California Wine Vineyards CALASFMRA Land Values Survey What? When? How? March 30, 2017 Why? Where? Tony Correia THE CORREIA COMPANY tony@correiaco.com 707.933.9915
What? When? How? Why? Where? HISTORY Those who cannot remember the past are condemned to repeat it.
Value in Exchange? I often wonder what the Vintners buy One half so precious as the Goods they sell. The Rubaiyát of Omar Khayyám; Seventy-First Quatrain First Edition of the Translation by Edward Fitzgerald
Deep Background Premium Markets Short 2010 and 2011 crops fostered The Great Grape Shortage of 2012 2012 > 2017; The New Grape Sourcing Market Wineries have returned to the market, aggressively Contracting for grapes, Buying vineyards and land to plant new vineyards. High grape prices and vineyard income have prompted other buyers [Financials, Lifestyles] to follow suit. Sea Change in grape and vineyard pricing
Issues, Risks, Opportunities, and Challenges Premiumization LABOR; WATER Consolidation; the Big get BIGGER Global Economics, Trade, Brexit, Strong US$ Climate Change Empty Brands in search of grapes Too much money chasing too few goods Di- Worse -ification Insti-viduals LABOR
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 California Wine Grapes; Production vs Price Average Grape Price; $ per Ton Production, Thousands of Tons $900 $800 $700 $600 $500 $400 $300 $200 $100 0 $0 1971 74 77 80 83 86 89 92 95 98 01 04 07 10 13 2016
$3.0 Total Value of California Grape Crops (Billion US$) $2.5 $2.0 5 Year Moving Average $1.5 $1.0 1997 99 01 03 05 07 09 11 13 2015
$450 $400 Napa County Cabernet Sauvignon Total Crop Value ($Millions) $350 $300 $250 $200 $150 2005 2007 2009 2011 2013 2015
$ Growth is at the Top = Premiumization > $20 $15-20 $12-15 $9-12 $6-9 $3-6 < $3 Growth (%) of Wine Sales, by Price Segment -2.7% -2.4% 0.8% 6.0% 8.9% 9.9% 11.8% 52 Weeks ending December 31, 2016-3% 0% 3% 6% 9% 12%
Grape Grief! Finding the Bottom of the Market Cycle by Tony Correia and Richard Brockmeyer Oct 2001 Issue of Wine Business Monthly Magazine
The Wine Cycle; California Chardonnay; 1976 > 2000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 Total Tons Crushed Average $ / Ton $1,200 $1,100 $1,000 $900 $800 $700 $600 0 $500 1976 79 82 85 88 91 94 97 2000
The Wine Cycle; California Chardonnay; 1976 > 2016 800,000 $1,400 700,000 600,000 500,000 400,000 300,000 200,000 100,000 $1,200 $1,000 $800 $600 $400 $200 0 $0 1976 80 84 88 92 96 2000 04 08 12 2016
Challenges Limited Amount of Vineyards and Land Available Napa essentially planted out Diminishing Supply of Independent Vineyards Fewer grapes available on the open market Integrity of new plant material (Red Blotch) Perception of Premium Grape Shortage Indexed Contracts will continue to drive grape prices up Restrictive Governmental Laws, Rules and Regulations, but still enormous freedom re varieties, vineyard configuration, yields, irrigation, mechanization and technology, management styles, etc.
Challenges Arising From Premiumization in Wine Rabobank Report Key Trend Affecting U.S. Wine Industry Long Term Supply vs. Managing ROIC The challenge of securing long term grape supply when vineyard valuations seem prohibitive - Rabobank
Strengths Stability of Underlying land Value, Strong land Appreciation in premium areas Premiums; Insulation from extremes of cycles High returns with expectations of continual increases, attracting Financial buyers Freedom to explore changes using Technology Land Tenure; Own Land and Vineyards, or not? When is a vineyard a Lazy Asset? AVAs as Intangible Assets Benevolent climate, Relatively consistent vintages
Impacts Increasing recognition of matching varieties to terroir (Cab in Napa, Pinot on Sonoma Coast) following Old World Models = Monoculture Hierarchy of Appellations, and Appellation Creep Vineyard Designations; Classification of Crus? Rising Tide Lifts All Boats; Premium areas expanding, bleeding into Secondary. but Marginal Areas always see greatest Strength and rising prices in Up Markets, but also always Suffer the most in Down Markets
RISKS - What keeps you up at night? Global Economic and Political Collapse Global Currency Exchange Rates Changing consumer preferences among Millennials, Gen X, XX, Y, XXLL, Z, and Zombies Imports; Craft Beer and Spirits Labor The next US/Global Recession Vine diseases and pests in monocultures, vine life and attrition
180% 160% 140% 120% 100% 80% 60% 40% 20% 0% RISK California Chardonnay 2000-2016 Price Volatility vs Average District Price $- $500 $1,000 $1,500 $2,000 $2,500
$7,000 $6,000 Average Grape Prices $5,000 $4,000 $3,000 $2,000 $1,000 D4 CS D3 PN $0 1995 2000 2005 2010 2015
4.5 4 3.5 3 2.5 2 1.5 1 0.5 Increase in Grape Prices (1995 = 1.0) D4 CS D3 PN 1995 2000 2005 2010 2015
4.5 4 3.5 3 2.5 2 1.5 1 0.5 D4 CS D3 PN D13 Avg Increase in Grape Prices (1995 = 1.0) 1995 2000 2005 2010 2015
VINEYARD VALUES; PER-ACRE $400,000 $350,000 $300,000 NAPA COUNTY ~~ VINEYARD VALUE RANGES By Location Category 2007-2016. vs Average Napa Grape Prices Sources; Annual CALASFMRA "Trends" report, Annual Calif. Grape Crush Reports, Wine Industry Investment Consulting $8,000 $7,000 $6,000 $250,000 $5,000 $200,000 $4,000 $150,000 $3,000 $100,000 $2,000 $50,000 $0 $1,000 Total Range Outlying Secondary Prime Cab Whites $0 96 98 2000 02 04 06 08 10 12 2014 2016
Vineyard Values, Thousands Average Grape Price $175 $150 $125 $100 Sonoma; Dist 3; Vineyard Values vs. Grape Prices $3,500 Pinot Noir $3,000 Cabernet $2,500 $75 $50 $25 $0 Chardonnay 1994 96 98 2000 02 04 06 08 10 12 14 2016 $2,000 $1,500 $1,000
$100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Mendocino County District One Chardonnay Pinot Noir All Varieties 1994 96 98 2000 02 04 06 08 10 12 14 2016 $3,000 $2,800 $2,600 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600
$100,000 $90,000 Anderson Valley Mendocino County District One $3,000 $80,000 $2,800 $70,000 $60,000 $50,000 $40,000 Pinot Noir $2,600 $2,400 $2,200 $30,000 2009 10 2011 12 2013 14 2015 2016 $2,000
$50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 Lake County District Two Cabernet Sauvignon 1994 96 98 2000 02 04 06 08 2010 12 14 2016 $2,500 $2,300 $2,100 $1,900 $1,700 $1,500 $1,300 $1,100 $900 $700
Vineyard Values, Thousands $72 $62 $52 $42 $32 $22 $12 $2 Monterey; District 7; Values vs. Grape Prices Pinot Noir Cabernet Chardonnay 95 97 99 01 03 05 07 09 11 13 2015 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 Average Grape Prices Thousands
Vineyard Values Average Grap Price SLO/SB; District 8; Values vs. Grape Prices $62,000 $3,000 $52,000 Pinot Noir $2,500 $42,000 $2,000 $32,000 $22,000 $12,000 Cabernet $1,500 Chardonnay $1,000 $2,000 $500 1994 96 98 2000 02 04 06 08 10 2012 14 2016
Vineyard Values Average Grape Price Thousands $40 $35 $30 Vineyard Values vs Average Grape Prices - Districts 11 and 17 - Lodi/Delta District 17 $750 $700 $650 $25 $20 $15 $600 $550 $500 $450 $10 $5 $0 District 11 94 97 2000 03 06 09 12 2015 $400 $350 $300
Vineyard Values Thousands Average Grape Price $30 District 13, Fresno-Madera $400 $25 $20 $15 $10 $5 $350 $300 $250 $200 $0 95 97 99 01 03 05 07 09 11 13 15 $150
$120,000 Temecula, Riverside County, District 16 $2,000 $100,000 $1,800 $80,000 $1,600 $60,000 $1,400 $40,000 $1,200 $20,000 2009 2011 2013 2015 $1,000
these values can be expected to, at a minimum, hold, and, perhaps, gain, slowly, as world demand for luxury level wines continues to grow, as the areas capable of growing such wines remain severely constrained. The premiere appellations within Napa valley continue to gain global stature as the wines produced from these grapes continue to shine in the harsh, unforgiving, light of global level competition.
The Six States of California
It s everything WATER
Thank you! And Drink More California Wine!!!