Global Market Report. October Volume 8, Issue No. 10. Ciatti Global Wine & Grape Brokers. Photo: Ciatti.com. Photo: Ciatti.

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1 Global Market Report October 2017 Volume 8, Issue No. 10 Ciatti Global Wine & Grape Brokers 1101 Fifth Avenue #170 San Rafael, CA Phone (415) Photo: Ciatti.com Photo: Ciatti.com Photo: Ciatti.com

2 October 2017 Volume 8, Issue No. 10 We continue to experience horrific wildfires in many parts of California. The North Coast grape growing regions have seen tremendous destruction over the past several days. While it seems that many of the wineries of the region have escaped total destruction, the impact on individuals lives and property has been immense. We have heard stories of friends and colleagues that have lost homes 3 California 4 Argentina 6 Chile 7 France 9 Spain 11 Italy 12 South Africa 14 Australia 15 New Zealand and more. Our thoughts and support are with them, and we continue to hope that these fires will be controlled in the very near future. More will be known in the coming days, with regards to vineyard and property damage, but for now we all focus on supporting those in need, and stopping the destruction. * Harvests in Europe are concluding and volumes in the Languedoc, La Mancha and Italy appear to be between 20-30% down on the average. This has placed an upward pressure on wine prices in these countries and also in Chile and South Africa, where there was already an acute scarcity of supply. In South Africa, most wines are not currently available, while Chile s varietal bulk is almost sold out. The shortage of alternative sources of supply has created a kind of cycle of acceptance 16 John Fearless 18 USD Pricing 20 Contacts among bulk wine buyers: having failed to receive an offer price they like from their usual source say, Spain they seek offers in their back-up source say, Chile only to discover prices there also far exceed what they would prefer to pay, while South Africa simply cannot provide the volumes. The buyer, accepting the situation, returns to their original port of call only to discover the offer price has risen another EUR0.10/litre in the meantime. The smaller harvests in France and Spain will polarise the nature of their offers: in France, production of Vin de France, Vin De Pays and IGP wines will be prioritised, significantly reducing the available quantities of French generics; in Spain, varietal Reading online? Use the links above to jump through this document. wines will be sold out by January, leaving the Spanish market to focus even more on generics. The prices in both markets will be higher than they were at the equivalent stages of the previous buying campaign, sometimes significantly so. They will remain relatively attractive, however, because prices are rising globally and will continue to do so at least until the Southern Hemisphere s 2018 harvests come in. Spring is underway in Argentina, Chile and Australia without any severe frost episodes so far. Australia and South Africa have experienced dry winters. The Western Cape is receiving some rain but only enough to maintain water reserves at their current, greatly reduced level: Cape Town s catchment dams are at 37.6% of capacity as of 2 October, compared to 62.5% at the same stage of No part of this publication may be reproduced or transmitted in any form by any means without the written permission of Ciatti Company. International buyers will be keeping their fingers crossed that the Southern Hemisphere experiences a boring growing season conditions-wise so that goodsized harvests ensue, and also that California s current, ongoing harvest is sized reasonably enough that US buyers with their strong dollars do not need to dip into the already pressurised international market. Robert Selby 2

3 California Time on target HARVEST WATCH: Cooler September helped slow harvest, boost physiological maturity Mid-September brought 7-10 days of cooler temperatures to California, which state-wide has helped slow and stretch-out the grape harvest, allowing the physiological maturity of the grapes to rise up to match brix/sugar maturity. The summer s prolonged and intense heat had started to condense the harvest window, potentially placing a strain on logistics and labor: the subsequent cooler weather in September has allowed growers to be more selective about when to pick. At the moment the harvest looks like being reasonably sized, at around million tons. In general, the whites were most hurt by the heat, especially Chardonnay. The reds have fared better, and it could be a good year volume-wise for Cabernet, with the exception of the North Coast which could be severely impacted by the ongoing fires. In the North Coast, the harvest schedule had been running normally, with the Chardonnay harvest completed and the reds starting to coming in. We will have to see what transpires, but for now all are focused on fighting through the ongoing crisis. There is likely to be market activity on Chardonnay, as it s been a tough growing season for that varietal. Sauvignon Blanc will be in demand simply because Californian supply is limited. The Cabernet harvest should come in very well, potentially stabilizing Cabernet prices (Ciatti is seeing some Cabernet available late in the season on the Central Coast). There will also be an ample supply of Malbec for those US buyers struggling to source the varietal out of South America. In short, California can provide the buyer with pretty much any varietal. In the Central Valley, which contributes 75% of California s crush, on an existing vineyard basis the harvest looks like being slightly lighter than the average. There are fewer new vines coming on-line but some in the Lodi area might help partially offset the shortfall. Things in the lower Central Valley seem to have sizedup a little. Ciatti has heard of Zinfandel in particular being adversely affected by the heat, suffering from botrytis and sour rot, but minimal volume is affected. The Central Coast, like the Central Valley, experienced September s cooling temperature trend and parts of the southern Central Coast, such as Paso Robles and Santa Barbara, received drizzly rain. The Central Coast harvest is proceeding on a normal schedule and, it seems, coming in at estimate on Chardonnay and Pinot Noir. In Monterey, Pinot Noir has been coming in 15% above estimate, and Chardonnay at estimate. Overall, the Central Coast is looking at an average-sized harvest or slightly better. See next page for more on California. 3

4 Key Takeaways The harvest looks like being around million tons. The whites were most hurt by the heat, especially Chardonnay: the market on that varietal could become tight. Cabernet pricing could be stabilized by a good year for the varietal, volume-wise, with the exception of the North Coast, California can provide the buyer with pretty much any varietal, including a good supply of Malbec. 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) 2016 Generic White Generic Red Chardonnay /15 Cabernet Sauvignon Pinot Grigio Merlot Muscat Pinot Noir White Zinfandel Syrah Colombard /15 Zinfandel Argentina Time on target HARVEST WATCH: Spring is proceeding without incident All the signs are that Argentina s economy is on the mend and the governing party led by President Mauricio Macri will come out on top in the midterm congressional elections, held 22 October. There is genuine hope, perhaps for the first time in 15 years, that Argentina is on the road to a sound economy and reintegration into the international community. The exchange rate is currently at 17.5 pesos to the dollar; there is hope that, following the elections, the Macro government will devalue the peso, perhaps to 19. A devaluation would boost the attractiveness of Argentina s Malbec price, which remains paused at last month s quoted USD1.80/litre level (with USD1.70/ litre possible) while suppliers see how the frost season now underway pans out. Springtime in Mendoza is currently proceeding normally, with some cooler days but also warming Sonda winds blowing in from the Andes. Despite the paused Malbec price, market activity in Argentina has picked-up a little, with some purchases being made here and there. Price increases around the world, as well as reports of big shortfalls in the European harvests and an average-sized California crop, have helped make USD1.80/litre for Malbec seem less unattractive to buyers than previously. Will See next page for more on Argentina. 4

5 USD1.50/litre be possible by the end of 2017? It will of grapes being channelled into the GJC category, and mainly depend on the frost season and if there is a peso little demand anyway but now, with the shortfall in devaluation. European harvests, Argentina is fielding requests for GJC and wine alcohol. Argentina s total wine trade including bulk and bottled, and for domestic or export was 5% smaller According to Bloomberg, Argentina s gross domestic in the January-August 2017 period than it was in the product is on the rise, poverty is ticking downward, and equivalent period of Domestic wine consumption inflation is declining: it should be at around 15% in 2018 has been significantly dampened by inflation and the and on course to be in single digits in high price of wines following successive disappointing Key Takeaways harvests. A 750ml bottle of Malbec is priced in the region of 100 pesos; for the same outlay, consumer can Bulk Malbec remains at USD1.80/litre with USD1.70/ buy many more beers. Consumption of high-end wine possible. This will hold during the frost season, after bought once a week and/or for special occasions is which a reassessment will be made. A softening still growing, but the budget and midmarket has lost of the Malbec price could be assisted by a peso market share to beer. The beer market is more dynamic devaluation, should one occur after the country s anyway due to the presence in Argentina, as in many midterm elections on 22 October. countries now, of a trend for craft beer. Ciatti Contact Export of wine grape juice concentrate out of Argentina Eduardo Conill in the January-August 2017 period was down 47.6% on T the equivalent period of There were less volumes E. eduardo@ciatti.com.ar Argentina: Current Market Pricing (USD per liter; FCA Winery) Vintage Variety Price Trend Vintage Variety Price Trend 2016 Generic White Generic Red Chardonnay Cabernet Sauvignon Muscat Syrah / Merlot Torrontes Malbec Entry-Level Bonarda Malbec Premium

6 Chile Time on target HARVEST WATCH: No frost pressure in spring as yet Early spring in Chile s growing areas has so far been intermittently rainy and sunny, with no frost pressure. Meteorologists are not forecasting any severe frosts. It is early days but the consensus seems to be that if conditions continue as they have been, a normal-sized crop will result. This has not, however, softened prices on Chile s 2017 wines, which continue to rise week-on-week, nor the price of and demand for 2018 grapes. Chilean wineries are taking the risk and buying highpriced grapes because the current global supplydemand situation together with the 2017 harvest forecasts coming out of Europe and California would indicate that the big demand pressure on Chile s wines will continue. Prices at the start of Chile s 2018 wine buying campaign will definitely be higher than they were at the start of its 2017 campaign. Key Takeaways The remaining 2017 wines are high in price, appreciating week-on-week, and close to being sold out. The 2018 grapes are in very strong demand and wine prices at the start of the 2018 wine buying campaign will be higher than they were at the start of 2017 s. The market has been active but not feverish, and international demand has slowed a little in recent weeks: buyers are taking a little longer to make decisions; before acting, some buyers are waiting to see how the growing season goes for Chile s 2018 vintage, and its eventual yield. Many international buyers hesitated to commit in Chile earlier in the year, and held off, only to see prices escalate through the course of 2017 instead of decline. Where the Chilean market s remained feverish in recent weeks is domestically, in particular the case goods market, where players are buying at a loss to maintain brands. Prices on 2017 wines continue to rise and their availability becomes increasingly scarce. Varietal bulk Chardonnay, Carmenere, Pinot Noir and Malbec are sold out or close to being so. There has been feverish activity on Chardonnay especially, particularly from domestic buyers seeking to cover their needs. Ciatti is working hard to bring volume to the table. Buyers, paying heed of the warning that prices will only rise, are ensuring they respect loading terms. Ciatti Contact Marco Adam T or T E. madam@ciattichile.cl Chilean Export Figures Wine Export Figures Million Liters January - August 2016 January - August 2017 Volume Million US$ FOB Average Price Million Liters Million US$ FOB Average Price Variance % Bottled 316,14 979,12 3,10 332, ,52 3,09 5,14 Bulk 258,90 167,55 0,65 253,17 206,40 0,82-2,22 Sparkling Wines 2,75 10,96 3,99 2,78 11,53 4,14 1,29 Packed Wines 21,20 35,98 1,70 17,58 30,33 1,73-17,07 Total 598, ,61 2,36 605, ,78 2,45 1,16 See next page for pricing. 6

7 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) France Time on target HARVEST WATCH: More unfavourable conditions restrict volumes further The 2017 harvest in France has finished: AGRESTE on 1 October once more revised down the estimated volume figure, from 37.2 million to 36.9 million hectolitres 19% lower than 2016 s crush and 18% lower than the five-year average as September brought 2-3 weeks of very dry, windy conditions in the growing areas adjacent to the Mediterranean and three weeks of non-stop rainfall in Bordeaux. A crush of 36.9 million hectolitres would be France s lowest in recorded history, coming in smaller than the previous record low seen in The end of August and the start of September were very busy with purchasing of what remained of the 2016 carryover stock. Prices on 2018 wines are to be agreed by the co-ops any day now. The three extra weeks of dry weather and wind in the Languedoc, Provence and the Côtes du Rhône are expected to have further decreased the juice yields in those areas. Languedoc s overall harvest volume is now expected to come in at 20-30% below average, with the most affected being the late-ripening red grapes such as Cabernet and Carignan: whites could be down 15-20% and reds down 30%. Upcountry, in Bordeaux, September was very wet, harvesting took place in the rain, and there were ripening and fungus disease issues. This has compounded the impact felt across most if not all France s growing areas of a very tough growing season with spring frosts, hailstorms, drought and intense heat. Bordeaux s harvest could be as much as 40% smaller than last year s. The Loire Valley and Burgundy have fared better: if there s a fall from the average in these areas, it will be relatively minor; in general, growers there are happy with their results. In South West and the white wineproducing powerhouses like Charente and Gers, the crop will be slightly down but volumes will remain significant, so that France will be able to offer from this area quality white wine at better pricing than in Spain. In terms of quality, white wines out of France will be of good quality, but the harvest was more challenging for red and rosé production: the hot weather brought a good concentration of sugar to the red grapes, but phenolic ripeness was potentially lacking in some See next page for more on France. 7

8 areas. More red grapes will be channelled into red wine production to ensure red wine standards are upheld, restricting rosé output. Buyers seeking value for money on reds and rosés should move quickly. Because of the crop shortfall, French producers will focus on maximising output of Vin de France, Vin De Pays and IGP red and white varietal wines, putting a further squeeze on the availability of generics. It will be difficult to source red, white and rosé generics from France in big volumes, apart perhaps from generic white from Gers/South West. It means France will be the most attractive producer country in Europe from which to source good quality varietal wines and dry table wines in good volumes at decent pricing, but also that any initiative on generics will be handed to Spain (whose own varietal wines will be sold out by January). On the current market, there is some unsold inventory of 2016 Chardonnay and Sauvignon Blanc intermittently available on the spot market (these have been the slowest-moving wines across the year), ditto some remaining 2016 Merlot. Prices on these three 2016 varietals remain more attractive than the price expected on their 2017 equivalents. The new vintage pricing has yet to be settled but it can be assumed it will Key Takeaways The 2017 harvest looks like being the smallest in history. It will be difficult to source generics from France in big volumes, apart perhaps from generic white from Gers/South West. On the flip-side, France will be the most attractive producer country in Europe from which to source good quality varietal wines in good volumes at decent pricing, so buyers of these should move quickly. higher than 2016 s; the extent of the rise is uncertain and contact Ciatti for the latest indication. In order to fulfil their brands, the big buyers in France will enter into a battle to secure the largest volumes that they can capture, so prices on specific wine categories could rise quickly from the start of the buying campaign. With inventory of varietal bulk wine in Chile, South Africa and moving forward Spain and Italy highly limited, France will become a very popular destination for varietal buyers in Europe, at least until 2018 Chilean material is available from May/June next year. So buyers prospecting France need to move quickly. For the first time in many years, during the latest reunion hold by the French Cooperative Cellars Federation (held on the 10/12/17), the idea of contractualizing on a pluri-annual basis with a guarantee on price, volume and quality has been put back on the discussion table. The Coops - and also the Independant growers syndicates - are now encourageing their partners and clients to opt for this multi-benefit contracts in an attempt to guarantee stable pricing over longer period for brand building purpose and ensure at the same time that the growers are getting fair revenues. 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

9 France: Estimated Market Pricing (EUR per liter; Ex-Winery) 2017 Generic White Varietal Rosé IGP Chardonnay IGP Generic Red UNKNOWN 2017 Chardonnay VDF Cabernet Sauvignon IGP Sauvignon Blanc IGP Cabernet Sauvignon VDF UNKNOWN 2017 Sauvignon Blanc VDF Merlot IGP Generic Rosé IGP Merlot VDF UNKNOWN 2017 Generic Rosé VDF Syrah / Grenache Spain Time on target HARVEST WATCH: La Mancha s harvest significantly reduced; extent unconfirmed If reports are to be believed, La Mancha s 2017 harvest could come in at roughly million hectolitres, down 25-30% from million hectolitres in This is due to the intensely hot and dry growing conditions. The international varietals the least adapted to the La Mancha terroir suffered most from the drought with production losses between 30% (on Merlot and Cabernet Sauvignon) and 50% (on Chardonnay and Sauvignon Blanc, in extreme cases). As it had to endure these conditions longest, lateripening Airén will suffer a big shortfall. Ciatti is assisting with more contracts based on sample-approval out of Spain than perhaps ever before, and each offer is only on the table for a couple of days max. Pricing on any wine varietal or generic is approximately EUR0.20/litre dearer than it was at the same date of 2016 and, with little prospect of prices falling, Ciatti encourages all buyers to secure their needs as soon as possible. The buying campaign for Spain s 2017 wines started in mid-september with the white sulfured juices sold to Italians clients and has snowballed since then. Some wineries are already almost sold out on categories such as traditional fermentation white wines (the cheapest categories) or international varietal wines. Inventory in big volumes of these latest wines (varietal reds, whites and See next page for more on Spain. 9

10 rosés) are expected to be sold out by December. Generic rosé will also be running low; rosé is a hot category this buying campaign as volumes will be greatly reduced not only due to the tough harvest but more grapes being channelled into red wine production. There is no remaining 2016 carryover stock of white and rosé left, while carryover reds are priced the same as the new 2017 wines. Once the 2017 varietals are sold out by January, the focus of the market in Spain will be on the generic table reds and whites. The traditionally-fermented generic whites or second class press wines, often used in the food and distilling industries or for aromatized wine beverages, are in strong demand. Predictably, with the harvest shortfall, wine production is being maximised at the expense of grape juice concentrate production. Some wineries traditionally producing significant volumes of high-proof, high colour red GJC have said that, given the situation, they will be producing much less or in some cases zero GJC this year. There Key Takeaways Ciatti encourages all buyers of Spanish material to secure their needs as soon as possible. Volume of 2017 wine will be significantly lower than that of Prices are up EUR0.20/litre on last year, but still the world s most competitive. Inventory of 2017 varietal reds, whites and rosés will be sold out by Christmas. All rosé categories will be very hot. Inventory of 2016 reds and whites is priced the same as on the new vintage. Spain s GJC output will be significantly diminished. is going to be less GJC, alcohol and vinegar coming out of Spain for the foreseeable. The juice supply from the key GJC-producing area of La Manchuela significantly depleted this year due to severe frost, hailstorms and drought has been concertedly bought-up by Italian buyers to vinify with back in Italy. Although its prices are significantly higher this year than last, Spain remains the cheapest supply country in the world for generic wines and buyers know it: the market is thus very active and Ciatti urges all potential customers of Spanish material to secure their needs now. As the worldwide production is much smaller this year with increased demand and small carryover stock, the Spanish market price evolution in the future is unlikely to go down throughout the year as it did during the campaign. Although it s very early to say, this summer s drought has potentially greatly harmed the health of the vines. The 2018 harvest is thus not expected to be big, and average-sized in the best case scenario if much-needed autumn/winter rains come. 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

11 Italy Time on target HARVEST WATCH: As much as 25-30% down on an average year It is unlikely Italy s 2017 crush will surpass the 40 million hectolitre mark. This significantly reduced harvest 25-30% down on the average has placed intense pressure on prices in Italy, especially on generic reds and whites, which have in some cases passed EUR5.0/hectodegree. The main bottling companies are struggling to absorb the rising prices, and in turn seeking to increase their prices to the main retail chains not an easy task in order to achieve some margin. Bulk wine suppliers do not want to make offers valid for more than a few days, and for the bottlers it is becoming a risk to participate in tenders without having first secured the material. There is a chance supermarkets will receive very few offers for their big international tenders. This very difficult situation will continue at least until the end of December, when the industry will start to discover if the current price level is sustainable. Entry-level generic red has been at EUR5.0/ hectodegree, meaning that wine at 12% alcohol worth EUR60/hectolitre has been very difficult to find. There are very few low degree wines. Like for the reds, generic white prices start from EUR5/hectodegree. Cold fermentation wines from Puglia are at EUR5.50/ hectodegree: there is availability for now but some big producers are already sold out. Puglia, the region with the cheapest prices on red and white generics, is selling to the north of Italy and Germany and France. Abruzzo s generic white will start from EUR6.0/ hectodegree, and the further north the higher the price. The harvest has finished in the Pinot Grigio delle Venezie DOC and contracts closed until now have been at EUR /litre. All Pinot Grigio IGT is sold out. The situation in the Prosecco DOC remains unclear, with some suppliers asking for three-year contracts at EUR2.10/litre and those customers unable to commit to three years having to pay EUR2.50/litre. The DOCG Valdobbiadene is traded at more than EUR3.00/litre. Chardonnay is one of the most requested varietals both from the domestic and international markets: prices are rising towards EUR /litre, and only small quantities are available. Montepulciano d Abruzzo DOC from the 2016 vintage is almost sold out and prices for the 2017 vintage are not yet defined but almost certain to be higher. Prices for the Nero d Avola DOC Sicilia are higher than they were on the 2016 IGT, trading at around EUR110/hectolitre and running short. Primitivo IGT from Puglia/Salento is priced at EUR / hectolitre. Given the short production of varietal Merlot in the north (where the IGT is at EUR1.00/litre), all the main companies are switching to varietal Merlot from across the country, causing a strong increase in demand: prices start at EUR80/hectolitre. Varietal Cabernet is in very short supply and prices are starting from EUR0.80/ hectolitre for entry-level material. Varietal Moscato is almost sold out, with prices passing EUR1.0/kg for the must. Key Takeaways A significantly reduced harvest has pushed prices up across Italy, with entry-level generics starting at EUR5.0/hectograde. There is a short supply on most wines and the picture is complex Give Ciatti a call. Ciatti Contact Florian Ceschi T E. Florian@ciatti.fr See next page for pricing. 11

12 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: 2018 harvest could be below average-sized due to drought It is becoming extremely difficult to source wine out of South Africa in the volumes demanded. The size in terms of litres of many requests South Africa is receiving would be incredibly difficult to fulfil at this time in a normal year, let alone in a year in which the global supply-demand situation has tightened considerably and caused immense demand pressure on South African inventory. Prices in South Africa are rising week-on-week on all wines, and subject to availability. Due to the current short situation most wines are not available at the moment prices can rise without notice as and when parcels of wine become available. The below pricing table should thus be taken as indicative only. As news has filtered through of what seems like disappointing 2017 harvests in Europe, demand for South African wine has risen further to the extent that 2017 vintage wine appears to be almost fully contracted in South Africa. Wineries are insisting that their wines are firmly contracted and moving, with no extra stock paused in cellars, and there is no speculation occurring. There are likely to be pockets of availability in November, December and January as suppliers given the strong demand put pressure on the loading schedules: buyers should respect loading terms or risk losing their contracts. To reiterate: potential buyers should be aware that all pricing is subject to availability, and can change quickly. The below table provides approximate guidance only. Ciatti is already receiving requests regarding 2018 wines. Some pre-harvest negotiations are already underway a lot earlier than in normal years, the new harvest being still some months off. It is expected that a better indication of where the 2018 harvest will be volume-wise should be evident by the middle/end of November. The general feeling at the moment is that the harvest will be down on the average due to the prolonged drought and the resulting low water reserves: the aggregate water levels in Cape Town s catchment dams stood at 37.6% as of 2 October, compared to 62.5% at the same stage of The Western Cape See next page for more on South Africa. 12

13 is receiving intermittent rain, but this is only serving to maintain the water level, rather than increase it meaningfully. Some growing areas will be more severely affected by lack of water than others: the Olifants River area could be one of the hardest hit. The cities get priority with regard to water rationing, with water allocations for agricultural use including vineyards as much as halved in some areas. However, areas currently receiving the intermittent rain, like Stellenbosch and Paarl, will now not need to draw upon water reserves until January, and things are not looking too bad in the vineyards. Looking back at the 2017 harvest, it came in at 1,434,328 tons, equating to approximately billion litres. Of this, an estimated 83% million litres was sold as wine, with the rest going towards grape juice, grape juice concentrate, brandy and distilling. The 2016 harvest came in at 1,405,401 tons, or approximately billion litres. Carryover stock of wine on 1 January 2017 was million litres, down from million litres on the same date of South Africa s exports of packaged and bulk wines jointly reached 450 million litres in the September 2016 to August 2017 period, up 30 million litres from 420 million litres in the prior 12-month period. Local sales came in at 400 million litres, up from 394 million litres. Key Takeaways It is now extremely hard to find any available 2017 wines in South Africa. Any wine that does become available is contracted very quickly. Prices can rise quickly; the below table is indicative only. Buyers are enquiring about 2018 wines but it s too early for growers to know how the 2018 harvest will go and set offer prices. Low water reserves are a concern in all growing areas, to varying extents. 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 13

14 Australia Time on target HARVEST WATCH: Warm spring weather is underway after a warm, dry winter Reds from Australia s 2017 vintage remain in high demand as both domestic and Chinese interest remains positive. There is low availability on red wine inventory as enquiries for entry-level Shiraz, Cabernet, Merlot and generic red continue to flood in. The majority of white wine varietals remain readily available. Premium areas such as the Barossa Valley and McLaren Vale continue to see good demand whilst mid-range cool climates areas such as Langhorne Creek and Currency Creek are experiencing more growth. Looking ahead, the strong demand for Australian reds is expected to continue in 2018, especially with the 2017 crops in Europe anticipated to be smaller. Key Takeaways The demand pressure on Australian reds is expected to continue, especially if Europe s 2017 harvests come in as short as forecast. Most white wine varietals remain readily available. A warm, dry winter and a spring forecasted to be warmer than average raises questions regarding the final size of Australia s 2018 harvest. Warm spring weather has commenced. There is still some concern that a frost episode could occur in October, or as late as November, due to the dry conditions seen throughout winter. Each capital city in Australia received rainfall below the long-term average. Australia recorded its warmest winter on record for maximum temperatures and with global warming the trend is likely to continue. Whilst the prospect of rainfall in the coming months looks positive, the weather bureau predicts Australia will receive warmer than average daytime and nighttime temperatures in the months leading up to summer. Off the back of such weather, will Australia be able to produce a large-sized harvest for the third year in a row? Can the vines sustain another big harvest or will output come in closer to an average year? Time will tell. 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 14

15 New Zealand Time on target HARVEST WATCH: 396,000 tonnes, down 9% on % of the reds. Merlot (15% of the reds at 7,714 tonnes) and Shiraz (5% of the reds) are the other red varietals produced in notable volumes. New data from the New Zealand Institute of Economic According to New Zealand Winegrowers annual vintage survey, New Zealand s total producing area in 2017 was 37,129 hectares. Some 29,210 hectares of this was given over to whites, of which the great majority 22,085 hectares was Sauvignon Blanc. The Marlborough region accounted for 67.7% of total acreage and produced 302,396 tonnes in 2017, followed by Hawkes Bay with 12.6% of total acreage, producing 33,679 tonnes. Central Otago (5.1%), Gisborne (3.7%), Waipara Valley (3.4%), and Nelson (3.1%) made up the rest of the significant surface area. Some 76% of the white wine produced in New Zealand is Sauvignon Blanc: 285,862 tonnes was harvested in 2017, which, it being a smaller harvest in New Zealand overall, was down from 303,711 tonnes in Chardonnay (11% of the total whites; 26,843 tonnes) and Pinot Gris (8%, 20,755 tonnes) were the other whites grown in notable quantities. Pinot Noir, at 28,760 tonnes (down from 35,661 tonnes in 2016), made up Research (NZIER) shows that Marlborough s wine sector has grown by 300% since 2000 and now employs 2,350 wine workers and 3,000 casual workers: one in every ten people in the region. This has a flow-on effect to other sectors such as packaging and freight, which employ an additional 2,500 people. Marlborough s wine sector now contributes an average of NZD477 million (USD338 million) to New Zealand s economy each year, and brings in further significant revenue through tourism. Meanwhile, according to data compiled by internet search engine Wine-Searcher, although the focus of most wine searches in the US is still red varietals, with Cabernet Sauvignon taking 15% (seven million) of all searches by consumers between July 2016 and July 2017, by the latter date Sauvignon Blanc had seen the second largest increase in searches, up 13% from the previous year, with California and New York particular search hotspots. US sales of Sauvignon Blanc (domestic and imported) saw a steady increase over the spring and summer months. New Zealand s Sauvignon Blanc, Key Takeaways Sauvignon Blanc production still dominates the wine industry in New Zealand, with 285,862 tonnes which accounts for 94% of the country s wine sales to the US, is meeting a demand among US wine drinkers especially millennial women for lighter, elegant premium wine styles. produced in 2017, more than eight times the volume of the next biggest varietal, Pinot Noir. Wine-Searcher notes an uptick in US consumer interest in Sauvignon Blanc this year, with New Zealand is well-placed to take advantage: New Ciatti Contacts Zealand wines, powered by Sauvignon Blanc, have become the third-most imported wine into the US by value. Matt Tydeman T E. matt@ciatti.com.au Simone George T E. simone@ciatti.com.au 15

16 Craft Beer Update PROVIDER OF CRAFT HOPS AND PROVISIONS In September John Fearless Co. visited Washington State s Yakima Valley a hop-growing epicentre, producing something like 85% of all US-grown hops to see how the hop harvest was coming in. During the growing season Yakima Valley experienced similar conditions to those seen in California s vineyards, but the hop crop was unaffected, quality looks good and yield average, with the total harvest volume recordbreaking off the back of another increase in acreage. According to the USDA, there was a 6.5% increase in US hop area (to 54,135 acres) between this year and last, though word on the ground in Yakima Valley was that the actual increase was even bigger. Last year, the US surpassed Germany to become the world s leading hop producer. This big crop arrives at a time when growth in the US craft beer market has slowed from double to single digits, and with hop inventory in the US already at record levels: as of 1 September 2017, inventory was estimated at 98 million lbs, up 15% from 85 million lbs the year before. The hop market has thus tilted in the buyer s favour: they can be confident of securing the material they require on a spot market basis, with multi-year contracts only necessary on some of the rarer varietals. As varietals previously hard to get become more available, brewers are able to commit to their use on a longer-term basis, while simultaneously seeing the cost of hops decline as a percentage of their overall costs. One of the Yakima Valley hop farms John Fearless visited was CLS Farms, producer of some of the hop varietals John Fearless can supply. CLS has spent ten years breeding a hop named Medusa from the neomexicanus hop plant indigenous to the Rocky Mountains and northern Mexico, until it has arrived at a plant both hardy enough to be grown in Washington state and interesting in its aroma profile. Medusa is thus one of only two hop varietals on the US hop market that can claim to be a 100% indigenous US hop varietal, with no breeding from anywhere else, and the only one to be 100% secure in this claim. Medusa hops were available to touch and smell on the John Fearless stand at the California Craft Beer Summit in Sacramento, September 7-8, probably the best-attended summit in the three years of Fearless s presence (there are now over 900 breweries operating in California). Medusa hops were present also as an ingredient in a northeaststyle cloudy IPA that John Fearless collaborated on with Sonoma s 101 North Brewing; in fact, this IPA was produced from all Malteurop malts, five New Zealand hop varietals, and two experimental Washington state hops (including Medusa) all of which was supplied by John Fearless. This beer, with its tropical aroma profile of mango, pineapple, and passionfruit, gained very wide appeal at the show. The appeal of the hops John Fearless is able to offer also transcends borders. Outside the US there is an increasing interest in US hops: John Fearless is seeing interest from Mexico, South America, South Africa and South Korea. Mexico in particular is experiencing its own craft beer movement, with a growing interest in IPAs, hoppy ales and barrel-aged beers. Going forward, with the 2017 US hop harvest a good one, John Fearless will be able to offer customers both international and domestic the innovative hop varietals they seek. Key Takeaways John Fearless can provide: base and specialty malt; aroma and bittering hops; fruit purées; fruit and wine grape juice concentrate; fresh wine grapes (during harvest); and oak barrels. Fearless Contacts CEO - Rob Bolch Sales - Geoff Eiter T T E. rob@johnfearless.com E. geoff@johnfearless.com Ciatti Global Market Report March

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18 Export Pricing: USD per liter Currency Conversion Rates as of October 13, 2017 Argentina (Pricing in bulk; FCA) 2016 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)

19 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

20 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 20