allied grape growers, 2011. all rights reserved


•Part 1: Industry IssuesPart 1: Industry Issues•Part 2: Inventory AnalysisPart 2: Inventory Analysis•2010 Estimated Production2010 Estimated Production•Production vs. ShipmentsProduction vs. Shipments•Special Report on ConcentrateSpecial Report on Concentrate

•Part 3: Development/Growth Part 3: Development/Growth TrendsTrends•AGG Nursery SurveyAGG Nursery Survey•Supply Trends 2011Supply Trends 2011•Cost of Production: California Cost of Production: California WinegrapesWinegrapes

•Part 4: Closing Part 4: Closing •Take-Home MessagesTake-Home Messages


• Market Factors• Recession (global & domestic)• Consumer behavior• Global supply (imports/exports)

• Industry Planning• Crush report and acreage report• Planting/supply needs for future• Availability of reliable information (both domestically and

globally)• Investment in facilities (capacity)

• Grower/Winery Relationships• Cultural practices – needs vs. costs• Vineyard/Farming plans• Price determination (when & how)• Changing quality standards• Harvest determination (objective vs. subjective)


• Process Issues (Vitculture/Winemaking/Marketing)• Sustainability - Self assessment vs. certification program• Invasive Pests – EGVM, LBAM, GWSS, Mealybug• Promotion of domestic wine – “California” appellation

(sustainability is only step one)• Research & investment in viticulture & winemaking to

compete globally• Assessments, Regulation & Taxation• Mandatory assessments• Ag issues within the legislature – Immigration, 40 hour week,

card check, etc.• Label issues before TTB• Drawbacks• The ongoing pursuit of new & higher excise tax


Region 2006 2007 2008 2009 2010 Est. % ChangeNorth Coast 489,050 455,257 370,162 465,938 372,000 Down 20%Central Coast 443,785 407,044 366,392 508,709 406,000 Down 20%Lodi/Clarksburg 662,729 731,035 627,535 906,949 725,000 Down 20%Central Interior 1,469,638 1,579,790 1,593,588 1,738,182 1,616,000 Down 7%Other 71,232 74,377 57,097 83,253 70,000 Down 15%Total 3,136,434 3,247,503 3,014,774 3,703,031 3,189,000 Down 14%

A regional look at productionA regional look at production


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

3.323.01 3.10

2.86 2.78

3.76

3.14 3.253.06

3.70

3.18

4.33

3.49

3.95

3.37

3.79

3.373.62 3.67 3.67

Tons(in Millions)

Statewide Grape Crush 2000-2009 with estimate for 2010

Other Crush Winegrape Crush

4.09

3.55

.370Other


-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2006 2007 2008 2009 2010 Est.

Estimated Breakdown - Grapes Used for Concentrate, 2006-2010

Raisin Varieties Winegrapes Table Varieties Dark Reds (Rubired, etc.)

TONS

463,203

516,491

747,925

499,323 500,000


•White concentrate:White concentrate:•Very short market Very short market •Spot prices above Spot prices above $10.00/gallon$10.00/gallon•Apple concentrate is also in Apple concentrate is also in short supply and at prices short supply and at prices above grapeabove grape•Stable foreign grape Stable foreign grape concentrate supplies are concentrate supplies are questionablequestionable

•Red concentrate :Red concentrate :•High demandHigh demand•Pricing at +/-$12.00/gallonPricing at +/-$12.00/gallon•Foreign product is on Foreign product is on short sideshort side•California recognized as California recognized as the go-to source for quality the go-to source for quality red concentratered concentrate

ConcentrateConcentrate


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 Est.

2011 Est.

2012 Est.

California Grapes Crushed for Wine vs. California Wine Shipments2005-2009 (in millions of tons), with projections thru 2012

Grapes Crushed for Wine Wine ShipmentsWine Shipment Data Source:The Gomberg Fredrikson Report

3.41 3.46

2.95

3.52

Higher end supply filling lower end demand


•Allied Grape Growers conducted a confidential Allied Grape Growers conducted a confidential & voluntary survey of California nurseries to & voluntary survey of California nurseries to determine up-to-date planting trends:determine up-to-date planting trends:•Data represents approximately 3/4 of the Data represents approximately 3/4 of the major varietal vine sales in the state, by major varietal vine sales in the state, by variety, and region.variety, and region.•Data is not directly comparable to last Data is not directly comparable to last year’s based on participation and the year’s based on participation and the voluntary nature of the survey .voluntary nature of the survey .•Dependent upon vine spacing, total Dependent upon vine spacing, total potential planted acreage identified via the potential planted acreage identified via the survey represents between 14,000 and survey represents between 14,000 and 17,000 acres.17,000 acres.•Survey participation was skewed toward the Survey participation was skewed toward the larger state nurseries. Smaller, coastal larger state nurseries. Smaller, coastal nurseries were not as likely to participate, nurseries were not as likely to participate, therefore the resulting data is likely missing therefore the resulting data is likely missing some level of coastal influence. some level of coastal influence.


Red winegrapes

64.7%

White winegrapes

35.3%

2010 Breakdown of Vines Sold by Surveyed Nurseries


Cabernet Sauvignon

23%

Merlot4%

Pinot Noir7%

Rubired17%Zinfandel

4%

Other Red9%

Chardonnay18%

Muscat Alexander10%

Pinot Grigio4%

Other White4%

Breakdown of Purchased Vines -2010 •Other Whites IncludeOther Whites Include•French ColombardFrench Colombard•Sauvignon BlancSauvignon Blanc•SymphonySymphony

•Other Reds IncludeOther Reds Include•MalbecMalbec•Petite VerdotPetite Verdot•Petite SirahPetite Sirah•Ruby CabernetRuby Cabernet•BarberaBarbera


ChardonnayChardonnay

0

20,000

40,000

60,000

80,000

100,000

120,000

105,000

11,890

Estimated California Chardonnay Acreage, 2010

Bearing Non-Bearing

•The Numbers:The Numbers:•10% non-bearing10% non-bearing•3.64% AGR3.64% AGR

•The Supply Trend:The Supply Trend:•Growth at lower Growth at lower endend•Minimal pulloutsMinimal pullouts

•The Implication:The Implication:•Growth is Growth is manageable manageable •Large crops could Large crops could be problematicbe problematic•Annual Annual displacement by displacement by imports is imports is possiblepossible


Pinot GrigioPinot Grigio

0

5,000

10,000

15,000

20,000

25,000

30,000

20,000

5,420

Estimated California Pinot Grigio Acreage, 2010

Bearing Non-Bearing

•The Numbers:The Numbers:•21% non-bearing21% non-bearing•8.32% AGR8.32% AGR

•The Supply Trend:The Supply Trend:•Growth at lower Growth at lower endend•Plantings slowingPlantings slowing

•The Implication:The Implication:•Growth is Growth is manageable based manageable based on current sales on current sales •We don’t know We don’t know market capacitymarket capacity•May be May be cannibalizing other cannibalizing other white wineswhite wines


Muscat AlexanderMuscat Alexander

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

5,000

1,713

Estimated California Muscat Alex Acreage, 2010

Bearing Non-Bearing

•The Numbers:The Numbers:•25% Non-Bearing25% Non-Bearing

•The Supply Trend:The Supply Trend:•Short thru 2012Short thru 2012•2010 planting 2010 planting explosion begins explosion begins bearing in 2013bearing in 2013

•The Implication:The Implication:•Big shift in supply Big shift in supply comingcoming•Limited use, but Limited use, but hot!hot!•We don’t know We don’t know market capacitymarket capacity•If it’s a fad, we’re If it’s a fad, we’re in troublein trouble


Cabernet SauvignonCabernet Sauvignon

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

80,000

10,875

Estimated California Cab Sauv Acreage, 2010

Bearing Non-Bearing

•The Numbers:The Numbers:•12% Non-Bearing12% Non-Bearing•4.34% AGR4.34% AGR

•The Supply Trend:The Supply Trend:•Short, but Short, but becoming in becoming in balance with balance with demanddemand•Growing supply at Growing supply at low endlow end

•The Implication:The Implication:•Plant cautiouslyPlant cautiously•Manageable supply Manageable supply given shipment given shipment growthgrowth•Plant where Plant where feasible for the feasible for the long termlong term


MerlotMerlot

0

10,000

20,000

30,000

40,000

50,000

60,000

51,000

1,780

Estimated California Merlot Acreage, 2010

Bearing Non-Bearing


•The Supply Trend:The Supply Trend:•Pullouts/Grafting Pullouts/Grafting still?still?•Flat supply thru Flat supply thru 20142014

•The Implication:The Implication:•No “new” No “new” productionproduction•Likely to see Likely to see stronger market in stronger market in futurefuture•Only plant where Only plant where feasible for the feasible for the long termlong term


Pinot NoirPinot Noir

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

40,000

8,715

Estimated California Pinot Noir Acreage, 2010

Bearing Non-Bearing


•The Supply Trend:The Supply Trend:•New production New production mostly thru 2012mostly thru 2012•Planting slowingPlanting slowing•Newest production Newest production mostly at the low mostly at the low endend

•The Implication:The Implication:•New supply coming New supply coming in to match price in to match price demandsdemands•High end mostly in High end mostly in balancebalance


RubiredRubired

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

13,200

4,681

Estimated California Rubired Acreage, 2010

Bearing Non-Bearing


•The Supply Trend:The Supply Trend:•New production New production mostly after 2011mostly after 2011•Planting explosion Planting explosion in 2009 & 2010in 2009 & 2010•Mostly planted Mostly planted under contractunder contract

•The Implication:The Implication:•Limited use in Limited use in winewine•Dependent upon Dependent upon concentrate marketconcentrate market


ZinfandelZinfandel

0

10,000

20,000

30,000

40,000

50,000

60,000

57,000

1,860

Estimated California Zinfandel Acreage, 2010

Bearing Non-Bearing

•The Numbers:The Numbers:•3% Non-Bearing3% Non-Bearing

•The Supply Trend:The Supply Trend:•Pullouts/Grafting a Pullouts/Grafting a factor into the factor into the futurefuture•New acres mostly New acres mostly at low end (White at low end (White Zin)Zin)

•The Implication:The Implication:•Markets balancing Markets balancing with continued with continued shift from White to shift from White to Red in LodiRed in Lodi•No significant No significant opportunities for opportunities for growth, except growth, except maybe in Napamaybe in Napa


•Allied Grape Growers conducted a survey of Allied Grape Growers conducted a survey of California growers to determine up-to-date California growers to determine up-to-date planting & production costs:planting & production costs:•The purpose of this exercise is to share The purpose of this exercise is to share current-day costs of production, vineyard current-day costs of production, vineyard acquisition and development costs.acquisition and development costs.•We pose the questions:We pose the questions:•What is a reasonable ROI for vineyard What is a reasonable ROI for vineyard investment, and should a grower have investment, and should a grower have profit as well as a return on investment for profit as well as a return on investment for the land?the land?•Where is the balance of yield and price for Where is the balance of yield and price for breakeven? breakeven? •Can the winery/consumer pay what it takes Can the winery/consumer pay what it takes in these current times to cover these costs?in these current times to cover these costs?


Napa/SonomaNapa/Sonoma

Low High Average Low High Average2010 Winegrape Values (ASFMRA) 55,000$ 300,000$ 177,500$ 60,000$ 100,000$ 80,000$ Land/Development Cost (Survey) 65,000$ 210,000$ 135,000$ 64,300$ 85,000$ 72,150$

ROI 7% 10% 8% 7% 10% 8%ROI in Dollars 3,850$ 30,000$ 12,500$ 4,200$ 10,000$ 6,086$ Annual Costs 4,000$ 8,000$ 6,000$ 3,500$ 6,500$ 5,000$ Grower Net Profit 1,000$ 1,200$ 1,100$ 1,000$ 1,000$ 1,000$ Total Cost 8,850$ 39,200$ 19,600$ 8,700$ 17,500$ 12,086$ 2009 Average Price - CGCR: 3,283$ 2,157$ Break Even Yield at Average Price: 6.0 5.62009 Average Yield (large crop): 3.3 3.9Break Even Price/Ton: 6,031$ 3,139$

Napa Sonoma

Per Acre Costs


Mendocino/Lake/SolanoMendocino/Lake/Solano

Per Acre Costs

Low High Average2010 Winegrape Values (ASFMRA) 15,000$ 60,000$ 37,500$ Land/Development Cost (Survey) 30,000$ 45,000$ 37,500$

ROI 7% 10% 8%ROI in Dollars 1,050$ 6,000$ 3,000$ Annual Costs 3,250$ 6,500$ 4,875$ Grower Net Profit 750$ 750$ 750$ Total Cost 5,050$ 13,250$ 8,625$ 2009 Weighted Average Price - CGCR: 1,014$ Break Even Yield at Average Price: 8.52009 Average Yield (large crop): 4.1Break Even Price/Ton: 2,104$

Mendocino, Lake & Solano


Central CoastCentral Coast

Per Acre Costs


ROI 8% 10% 9% 8% 10% 9%ROI in Dollars 1,440$ 7,000$ 3,623$ 1,200$ 6,500$ 4,050$ Annual Costs 3,250$ 4,250$ 3,750$ 2,700$ 5,200$ 3,950$ Grower Net Profit 750$ 750$ 750$ 750$ 750$ 750$ Total Cost 5,440$ 12,000$ 8,123$ 4,650$ 12,450$ 8,750$ 2009 Average Price - CGCR: 1,137$ 1,185$ Break Even Yield at Average Price: 7.1 7.42009 Average Yield (large crop): 6.5 4.9Break Even Price/Ton: 1,250$ 1,786$

District 8 - San Luis Obispo CountyDistrict 7 - San Benito/Monterey


California InteriorCalifornia Interior

Per Acre Costs


ROI 8% 10% 9% 8% 10% 9%ROI in Dollars 1,200$ 3,400$ 1,845$ 640$ 2,400$ 1,361$ Annual Costs 2,000$ 4,000$ 3,000$ 1,750$ 3,000$ 2,375$ Grower Net Profit 600$ 600$ 600$ 500$ 500$ 500$ Total Cost 3,800$ 8,000$ 5,445$ 2,890$ 5,900$ 4,236$ 2009 Average Price - CGCR: 465$ 265$ Break Even Yield at Average Price: 11.7 16.0Estimated Average Yield 9.0 11.0Break Even Price/Ton: 605$ 385$

Districts 11 & 17 - Lodi/Clarksburg District 13 - Fresno/Madera


$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

Production Cost Ranges: California Winegrapes

Average


• As always, the wine industry faces many challenges from market issues, to planning and relationship issues to taxation/regulation and process issues.

• The 2010 winegrape crop was likely below average overall. This downward swing in production, coupled with increasing wine shipments could go a long way toward re-establishing overall market balance.

• Planting has slowed significantly at the high end. Most new vineyards in the state have been planted in the interior regions for value-priced wines.• Growers are planting mostly red grapes, but popular varieties for

planting include: Cabernet Sauvignon, Chardonnay, Rubired & Muscat Alexander.

• Costs of acquisition/development/production continue to increase. Today’s market prices are mostly economically unsustainable.


•History in Farming•Commitment to Sustainability•Industry & Community Involvement•Awards & Acclamations

allied grape growers, 2011. all rights reserved

Documents

allied grape growers

grape apple concentrate

production slide

grape stable foreign

white concentrate

subjective slide

questionable red concentrate

gallon apple concentrate