all reported volumes either flat or down, while premium coastal areas such as Sonoma (+21.6) and Napa (+18.1%) reported significant recoveries on the small 2015 crop. The Coast is receiving the new plantings and those new plantings are likely to be included in higher-priced longterm contracts. The grapevines that are being pulled out are in areas that supply the under USD5/bottle programmes; the grapevines going in, meanwhile, are supporting the USD10+/bottle programmes. In the 2016 crush Cabernet Sauvignon came in at a historic state total of 557,192 tons, up a substantial 101,500 tons on As vine yields seemed average, this large increase is due to new plantings coming on line: for each of the past three years, about a third of all new plantings in California have been for Cabernet equating to approximately 30,000 acres of Cabernet (half of which will be re-plantings). More plantings are going in in the Coast (where half of the Cabernet is situated and all of it priced over USD1,000/ton) than in the Valley (where it s at USD /ton). The increase in the Coastal influence is pushing prices up, and they are unlikely to fall quickly. Ciatti anticipates that the 2017 Cabernet harvest could move quickly towards 600,000 tons. Some have forecasted that Cabernet will surpass Chardonnay as the leading varietal by volume sold in the US by about Chardonnay itself came in at 672,418 tons in 2016: the price per ton was USD931, up nearly 11% on 2015, reflecting these lower harvest sizes compared to the prior 700,000+ ton harvests of Pinot Grigio output reached 243,655 tons, up 31.6% on 2015, but the 2016 price per ton is roughly in-line with 2015 at USD595. The Pinot Grigio market is essentially balanced: it s early days, but it feels like the Pinot Grigio market has softened a touch. Increasingly favored high-quality blender Petite Sirah was up 38% in volume to 103,938 tons. Despite the increased output, pricing as has been traditional on Petite Sirah is over USD1,000/ton at USD1,013/ton this time, with about half of the tonnage coming from new vines planted mostly in the Coast and Northern Interior. In the Valley the grape is seen as a higher quality blender to replace Barbera (-11.7% down in tonnage), Carignane (+16.6%) and Grenache (-10.7%), as blending for cost has dissipated. Petite Sirah is in demand for use in the coastal appellated wine blends, and in the growing propriety heavy red or black red blend category. See next page for more on California. 3

4 Ciatti has recently seen a slowdown in export shipments to the UK in particular and Europe in general due to the pound and euro s respective weakenings against the dollar. There is better news for value in regards to fullyear 2016, however, according to the Wine Institute: while exports were slightly down on 2015 in terms of liters (from million to million) and cases (51.2 million to 45.9 million), value grew, showing that, as the Institute s president and CEO Bobby Koch said, California wine exports continue to reflect the trend toward premiumization with the dollar value of our wine sales outpacing volume shipments. Export value reached a record USD1.62 billion, up 1% on While volumes to the EU-28 California s biggest customer ahead of Canada fell 7% to 221 million liters, value actually rose 10% to USD685 million. As the dollar moves towards parity with the euro, export volumes to Europe are down in most countries, mainly in the lower priced segment, said Paul Molleman, the Wine Institute s trade director for Continental Europe. The good news is that the dollar value of California s exports to the EU countries excluding the UK is up 2.7% as the interest in premium California wines con- tinues to be strong. Value growth to the UK came in at substantial 18% to USD337 million, while volume rose 5% to 13 million 9-liter cases making it the top volume export destination for California wines globally, the Institute s UK trade director Justin Knock said. Ciatti sees imports into the US, meanwhile, continue to be characterised by sparkling wine in general and Italian Prosecco in particular, Provencal rosé and New Zealand Sauvignon Blanc. Sangria base wines from Spain, with the flavor added, are also coming in to contribute to fresh and fruity offerings for summer. February brought less rain to California than very wet December and January. According to the US Drought Monitor, as of 28 February only 8.7% of California remains in drought. This is the lowest percentage state-wide since the drought began in December In even better news as far as viticulture is concerned, Sierra Nevada snowpack is at 185% of normal. The controlled release of water out of reservoirs and dams has been initiated in order to make room for this snowmelt when it comes. There are good water levels in the ground. The growing season still has to go through the frost period and fruit set, but the 2017 harvest could be large. As normal for March, bud-break is beginning to occur. Key Takeaways Thanks to a normal 2016 harvest and a good one expected in 2017, the market is currently a little slow. Prices are 14% up on 2016 as most of the volume recovery occurred in the premium Coastal regions. Ciatti has seen a slowdown in export shipments to the UK and EU due to the strong dollar, but US wine exports to the world for full-year 2016 rose 1% in value due to the increasingly premium nature of the Californian offering. Ciatti Contacts Import/Export CEO Greg Livengood Steve Dorfman T E. greg@ciatti.com E. steve@ciatti.com Domestic T John Ciatti john@ciatti.com Glenn Proctor glenn@ciatti.com John White johnw@ciatti.com Chris Welch chris@ciatti.com 4

5 California: Current Market Pricing (USD per liter) 2016 Generic White Generic Red Chardonnay /15 Cabernet Sauvignon Pinot Grigio Merlot Muscat Pinot Noir White Zinfandel Syrah Colombard /15 Zinfandel California: Harvest tonnages for main varieties Varietal Tons Year to Year % diff Total 4,018,237 4,245,852 3,892,796 3,704,571 4,000, % Red Wine 2,292,483 2,416,378 2,138,294 2,040,781 2,255, % White Wine 1,725,754 1,828,513 1,754,503 1,663,790 1,745, % Chardonnay 735, , , , , % Pinot Grigio/Gris 195, , , , , % Riesling 36,925 37,844 36,517 35,879 40, % Sauvignon Blanc 113, , ,420 88, , % Cabernet Sauvignon 496, , , , , % Merlot 334, , , , , % Petite Sirah 66,107 68,137 68,812 75, , % Pinot Noir 248, ,897 68, , , % Syrah 132, , ,298 93, , % Zinfandel 448, , , , , % California: Tonnage prices for main varieties Varietal Tons Year to Year % diff Total $779 $760 $766 $692 $ % Red Wine $881 $851 $891 $797 $ % White Wine $639 $634 $607 $555 $ % Chardonnay $901 $915 $909 $840 $ % Pinot Grigio/Gris $593 $637 $625 $591 $ % Riesling $856 $810 $811 $787 $ % Sauvignon Blanc $907 $950 $977 $950 $1, % Cabernet Sauvignon $1,390 $1,348 $1,424 $1,331 $1, % Merlot $823 $768 $791 $762 $ % Petite Sirah $1,052 $1,073 $1,059 $1,016 $1, % Pinot Noir $1,737 $1,774 $1,792 $1,717 $1, % Syrah $745 $771 $761 $703 $ % Zinfandel $735 $672 $657 $605 $ % 5

6 Argentina Time on target HARVEST WATCH: bunches are coming in lighter; the forecast has been revised downward to between 1.8 and 2 million tons, potentially only slightly larger than 2016 s In January Argentina s white and Tintorera grape harvest commenced 15 days earlier than normal and this, combined with a heatwave in February s second half, has meant the overall harvest is more advanced than it would otherwise normally be. The heatwave will not have helped the size of, and water levels inside, grapes that had already battled heavy frosts back in September: bunches are coming in lighter. The country s wine institute has revised down its harvest estimate from between 2 and 2.2 million tons to between 1.8 and 2 million tons, well short of the average even though this itself has been downwardly revised, from 2.8 million tons to 2.5 million tons. The 2016 harvest was very short at 1.7 million tons, so in not being much bigger the 2017 harvest is not going to bring a great deal of pricing relief. Compounding the pricing pressure is a downward revision in tonnage expected from Mendoza s premium Uco Valley subregion: output here is expected to be between 210,000 and 230,000 tons, down from the prior forecast of 225,000 to 249,000 tons. This means buyers who normally source from the Uco Valley will be seeking supply from the cheaper, eastern sub-region of Mendoza, in turn pushing up prices there. The forecast for the eastern region has itself been downwardly revised from between 660,000 tons and 730,000 tons, to between 610,000 tons and 674,000 tons. There will be high prices across Argentina. The 2017 Malbec tonnage price was expected to start at around USD /ton (USD /kg) on entry-level material from the east of Mendoza, but it now looks like being closer to USD1,000/ton (USD1.0/kg). The high pricing is being exacerbated by a small number of large domestic winery players aggressively paying USD1,000/ton to get the grapes into their facilities no matter what; others are hanging back to avoid out-of-control pricing escalation. Highend Malbec from the Uco Valley will start at around USD1,500-2,000/ton. What about 2017 white grapes? They are also all up in price on last year. The Criolla grape for basic dry whites is currently going for USD /ton; better quality generic whites such as Chenin Blanc and Uni Blanc are going for USD /ton; Chardonnay, Sauvignon and other good quality white varietals are at USD /ton. Torrontes, meanwhile, is priced at USD /ton. A big factor buyers must consider is where the Argentinian economy will be when the 2017 wines are ready in June. Steps the Argentinian government has taken to improve the country s liquidity have also brought about a stronger peso, hurting the competitiveness of its exports. One dollar is currently worth 15 pesos; Argentinian businesses and economists say the optimum exchange rate needs to be at more like 20 pesos. It is now strongly suspected in some quarters that the government will devalue the peso by mid-year in order to get the country s export business back on track, overnight making Argentinian wines more attractive to international buyers. Buyers are thus waiting to see what happens with the 2017 harvest and then the government s decision on devaluation. Call Ciatti for help in navigating this market. See next page for pricing. Key Takeaways Another small harvest forecasted, plus aggressive grape-buying by domestic players, is ensuring that 2017 grape prices are very firm: entry-level Malbec could start from USD1,000/ton. Prices on 2017 wines will look more attractive if a peso devaluation comes later this year. Ciatti Contact Eduardo Conill T E. eduardo@ciatti.com.ar 6

7 Argentina: Current Market Pricing (USD per liter; FCA Winery) 2016 Generic White Bonarda Generic White (Criolla) Generic Red Chardonnay Cabernet Sauvignon Torrontes Malbec Entry-Level Sauvignon Blanc Malbec Premium Muscat Syrah / Merlot Chile Time on target HARVEST WATCH: set to be down on initial forecasts due to abnormal conditions throughout the growing season Chile s 2017 harvest has been running three weeks early and is expected to be complete by the end of April instead of late May/early June as in normal years. This abnormal timing and speed is down to a cocktail of unusual post-el Niño weather conditions experienced throughout the growing season, including a colder spring, record hot summer temperatures, and possibly the winds that have blown all season. Crop size estimates are lower than they were a month ago. It is proving a challenging vintage for growers to bring in: rather than the traditional steady progression through the varietals starting with Tintorera and then the whites such as Sauvignon Blanc and Chardonnay, through the reds such as Merlot and Cabernet and ending with Carmenere the growers are having to chop and change as the readiness of each varietal is out of sync, both with each other and among themselves. Fortunately, last year s El Niño rains-affected harvest has proved good practise for harvesting quickly, with subsequent technological investments made by the top growers providing bigger, faster capacity this time. It s a case of last year s investments helping to solve this year s challenges. According to Chile s Ministry of Agriculture, total wine stocks as of 31 December 2016 were 1,131,275,512 litres, down 8.6% on 1,238,058,628 in December This lower figure, plus another short crop forecasted for 2017, helps explain the price increases the market is seeing. The 2017 harvest estimate from January of 1.1 billion litres is under threat: it s looking potentially more like billion litres, up from last year s El Niño-hit harvest of billion litres but still 15-20% down on the normal. Quality seems to be good, through due to the climactic conditions and the early crop, there won t be green tannins in the red wines, and Ciatti has heard reports of some red grapes from the south carrying evidence of Guaiacol smoke taint from January s forest fires. See next page for more on Chile. 7

8 Expectations of a drop in grape and then wine prices have been frustrated in a big way. Many domestic buyers in particular held off from meeting 100% of their needs in 2016 while they waited for prices to fall on the back of a longer 2017 harvest, but the declining expectations for this harvest s size have sent them onto the market. Big companies are in need of wine, and are now paying whatever it costs to fulfil their needs all the while, the prices continue to rise. The domestic market is thus very active. Some international buyers are either still waiting, or have gone elsewhere. Longstanding domestic and international buyers are being prioritised and protected; other buyers may have to pay significantly more to cover their needs. There are now no 2017 grapes left to allocated. Next-door neighbour Argentina s expected second-successive short crop will help intensify the Chilean market, as Argentinian buyers are now expected to seek wines out of Chile as they did in the final months of There is a suspicion that some Argentinian Malbec programmes may switch to Chile: Malbec in Chile is priced at USD1.20/litre, cheaper than some equivalent Malbec from Mendoza (at around USD1.50+/litre) and even more competitive when freight and tax is taken into account. Chile does not have a big amount of Malbec, but it s there. Chile s total bulk wine exports reached 383 million litres in full-year 2016, up 4.6% on The average per litre price came in the same as in 2015, at USD0.69. Export to Argentina, of course, rose 100% from zero to 7.89 million litres in 2016, making it Chile s tenth-largest customer for the year: the average per litre price was USD0.60. Chile s bulk wine exports to its leading customer the US (+29.7% to 95.9 million litres), the UK (+6.9% to 51.9 million litres) and Canada (+27.5% to 28.7 million litres) were buoyant, and declined to China (-18.5% to 85.1 million litres), Chile s second biggest customer, and Germany (-9% to 34.6 million litres). It should be remembered that shipments for much of the first half of 2016 would have been of 2015 wine; the smaller 2016 harvest should be reflected in 2017 s exports statistics. The Chilean peso s relative strength against the US dollar, which had been hurting Chile s competitiveness, could be coming to help keep the country s exports on the safe side for a while: having risen to as strong as 638 pesos to the US dollar in mid-february, it has since drifted again to 660 pesos as of 9 March. This is the weakest the peso has been against the dollar since 20 January. Key Takeaways There are now no 2017 grapes left to allocated. Prices are unlikely to fall in the foreseeable future as a second successive below-average harvest is now expected. Big domestic companies are in need of wine, and sellers are prioritising longstanding relationships. Ciatti Contact Marco Adam T or T E. madam@ciattichile.cl Chilean Export Figures Wine Export Figures Million Liters January 2016 January 2017 Volume Million US$ FOB Average Price Million Liters Million US$ FOB Average Price Variance % Bottled 37,21 118,92 3,20 44,40 135,38 3,05 19,34 Bulk 27,19 18,59 0,68 32,47 25,49 0,78 19,42 Sparkling Wines 0,39 1,56 4,05 0,52 2,00 3,87 33,79 Packed Wines 2,16 3,56 1,65 2,39 4,05 1,70 10,63 Total 66,94 142,63 2,39 79,77 166,92 2,35 19,17 8

9 Show preview: ProWein and China Food & Drink Ciatti will be attending ProWein at the Messe Düsseldorf on March. ProWein has consistently and relentlessly grown to become one of the world s premier wine shows: last year s edition attracted over 55,000 trade visitors from 126 different countries, and hosted 6,200 exhibitors from 59 nations, including Italy (1,500), France (1,300), Germany (1,000), Spain (550), Austria (320), Portugal (300) and beyond (600), such as South Africa and the US. According to the organisers, one in two visitors confirmed that they found new suppliers and two-thirds were able to go home with useful info on trends and innovations. The organisers have said this year s show will include more than 6,300 exhibitors from 60 nations, including all relevant winegrowing regions of the world a total of 295. You will find Ciatti in the same spot as last year: Hall 9, Stand A13. Reading online? You can click through to our location on the ProWein floor map here. In addition to our brokers from around the world, the Ciatti Global Report s very own Robert Selby will be in attendance, seeking information for the report s April issue, so do come along to the Ciatti stand if you have information on the bulk wine market that you d like to share, or if you simply have feedback positive or negative! on the newly-revamped report. We look forward to seeing you! photo: Messe Düsseldorf/ctillmann Finally, shortly after ProWein, on March, Ciatti will be attending the China Food & Drink Fair in Chengdu. It is the first time Ciatti will have a stand at this show: you will find us at Stand 4K171B. Demonstrating China s rapidly-growing thirst for wine, the Wine & Spirit Exhibition will take up nearly three halls of the nine-hall Chengdu New Century International Exhibition Center. The show is increasingly visited by wine buyers, sellers and brokers from outside China, as the Chinese market is of growing importance to wine-producer countries, including France, Australia and US in particular. It is a good way of meeting more China-based buyers faceto-face and forging new direct relationships, cutting out the middlemen. In the 12 months to September 2016, China became the number one export market by value (AUD474 million) for Australian wine, and surpassed Canada to become the third-largest market by volume (+52% to 90 million liters). China is the third largest export market for Californian/US wine, worth 14.8 million liters and USD81.6 million in calendar 2016, an increase on 2015 of 11% and 47% respectively. In Chengdu, Ciatti will also be introducing craft hop and provisions wing John Fearless Co. to China. Worth USD80 billion, China s beer market is the world s largest and craft beer grew in market share by 23% between 2010 and 2015, according to Euromonitor International. Increasingly cosmopolitan Chinese consumers are looking for more tailored and individual products, with premium beers expected to make up a third of the market by 2020, up from 10% of the market in 2010, Reuters reports. 9

10 France Time on target HARVEST WATCH: at 43.2 million hectolitres, vintage 2016 was down 8% on 5-year average; some very warm late winter/early spring weather so far in 2017 The French market is active but, like Italy s and Spain s, is nowhere near as frenetic as in recent years when there was a rush at the start of the buying campaign. France received some relatively high temperatures in February and early March 20 C on occasion which has raised the possibility that some vines could start blooming before the risk of frosts dissipates from early April onward. Growers seem on the whole not too concerned; buyers are nevertheless waiting to assess the state of affairs in mid-april before making any moves, and prices have remained stable for the past month. At the moment it is those bottler negociants who buy in bulk the best quality generics for case good programmes that are actively buying. The bulk negociants are less active, buying only to cover very shortterm needs. There are good spot deals to be made right now if the buyer has the ability to load quickly. Demand for good quality rosé will be higher through March as the summer programmes get prepared: buyers of good quality rosés should thus look to cover their needs now. It s a two-speed rosé market over in Provence: the super-premium 2016 vintage is already sold out and the medium-premium quality, priced at up to EUR2.50/ litre, is very close to being so; there are very good opportunities to be had, however, on lower-end rosés, the price for which is stable or declining slightly. As this time last year, French buyers are active in securing New World wines such as those from Chile (Cabernet Sauvignon, Merlot) and South Africa (Cinsault Rosé, Chardonnay, Sauvignon Blanc, Colombard, Chenin Blanc). This demand has probably reached its maximum potential however: price increases in these markets (up to 30-40% in Chile, for example) means the French buyers will focus mainly on the varietals, and look to source the generics from Spain or Italy instead. North American buyers have been seeking to switch supply from Chile to Spain, but there are opportunities in France also. There are very good dry whites out of France s South West and Charante areas, for example, that are only EUR0.10/litre more expensive than their Spanish equivalents, and which possess the French origin cache. And unlike in Spain, French docks are currently strike-free. On the reds, there are very good opportunities across southern France in the Vin De France category, from Bordeaux, the Gers and Toulouse areas, the Languedoc, and the Côtes du Rhône. There is anger among some French grower syndicates towards what they perceive as excessive volumes of Spanish wine imports slowing down the trade of domestic product. They believe Spanish winemakers are undercutting French growers and stealing shelf space in France s supermarkets. However, the market is slow not only in France: Ciatti is told by Spanish brokers, wineries and bottlers that their own market is slow too, and that they have not registered any particular uptick in demand from France. Could it be the case that supermarket chains are trying to lower their stock levels, while behind them bottlers are waiting for prices to fall? French buyers and bulk negociants are perhaps attempting to get stock levels in cellars as low as possible in time for the beginning of summer, when the big, freed-up capacity will be able to take large volumes of cheaper-priced wines? Are buyers now changing the way they buy, from making one large purchase annually with a long lead time in shipping, to a number of smaller and much more quickly-shipped purchases throughout the campaign? The picture is not 100% clear. Come see us at ProWein and give us your insights. See next page for Pricing. 10

11 Key Takeaways The market is slow as buyers wait until mid-april, after the last chance of frosts, to see how the 2017 harvest is sizing up. There are currently good opportunities to be had on all wine categories in southern France, with some wines priced only slightly higher than their Spanish equivalents especially the dry whites out of South West and Charante and of course offering the French origin cache. While superpremium and medium-premium Provence rosés are high-priced and very hard to find, prices on the non-premium material is trending down. Ciatti Contact Florian Ceschi T E. Florian@ciatti.fr 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 Fifth Avenue #170 San Rafael, CA Phone (415) Ciatti.com 11

12 Spain Time on target HARVEST WATCH: volumes in line with 2015; quality very good Sales in Spain are running smoothly and at a normal pace. Shipments via ports, however, could be disrupted throughout March as the country s dockworker unions have called a series of strikes. These come in response to the Spanish government proposing a bill aimed at liberalising hiring practices in Spanish ports to bring them into line with the rest of the European Union. The dockers unions are planning to strike for 12 hours a day, every other day barring weekends, from March 10 to March 24 a system, they say, that will allow urgent cargo to be processed. Strikes planned for March 6 and 8 were suspended when opposition political parties announced they would oppose the government s bill. Ciatti recommends that clients needing their wine urgently should contact their regional freight forwarders and consider shipping the wines from alternatives ports that are unaffected, such as those in southern France. Prices in Spain are softening gradually on red and white wines, and softening most quickly on entry-level wines. Basic reds with 12% alcohol are selling at approximately EUR /litre, and the better quality at EUR0.40/ litre. Good quality generic white remains at EUR2.80/ hectograde, with good quality generic red at EUR3.0/ hectograde. Spain is very competitive against Chile where prices are currently high and firm and is receiving interest from international buyers, such as from Canada and the US, who would otherwise source from Chile. Spain still has decent inventories of varietal reds such as Merlot, Cabernet and Shiraz, as well as generic reds and case goods. These all have stable pricing. Good quality, French-style rosés such as Shiraz or Grenache are getting harder to come by and buyers of these should look at their needs now. Spain is receiving some interest from the US for Sangria base wines. Sangria is a trend in the US market, particularly in the lead-up to summer, and Ciatti is finding it a hot topic among US buyers. The base wine and flavourings are normally blended in Spain, then the product is shipped to the US where the water and sugar is added. Ciatti in Spain is able to offer all the Sangria solutions from base wine, already-flavoured base wine, and other blending solutions. Spain is definitely more competitive than Italy when it comes to Sangria base. Thoughts are now turning to ProWein, which should kickoff in earnest the Spanish bulk wine selling campaign. See next page for pricing. Key Takeaways Strikes by dock workers at Spanish ports may cause shipment delays through March. Prices are softening and most quickly on entry-level reds and whites. Basic reds are currently at EUR /litre, very competitive against Chile. There is a lot of interest in French-style high quality rosés and from US buyers sangria base wines. Ciatti Contact Nicolas Pacouil T E. nicolas@ciatti.fr 12

13 Spain: Current Market Pricing (EUR per liter; Ex-Winery) 2016 Generic White Generic Red White Blends (Higher Quality) Generic Red (Higher Quality) Sauvignon Blanc Cabernet Sauvignon Chardonnay Merlot Generic Rosé Tempranillo Varietal Rosé Syrah Moscatel Italy Time on target HARVEST WATCH: million hectolitres in 2016, the world s largest The Italian market is similar to both France and Spain s in being on the slow side. The main reason for this seems to be that, generally speaking, these three markets are shifting from one where the growers were in control to one where the buyers are in control. Buyers are increasingly staggering their purchases making more, smaller purchases instead of covering the year s needs in one big buy, as they suspect prices will trend downward and that there is and will be enough wine to go around. This is the reverse situation from a year ago. In general, wine in Italy is shipping at a slower pace, especially for entry-level product, though things have picked up slightly in March. consumption is outpacing supply. Prosecco s success is offsetting a reduction in sales of still wines that have traditionally performed well on the UK market, such as among others Montepulciano, Primitivo/Zinfandel, Pinot Grigio and Pinot Grigio/blend. With these varieties, unlike Prosecco, the buyer has some control, and faced with hard competition on the shelves and the pound s devaluation is offering wine companies price and market conditions that are, sometimes, impossible to accept. There is a feeling in the Italian wine industry that consumption is slowing in Italy and in Germany. Meanwhile, from what Ciatti is hearing, the weakening of the pound against the euro is as yet not causing problems for Italian sparkling exports to the important UK market: Prosecco is still in great demand and See next page for more on Italy. 13

14 While the pound has weakened against the euro, the euro itself has weakened against the US and Canadian dollars, potentially opening up some export opportunities to North America. Italy can offer North American buyers Pinot Grigio at EUR /litre, cheaper in some instances than what can be sourced from Australia. Closer to home, meanwhile, Italy can offer some entry-level wines to European buyers at a cheaper price than Spain currently can, depending on logistics. Italy s entry-level generic red and white wine prices have been stable since December, at EUR35-38/hectolitre. Abruzzo and Veneto sparkling base whites produced through cold fermentation are still at EUR38-45/ hectolitre. Rossissimo, being requested by European buyers as an alternative to Spanish Tintorera, is priced at EUR60-70/hectolitre. Montepulciano d Abruzzo is being traded at EUR75-85/hectolitre. In Puglia, the proportion of good quality wine is slightly down this vintage on where it was in 2015 due to high rain levels experienced during harvest. Buyers of high quality Puglia wines should look to cover their needs now. January was cold and snowy in Italy, especially in the south in the first two weeks of the year, but February and then March, so far, have experienced above-average temperatures. There is the risk of frost until April, but so far all the conditions have been good for the vines. As in France and Spain, thoughts in Italy are very much turning to ProWein, a show at which Italy has traditionally had a substantial presence. Key Takeaways Market activity has been slow and prices have remained stable since December, with generic reds and whites priced at EUR35-38/hectolitre. Italy can potentially offer European clients some entry-level wines for cheaper than Spain can, and Pinot Grigio is attractively-priced for the North American market, especially when the euro s weakening against the CAD and US dollars is taken into account. Brexit is not yet, at least hindering Prosecco business in the UK, though Italian still wines are feeling the squeeze more. Ciatti Contact Florian Ceschi T E. Florian@ciatti.fr Italy: Current Market Pricing (EUR per liter; Ex-Winery) 2016 Generic White Generic Red Chardonnay Cabernet Sauvignon Pinot Grigio Merlot Prosecco Chianti Winner of Vineyard & Winery Management 2016 Best Bulk & Grape Suppliers Thank you to our loyal customers for your support 14

15 South Africa Time on target HARVEST WATCH: progressing quickly in hot and dry conditions; quality looks excellent, with good bunch-forming, acidity and ph levels, and no rot, mildew or uneven sizing/ripening wines, with the average increase looking like 7-8%. This increase is driven by demand but also by a South African wine industry eager to improve sustainability prices have been too low for 10 years or so. Citrus, plums and table grapes can now yield net incomes between 10 and 30 times that of wine grapes in those bulk regions which are not that much affected by drought, and some switching to these crops from wine grapes has already occurred. See next page for pricing. South Africa s wine grape harvest commenced, as is normal, in the second week of February and due to high heat levels inducing the typically later varietals to ripen sooner is moving along rapidly. The last 50% of the harvest is now all ripening at the same time, and growers must work to bring everything into the wineries quicker than normal: the harvest should be completed by the end of March. Key Takeaways The harvest is expected to come in at around 1.4 million, in line with the last four years. Wineries expect 2017 prices to be 5-10% higher than 2016 prices, with the average increase looking like 7-8%. Quality looks excellent. There has been no rot, mildew or uneven bunching or sizing: the very dry conditions have been perfect for getting very healthy grapes with good acidity, ph levels and bunch-forming. In this respect it s been a really easy winemaking year. The crop size is still expected to be around 1.4 million tonnes, in line with the average for the past four years. Ciatti Contacts Vic Gentis Petré Morkel T T E. vic@ciatti.fr E. petre@ciatti.co.za At the end of December, stock levels of uncontracted wines at wineries were at their lowest ever. Shipments of the 2016 wines are still moving, and the shipping lines have in some incidences struggled to find space on their vessels for the containers, but the very high shipment levels seen in the second half of January and through February has started to level off. There is the odd deal for 2016 wines still being made, but thoughts are turning to the 2017 wines. By ProWein on March, most of South Africa s harvest will be in and clear assessments of the situation will be able to be made. Ciatti will be attending ProWein. Come and visit us at Hall 9 / Stand A13 Pricing is stable with last month and should remain so for at least another month or two. Wineries expect prices on 2017 wines to be 5-10% higher than on

16 South Africa: Current Market Pricing (SA Rand per liter, FOB Cape Town) 2016/17 Generic White /17 Generic Red /17 Chardonnay /17 Cabernet Sauvignon /17 Sauvignon Blanc /17 Ruby Cabernet /17 Chenin Blanc /17 Merlot /17 Muscat /17 Pinotage /17 Generic Rosé /17 Shiraz /17 Cultivar Rosé /17 Cinsaut Rose The spread on pricing encompasses available 2016 stock (available on a quick removal basis) at one end, and the expected 2017 pricing at the other Australia Time on target HARVEST WATCH: delayed by 3-4 weeks due to unseasonal conditions during ripening; quality looks very good Vintage 2017 is finally getting into full swing. The vintage is currently running about 3-4 weeks late due to unseasonal conditions during ripening: milder spring temperatures and wetter than average conditions have caused a delay in ripening. So far, the material that has been picked has been of very good quality and over the last couple of weeks ripening conditions have been very favourable. The Swan Valley in Western Australia has been hit with significant rainfall that has caused widespread flooding in the region. The region has been declared a natural disaster zone and many vineyards have been completely submerged with water. Treasury Wine Estates (TWE) is on its way to exceeding its 2016 full-year profit, having reached 75% of last year s full-year profit after tax while only halfway through the year. In its interim results released in February, TWE s chief executive officer Michael Clarke said it was a strong result, with double-digit earnings growth in all geographical markets. For the six months to December 31, the company posted AUD136.2 million net profit after tax for the first half of the financial year, the equivalent of 75% of last year s full-year profit after tax of AUD179.4 million. Accolade has dropped an initial public offering plan (IPO) that could have valued the company at more than AUD1 billion. The focus is now on boosting sales in China and integrating its newly-acquired premium labels. These initiatives will definitely make the business more attractive for sale in the future, said John Haddock, chief executive of private equity firm Champ, Accolade s owners. See next page for more on Australia. 16

17 Australian Vintage Limited (AVL) has posted an AUD1.6 million profit for the first half of the year, having been negatively impacted by AUD2.7 million as a result of unfavourable exchange rates. The company said that its Tempus Two brand is performing exceptionally well, that it has strategies in place to improve its UK and Europe performance and that it has just secured a nationwide distribution deal in the US with Palm Bay. Key Takeaways Harvest has been delayed by 3-4 weeks due to milder spring temperatures and wetter than average conditions (the Swan Valley, for example, has been beset by flooding). Harvest quality, however, is looking very good. Wine Australia has announced an AUD5.3 million research and development project that will investigate how Australia s terroirs influence Shiraz wine styles and quality. Deputy chair Brian Croser has described it as the most exciting and insightful research project I have seen undertaken in the Australian wine community in my 40-year involvement. 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 The Ciatti Company is committed to providing you with all your wine and drink making needs. Whether you re after five gallon pails or bulk tanker quantities, we can find the right product for your requirements. The following are products we source from around the world: BULK WINE EVALUATION SERVICES GRAPES CONCENTRATES & ALCOHOL 1101 Fifth Avenue #170 San Rafael, CA Phone (415) Ciatti.com 17

18 New Zealand Time on target HARVEST WATCH: a good, average-sized crop is expected; Marlborough s tonnage is forecasted to be closer to the long-term average after last year s bumper output Some harvesting has commenced in the smaller regions of New Zealand such as Gisborne. Confidence is high that 2017 is going to be a good vintage throughout the country with an average-size crop expected. The real size will not be determined until vintage gets fully underway in regions such as Marlborough; until then, weather can have a significant effect on harvest size. Last year, 323,290 tonnes of grapes were harvested in Marlborough, one of the largest on record: viticulturists predict a lower yield this year, around the longterm average. There have been rumours within the industry that some wine companies were paying higher grape prices as compensation to growers for taking less fruit because of reduced tank capacity a reduced capacity brought about by damage sustained in last November s earthquake. We believe pricing to be very similar to or maybe slightly up on last year s. A survey undertaken by NZ Winegrowers shortly after the earthquake showed that more than five million litres of wine was lost. While that sounds like a lot of volume, it is only 2% of Marlborough s total production. What has been more concerning is the damage to tanks within the region: the survey estimated that over 60 million litres of tank capacity was damaged, 20% of the region s total capacity. Since the earthquake, wine companies have been working with insurers and engineers to repair or replace their tanks to make sure they can handle harvest. Companies had been almost unanimous in their response that storage had been restored. With harvest soon to commence, wine companies in Marlborough are confident they have enough space to handle this year s fruit. The current insured losses estimate of around NZD million to the wine industry is a reserve, based on immediate and apparent damage to tank farm infrastructure and barrelled/finished stock both at wineries and contract warehouse facilities. It excludes Business Interruption losses as the impact of any inability to process vintage 2017 is not yet known. Gomberg Fredrikson Report data cited by New Zealand Winegrowers shows that the value of New Zealand wine imports into the US grew significantly in 2016 to reach USD400 million, powered by the popularity of its Sauvignon Blanc. New Zealand wine imports into the US now only trail Italy (USD1.96 billion) and France (USD1.58 billion) by value. The US became New Zealand wine s largest export market in 2015, overtaking the UK and Australia. In the year ending January 2017, New Zealand s overall wine exports rose 5% to reach a record NZD1.61 billion. The wine is now exported to more than 90 countries and is New Zealand s seventh-largest export good. Key Takeaways Marlborough s wine companies are confident they have enough space to handle this year s fruit, and Ciatti sees 2017 grape pricing very similar to or maybe slightly up on last year s. New Zealand Sauvignon Blanc is going great guns on the US retail market, helping move New Zealand into third place behind Italy and France in terms of wine imports into the US by value. Ciatti Contacts Matt Tydeman T E. matt@ciatti.com.au Simone George T E. simone@ciatti.com.au 18

19 Craft Beer Update PROVIDER OF CRAFT HOPS AND PROVISIONS Total US hop production in 2016 came in at 89 million lbs, up 10% on The hops have been pelletized and packed, and shipped out to the brewers. But among US craft brewers there is also a great interest in hops from around the world. Who is currently harvesting? Just as New Zealand is currently amid wine harvest, it is also harvesting its 2017 hop crop. New Zealand is not a big hop producer from a volume point of view, but what it does grow is very sought-after. According to growers co-operative New Zealand Hops (NZH), for example, the country s hop production in 2016 reached 794,017 kilograms and of the 24 different varieties harvested, 16 were unique New Zealand varieties (totalling 713,132 kilograms) and only eight were non-unique (55,665kgs; the remaining 25,000kgs was of organic varieties of mainly unique New Zealand hops). There has been a massive switch in US hop acreage from a ratio of 85% bittering hops to 25% aroma in 2003, to the reverse situation in Similar has occurred in New Zealand: in 2010, an industry growth strategy was adopted which has resulted in, according to NZH, a considerable shift in what is planted and grown : bittering (or alpha ) hop acreage continues to fall and in 2016 aroma/flavour-designated hops accounted for 679,178kgs while alpha-designated varieties came in at 114,839kgs. This move towards aroma hops is partly to meet increased demand for this type the current market demand for New Zealand hops and specialty hops in general will continue as the growth in craft brewing continues, NZH said and is also part of concerted efforts to diversify the range of hops the country can offer, and in turn its customer base. Some 85% of New Zealand s overall hop output is now exported. In the process of diversifying more into aroma hops which can be very site-dependent anyway New Zealand has developed hops that are adapted to the country s climate and thus, in turn, offer unique aroma/flavour profiles. In fact, some traditionally northern hop varieties have taken on such different aroma/flavour characteristics when grown in New Zealand that they have become treated as different varieties altogether. South Africa, also currently harvesting, is a similar case: situated at a different latitude to where hops are traditionally grown, South Africa s hops have had to adapt to shorter daylight periods, resulting in new varietals unique to the country. These site-specific offerings from around the world are something for US craft brewers to consider as they strive for innovative beer styles in a growing market. Innovation is occurring logistically too. A foeder - a Dutch word roughly translated as giant oak barrel is increasingly becoming something a brewer desires if demand for their oak-aged offering is on the up and/or they are seeking greater ease in the brewing process. These vessels, traditionally found in wineries (particularly in Europe), can be large enough to hold 2,100-5,000 gallons (compared to a standard barrel s 60 gallons). Possessing one vessel this large can cut out the back-breaking, time-consuming work of handling a number of smaller barrels and simplify the process of adding ingredients to the mix thus proving very cost-effective. Foeders provide less surface area of oak to liquid, so their use is more suited to the production of lighter, barrel-aged sours or saisons in which brewers will be adding fruit to the mix, instead of beers requiring a rich oaky character. Are you a winemaker with a foeder going spare? John Fearless Co. would love to hear from you. Key Takeaway John Fearless can provide: aroma and bittering hops; fruit purées; fruit and wine grape juice concentrate; fresh wine grapes (during harvest); oak barrels formerly used for wine, brandy, bourbon and rum. We would like to hear from you if you possess a spare foeder, demand for which is growing in the craft beer industry. Fearless Contacts CEO - Rob Bolch Sales - Geoff Eiter T T E. rob@johnfearless.com E. geoff@johnfearless.com 19