tag:blogger.com,1999:blog-941731830705031230.post902091035116993521..comments2024-03-25T02:53:48.654-07:00Comments on SVB on Wine: Inventory Days Higher, Grape Prices Headed LowerRob McMillan rmcmillan@svb.comhttp://www.blogger.com/profile/12396624790174552807noreply@blogger.comBlogger26125tag:blogger.com,1999:blog-941731830705031230.post-23046430787194431842013-10-02T11:00:30.785-07:002013-10-02T11:00:30.785-07:00Jim - Actually the commodity end of the business h...Jim - Actually the commodity end of the business has been ceeded to offshore producers. We can't compete at the low end of the market. Land prices and production labor costs are too high. But the issue of non-differentiation or the loss of the US Brand in the eyes of US consumers is a real threat to the business. I spoke to the issue of a Marketing Order in this post: http://svbwine.blogspot.com/2012/07/is-california-wine-at-pricing.html Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-60663256301086196342013-10-02T08:47:07.401-07:002013-10-02T08:47:07.401-07:00When I farmed corn in Iowa, there was no market li...When I farmed corn in Iowa, there was no market limit for the ordinary farmer. Produce was hauled to the local elevator and the market price was paid, approximately, with some adjustment for moisture content. Commodity production has its advantages, it seems, over wine grapes which are subject to more complicated market forces. Maybe the very large producers today get involved in special arrangements?<br /><br />Still, there seems to be something of an active market which would allow production beyond what the local winery might be able to handle.<br /><br />Observing the great expansion of Central Valley vineyards, Paso Robles, etc., it looks like we might there is such a large supply happening that something more like a commodity market will have to emerge. As pruning for quality is done, more and more, old market patterns will be further impacted. Perhaps some expectation of downward price trends is appropriate in planning.Jim Bullishttp://www.miastrada.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-68582628266081722482013-10-01T11:34:30.059-07:002013-10-01T11:34:30.059-07:00I haven't heard of a sharecropping model in so...I haven't heard of a sharecropping model in some time. Actually never seen one in the wine business in a pure form. Appreciate the post SheldonRob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-19827352128636244932013-10-01T09:54:59.818-07:002013-10-01T09:54:59.818-07:00Sheldon,
Your sharecropping business model sounds ...Sheldon,<br />Your sharecropping business model sounds interesting. I would imagine it involves relatively small vineyards, which seem likely to be interested in maximizing productivity with labor saving techniques. We are developing machinery with that goal in mind. <br /><br />Check to see where we are headed by viewing our website by clicking my name above. I would be interested in reactions.Jim Bullishttp://www.miastrada.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-91741623951748160692013-10-01T09:45:53.186-07:002013-10-01T09:45:53.186-07:00This is a very interesting forum going on here. I...This is a very interesting forum going on here. I had never imagined that winery capacity would limit production, as it seems to be said here. I can understand that that the world market for wine has some kind of limit. <br /><br />But one thing at a time: When changes are made in vineyard density, and this can be done in an old vineyard just by planting a new row midway in the row space, the main impact does not happen for four to five years. That should allow time for wineries to put in more tanks, etc.<br /><br />If you look at the price of land in Napa county, and check the requirement for wineries there to use 75% Napa grown grapes, it is baffling to read here that there might be a limit to Napa production imposed by the wineries. <br /><br />As to the world market, I argue that USA competitiveness in the balance of trade sense could be enhanced by better use of our land whereby our farms would fill a larger fraction of the world demand. Of course there would be price competition on a world scale which might be a shock from time to time. <br /><br /> Jim Bullishttp://www.miastrada.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-70036462709687017862013-10-01T09:19:51.727-07:002013-10-01T09:19:51.727-07:00Thanks for the discussion, particularly relating t...Thanks for the discussion, particularly relating to Opus 1, which is a leading example of what I am saying. No, I did not mean that we would 'hang' more fruit on a given vine, but doubling the yield per acre due to half the row space is easy arithmetic. The quality issue is more complicated, but it does not seem to hurt to go to European traditional spacing.<br /><br />I have learned how to link my name to our URL, so now it is easy to see what I am talking about by simply clicking my name above.Jim Bullishttp://www.miastrada.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-45490410560626781162013-09-30T22:54:17.203-07:002013-09-30T22:54:17.203-07:00At the smaller end of the scale (< 2000 Cases) ...At the smaller end of the scale (< 2000 Cases) we have had issues of supply that we resolved by taking on vineyard management through vertical integration. With low capital invested in the sharecropping business model, our asset productivity is very respectable and we have good control of quality, and a buffer on supply for future growth. The industry will continue to see cycles as tastes/regulations/FOREX changes impact it and the demographics shift. Anonymoushttps://www.blogger.com/profile/13239616881820291759noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-63777479935116995792013-09-30T22:03:23.537-07:002013-09-30T22:03:23.537-07:00Anonymous 9:29. Please read my overly wordy reply ...Anonymous 9:29. Please read my overly wordy reply to Glenn Proctor above for my perspective which answers the question I hope.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-55540695269279290612013-09-30T22:01:30.891-07:002013-09-30T22:01:30.891-07:00But ... but .... I want to know all the answers!
...But ... but .... I want to know all the answers!<br /><br />Thanks Glenn for the thoughts again. You are about as connected to this matter as anyone in the business so I really appreciate your perspective and owe you another 2 oz pour of any wine you want.<br /><br />To your last point .... I am making several presumptions when I come to the conclusion that grape prices should see downward pressure so I could be all wet. But lets go through the supply chain to review my assumptions, because the complete chain is where I see supply compacting:<br />1) Consumers are drinking only marginally more wine but not spending more. I'm presuming that's not going to change much in the next 12 months so increased demand won't clear the chain.<br />2) Distributors and retailers want the 2012's. The distributors had allocation issues with the 2011's after the 2010 light harvest. That will re-fill the chain with plenty of good wine.<br />4) Days inventory for the wine business is at a decade high now at the wineries. I agree wineries needed the 2012 volume, but they don't need above average volume for the 2013 vintage. They could sell down the 2012's and maybe get suckered into trying to grow off that 2012 sales base but is that rational? They are filled up and have contracted what they anticipate selling of the 2013. There isn't the shortage to fill like there was in 2012 and a producer taking on heavy growth assumptions for 2014 isn't warranted in my opinion.<br />5) Many growers in 2012 converted their excess grape production to juice under varying arrangements. In general, I think their bet paid off but crush space is really restricted this time around. Where do they crush and what do they do with that this time?<br />6) The big question ..... what about 2014? What if we do have a really light harvest? What then would happen to bulk prices of the 2013's in 2014? Back to your earlier point about mother nature.<br /><br />What would you suggest to a grower who has sold their 2013's at good contracted prices, but still has excess fruit? I'm guessing you would say if you can crush under a contract to retrieve your costs of production and make a little profit or get a little vicarage with a favored winery customer, go for it. Would you tell them to crush without a clear idea of where the juice will go?<br /><br />That's my current short term view subject to change as we finish harvest and move through Q4 holiday season.<br /><br />Longer term, we have the planting issue. How much to plant, where and what? I love your point about all the lighter PN yields in 08, 09, 10, & 11. You pointed out producers were willing to let growers get these higher yields, so a portion of the excess has been due to farming practices. I think that's what you said. Its not all due to farming though. You said that too. <br /><br />The question I can't answer is: Can growers carry marginally higher yields consistently now and if so, why? Is climate change having some positive impact on growing we've not factored in? Have producers been too tied to rules of thumb about dropping fruit from a different era and more mature vines under different densities should be carrying more? If they can hang more, that would change the view of how many acres need to be planted tomorrow.<br /><br />As I said, I don't think any of us want to see a decade of depressed and or highly variable returns like the growers had in the 2000's. Staying away from a planting bubble will be one of the keys to avoiding that long term potential.<br /><br />Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-37382539187029607592013-09-30T21:29:52.264-07:002013-09-30T21:29:52.264-07:00I have considerable trouble with the unspoken real...I have considerable trouble with the unspoken reality that a grower must maek a sustainable profit margin to continue adequate supply., There is little mention of profitabilty at the grower level, rather just hand ringing at the winery level. Growers face about the same CapEx as winereis on scope, guess supply is just a given?<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-26464716039594301922013-09-30T20:58:25.215-07:002013-09-30T20:58:25.215-07:00There is no doubt that newer vyds have the potenti...There is no doubt that newer vyds have the potential for higher yields. But we have not seen vast amounts of new vineyards in the Coastal areas - more in the valley. What amazes me is PN yield in Sonoma Cty - 08,09,10,11 all lighter yields then 12, and 13 - that is not all due to farming practices or technology in my mind.<br /><br />If we look at Coastal yields their fluctuation has been based more on mother natures effects that on farming techniques. What I think is important in this discussion is that growers have had the ability given higher profitability levels to spend money on inputs, also wineries have needed fruit so they have been willing to let growers get these higher yields. These variables could change over time and cause yields to fluctuate.<br /><br />Just my thoughts. But lets get this years crop off before we come up with all the answers.Glenn Proctorhttp://www.ciatti.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-11054681114036362092013-09-30T19:56:39.405-07:002013-09-30T19:56:39.405-07:00Peter - if there is little tank space, where will ...Peter - if there is little tank space, where will the negociants put the wine they buy? Its a little rhetorical question but there is a point to it.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-51286238415695848062013-09-30T19:52:32.694-07:002013-09-30T19:52:32.694-07:00Totally agree with the comment Glenn. It appears t...Totally agree with the comment Glenn. It appears that there will be some good bulk wine out there and some happy campers on the buy side of this year's harvest. How many acres we need can't have high beta harvests factored in. I am really curious ..... haven't seen anythink solid ..... I'm curious how much changed but effective farming techniques might be adding to the yields that should be predicted in the various regions? Any thoughts on that?Rob McMillanhttp://www.svbwine.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-79495964174346807792013-09-30T19:48:58.736-07:002013-09-30T19:48:58.736-07:00Thanks for sharing this info Rob,
This year Harves...Thanks for sharing this info Rob,<br />This year Harvest is going to be big and most of North Coast wineries are running out of tank space already, so there will be a lots of bulk wines on the market soon at very reasonable price. This will be a good time for negociants and brokers to buy and sell bulk wines.<br /><br />Cheers<br />PetarVinoEnology - B2B Wine Networkhttps://www.blogger.com/profile/17751027964626306837noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-59815569946072846462013-09-30T17:28:39.699-07:002013-09-30T17:28:39.699-07:00Rob,
There is no doubt if the 2013 crop is near t...Rob,<br /><br />There is no doubt if the 2013 crop is near the size of the 2012 crop there will need to be some adjustments to move through the bulk inventory. Especially if there is already a backup in the other wine channels. Hopefully this can be an opportunity to offer high quality and value wines to consumers as we move forward.<br /><br />But as we talk about tons/acre and how many acres we need in the ground etc? What happens if we harvest 3.2 M tons next year? Agriculture is not linear or very predictable, especially grape yields. Mother nature has a way of slipping you the curve when you expect the fastball!!<br /><br />Glenn Proctorhttp://www.ciatti.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-72066110672783463452013-09-30T14:55:15.976-07:002013-09-30T14:55:15.976-07:00Rich - higher density often leads to higher qualit...Rich - higher density often leads to higher quality fruit. While that's only a single component and not an absloute statement, the trend to tighter spacing started in California in the middle 90's as a response to phyloxera. It was recognized vines could carry heavier loads and still properly stress the vine to produce great wine. The trend continued as most do in the business, until Opus 1 went to meter by meter. FWIW, at the same time a lot of work was done on vine aspects which also improved quality. It was the single biggest leap in winegrape quality we've ever seen.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-50857152709274671792013-09-30T14:36:34.344-07:002013-09-30T14:36:34.344-07:00Planting more densely will yield more tons per acr...Planting more densely will yield more tons per acre eventually, if growers are persuaded to do so, but it seems far from clear that they will be motivated, because higher density will result in lower quality winemaking fruit. Remember that it is the bulk market which is out of out-of-equilibrium, and that the buyers will run away from the declining quality of denser vineyards when supplies are abundant in higher quality elsewhere.Rich Readerhttps://www.blogger.com/profile/14475220260985252978noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-60140637728702360222013-09-30T11:55:47.202-07:002013-09-30T11:55:47.202-07:00Thanks for logging in and offering your thoughts J...Thanks for logging in and offering your thoughts Jim.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-55995454541500948702013-09-30T11:54:53.625-07:002013-09-30T11:54:53.625-07:00There are some who suggest a part of the record ha...There are some who suggest a part of the record harvests are from improved vine selection and better farming. Having been through a few cycles now, I have seen what happens when there is demand for fruit: growers hang more fruit. Can we really hang twice as much fruit? I don't believe thats possible. As an industry however, we are always looking at ways to improve quality and if that can be done at the same time we have heavier yields, we will hang more fruit.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-87133908111227806412013-09-30T11:51:28.777-07:002013-09-30T11:51:28.777-07:00I was one of the people suggesting the negociant b...I was one of the people suggesting the negociant business was going to be in deep kimshe. Of course I was factoring in average harvests versus the record harvests we've experienced in the past two years.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-8575453500945204952013-09-30T11:45:51.625-07:002013-09-30T11:45:51.625-07:00Thanks for publishing. Perhaps there is interest ...Thanks for publishing. Perhaps there is interest in the extensive ramifications of the new kind of agriculture that we think is possible. <br /><br />Generally, our approach is to better enable hand labor, but increase the efficiency of such work so that it is economically possible. The fact of more efficient use of land was an unexpected benefit.<br /><br />Now the impact on market balance becomes a topic, where new technology is likely to change yields significantly. There is much to be said here, but one thing is clear, that being that those who first adapt to the new methods will have a critical lead over others.Jim Bullishttp://www.miastrada.comnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-26710521538085472982013-09-30T11:36:07.088-07:002013-09-30T11:36:07.088-07:00We might be headed for over supply as vineyard ope...We might be headed for over supply as vineyard operators realize that the land can support twice as much production simply by planting more densely.<br /><br />Most vineyards in the USA, and many even in Europe, are planted to suit the standard tractor. We can do better with machines that are adapted to vineyard needs. See: www.miastrada.com to link to videos showing development activities of such machines.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-13280609527328031822013-09-30T10:34:30.000-07:002013-09-30T10:34:30.000-07:00ps .... We aren't close to becoming a commodit...ps .... We aren't close to becoming a commodity marketplace and I can't see that happening anytime soon .... though I would like to see the wine industry return to a marketing order and promote domestic wine production again and fight off the penetration and successes being made by imports.Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-32532903936375474352013-09-30T10:32:43.673-07:002013-09-30T10:32:43.673-07:00TV - thanks so much for logging in and for the wel... TV - thanks so much for logging in and for the well-thought post. Regarding the take away: <br /><br /><i> "The take away from your post Rob, is that if you have excess and an established program or channel to flow it through - do it. If you're crushing it under the guise that you'll get multiple offers above ask on $35/gallon Napa Valley Cabernet with little forethought about where it might go, don't expect it too move fast."</i> .......... you nailed it.<br /><br />Last year a lot of grower with extra tonnage speculated on the extra yield and it paid of generally speaking because the quality was quite high, and the supply of juice was quite low after two short harvests. This year? ..... not so much. Speculating on crushing leftover grapes this year will be much more difficult. I know it’s not easy to see fruit stay on the vines, but at times you have to know when to take what is contracted and recognize if you sold what you intended at a good price, that is better than selling the next incremental ton/gallon at a loss.<br />Rob McMillan rmcmillan@svb.comhttps://www.blogger.com/profile/12396624790174552807noreply@blogger.comtag:blogger.com,1999:blog-941731830705031230.post-30298013487836739862013-09-30T10:18:01.110-07:002013-09-30T10:18:01.110-07:00The industry spends an excessive amount of time fo...The industry spends an excessive amount of time focusing on precision this and precision that. You can't go to a tradeshow, symposium or workshop without the largest vineyard management companies in the North Coast touting the latest and greatest Extreme Genesis X9000 harvester/optical sorter/micron technology spray rig. When in fact, these units and practices are typically out of reach for the average grower due to capital constraints and economies of scale.<br /><br />Maybe an actual value add to the industry would be for it to collectively adopt the idea of precision planning and operations. The take away from your post Rob, is that if you have excess and an established program or channel to flow it through - do it. If you're crushing it under the guise that you'll get multiple offers above ask on $35/gallon Napa Valley Cabernet with little forethought about where it might go, don't expect it to move fast.<br /><br />The Big Guys dedicate entire teams to analyze skews and market positioning. If it doesn't sell they kill the skew. At the same time their teams in the field are told find these quality grapes, from this particular AVA, for a very specific skew. While I'm certainly not a huge fan of Big Ag, if more of the industry small and mid size operations could model their behavior off the Big Guys perhaps there wouldn't be so many mismatched lots of grapes/programs or deep pool of random lots on the bulk wine lists.<br /><br />Given the substantial 2012 harvest and 2013 coming in at or just under it, seems to me that the grape and bulk wine market is edging closer to *gasp* a commodity marketplace than ever before. Thomson Vineyardshttp://thomsonvineyards.comnoreply@blogger.com