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The 2014 Crush – What Happened to the
Market?
SJVWA Annual MeetingAnd Industry Forum
Jeff Bitter, Allied Grape GrowersMatt Towers, O’Neill Vintners and Distillers
Greg Magill, Ciatti CompanyNovember 21, 2014
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Panel Discussion Outline -• The goal will be to answer this -• What happened to the market in 2014 and why
was this year so different from recent crop years?
• Three sections developed to address this• Supply – SJV and worldwide• Imports and availability/competition• Shipments at the lower end of the market
• Closing Discussion:• What is the future of the SJV winegrape
business, and do any competitive advantages exist that help secure our future?
Allied Grape Growers, 2014. All rights reserved.
Section 1:
Supply
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Supply
0.00
0.50
1.00
1.50
2.00
2.50
2006 2007 2008 2009 2010 2011 2012 2013 2014Est.
1.47 1.58 1.591.74
1.83 1.80 1.88
2.03 2.00
Tons(in Millions)
SJV Winegrape Crush 2006-2014 Estimate
SJV Winegrapes
CAGR = 4.03%Record statewide harvests
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• Winegrape Planting:• 2012 plantings for <$7 per bottle is estimated by
AGG at 15,000 acres. Those will begin producing material crops by next harvest.
• 2013 planting for <$7 per bottle is estimated by AGG at 20,000 acres. Those will begin producing material crops by 2016.
• 2014 planting for <$7 per bottle will decline significantly and is expected to be <5,000 acres. AGG annual nursery survey data will be released in January of 2015 to confirm.
• Winegrape Pullouts• Estimated by AGG at 15,000-25,000 acres over this
winter, preceding the 2015 harvest
Supply
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Supply
• What’s the impact of current supply on the CA Wine Market?
YearTOTAL CA WINE GRAPES
Harvested (000,000'S)EQUIVALENT CASES
(000,000'S)CALIFORNIA CASES SHIPPED (000,000's) LONG/(SHORT)
2010 3.58 243 243 02011 3.35 228 256 -282012 4.02 273 250 232013 4.25 289 260 29
2014E 3.9 est. 272 270 225.6
• Based on shipments of CA wines over last 5 yrs, CA is in a structurally long position ~ 25.6 million cases
• Equivalent of about 365,000 tons.
• Equivalent of about 36,000 acres (using 10 tons/acre)
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International• Decreased production in most countries
(AUS, ARG, CH*)• Everyone wants into US market; Casegoods
are the priority• Vine removals in Europe• New plantings everywhere
Supply
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Supply
Fran
ceIta
ly
Spain
U.S.
Arge
ntina
Austra
liaChi
le
Sout
h Af
rica
Germ
any
New Z
ealand
0
1
2
3
4
5
6
7
8
9
2012
2013
2014
Ton
s in
Million
s
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Section 2:
Imports
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Imports
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2008 2009 2010 2011 2012 2013 Tracking2014
Imported Wine - Bottled and Bulk(In Millions of Cases)
Bulk Imports
Bottled Imports
Data obtained via the Gomberg Fredrikson Report
Total-1%
Total+12%
Total+0%
Total+7%
Total+16%
Total-7%
-5%
+27% +92%
-2% +7% +3% -2% +3%
-20%+26%
+71% -25%
-1%
-1%
Total-1%
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Imports
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Imports
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
1700
Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15
Exchange Rates (Value to $1 U.S.), January 2011 - December 2014
Chilean Peso Argentine Peso Australian Dollar Euro British Pound
ChileanPeso
Aust $Arg Peso
Euro & Pound
Thru June, bulk Argentine imports were up 51% from previous year
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Imports
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014
Thompson Seedless & Rubired Crush2004 - 2014 Estimate
Thompson Seedless Rubired
Tons
Relative strengths and weaknesses in California concentrate production
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Arge
ntina
Chile
Austra
lia
Spain
Sout
h Af
rica
New Z
ealand
Italy
Fran
ce0
5
10
15
20
25
30
2011 2012 2013
Gallon
s in
Million
s
Source: US Department of Commerce & Gomberg, Fredrikson & Associates
Imports
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CABERNET SAUVIGNON - Global Market $/Gallon Availability
California $6.50 – 9.00 Balanced
$/Gal Delivered/Duty Paid
Availability
Chile $2.75 – 3.25 HighAustralia $3.50 – 4.75 ModerateSpain $3.50 – 4.50 Moderate
Imports
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CHARDONNAY - Global Market $/Gallon Availability
California $3.00 – 5.00 Long
$/Gal Delivered/Duty Paid
Availability
Chile $4.75 – 5.50 LowAustralia $2.50 – 3.00 HighSpain $2.75 - 3.25 Moderate/
High
Imports
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Imports
• Impact of Bulk Wine Imports on CA grape market
YearBULK STILL WINE IMPORTS EQUIVALENT CASES (000's)
EQUIVALENT TONS
EQUIVALENT ACRES
2011 25,494 367,349 45,9192012 43,553 627,571 78,4462013 32,872 473,662 59,208
2014E 31,886 459,452 57,431
• Typically used for the <$7 category.
• Typically used as a cheaper alternative to Interior CA grapes.
• Consumer does not care.
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Factors That Influence the Import Market
• Supply / Demand
• Exchange Rates
• Interchangeability of product from any country around the world.
• Tax Incentive – “Drawback”
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Equivalent Import Grape Pricing
Agrentina Australia Chile France S. Africa SpainGeneric Red 243$ 249$ 287$ 568$ 293$ 231$ Generic Wht. 200$ 324$ 374$ 674$ 225$ 218$ Chardonnay 431$ 324$ 665$ 936$ 324$ NAChenin Blanc 259$ NA NA NA 237$ NACabernet 431$ 431$ 431$ 662$ 374$ 331$ Merlot 431$ 399$ 381$ 662$ 374$ 331$ Muscat Alex 293$ 356$ NA 805$ 262$ 449$ Syrah 431$ 437$ 368$ 671$ 381$ 318$
EQUIVALENT GRAPE PRICE PER TON BY COUNTRY
Agrentina Australia Chile France S. Africa SpainGeneric Red 67$ 73$ 110$ 391$ 117$ 54$ Generic Wht. 23$ 148$ 198$ 498$ 48$ 42$ Chardonnay 254$ 148$ 488$ 760$ 148$ NAChenin Blanc 82$ NA NA NA 60$ NACabernet 254$ 254$ 254$ 485$ 198$ 154$ Merlot 254$ 223$ 204$ 485$ 198$ 154$ Muscat Alex 117$ 179$ NA 629$ 85$ 273$ Syrah 254$ 260$ 192$ 494$ 204$ 142$
EQUIVALENT GRAPE PRICE PER TON BY COUNTRY w/ EXCISE TAX DRAWBACK
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Section 3:
Wine Shipments
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Wine Shipments
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Wine Shipments
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Wine Shipments
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2006 2007 2008 2009 2010 2011 2012 2013 2014Est.
106.8 107.2113.2
117.0 118.1123.9 122.8
118.0 115.6
Cases(in Millions)
Shipment Volume Below $7/Bottle, 2006-2014 Estimate
Wine Shipment Volume <$7/Bottle
CAGR = 1.37%
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Wine Shipments
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2006 2007 2008 2009 2010 2011 2012 2013 2014Est.
106.8 107.2113.2
117.0 118.1123.9 122.8
118.0 115.6
Cases(in Millions)
Shipment Volume Below $7/Bottle, 2006-2014 Estimate
Wine Shipment Volume <$7/Bottle
2006-2011 CAGR = 3.15%
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Gomberg Fredrikson ReportAugust 2014
Quote:“The continuing low growth rates for California winery shipments reflect a bifurcated market where weaker sales of everyday brands, priced below $9 at retail, mask gains of higher-priced premium wines.”
Wine Shipments
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Closing Question/Discussion
What is the future of the SJV winegrape business, and do any
competitive advantages exist that help secure our future?