District-by-District Review of the Crush Report, Part 3: California Interior

Those of you who read my review of the crush report for the Wine Industry Network, may have noticed that I gave limited analysis of the crush report by geographic location. This is the third part of a three-part series, focusing on California’s inland growing regions. The previous two articles looked at the North Coast and the Central Coast. Overall, the interior regions had an incredibly difficult year. Yields and prices were both down across the board, except for a small price increase in District 10.

District 9: Far North and Northeast California

Average Price Per Ton: $512.53, Overall Price Shift: -5.09%, Overall Change in Yield: -12.03%

District 9 looks like the largest in terms of total land area, though not in planted acreage. Over 55,000 tons of winegrapes were harvested last year. Though the drop in yields was from a high base, the real pain came from falling prices. Just over 19,000 tons of Chardonnay, making up over one-third of total production here, saw average prices fall by just over 19% to $479.08. Sauvignon Blanc saw declines slightly steeper than even Chardonnay. Viognier saw prices more than double to $1,640.96, a rarity for a wine-district combination that accounts for over 500 tons of production. I’m curious which part of this district is known for growing quality Viognier. Reds actually inched up over 2% to an average of $541.63, though the most widely grown red, Cabernet Sauvignon, saw prices drop over 12 ½% to $634.91.

District 10: Sierra Nevada Region

Average Price Per Ton: $1,236.29, Overall Price Shift: +2.37%, Overall Change in Yield: -10.94%

This district includes Nevada, Placer, El Dorado, Amador, Calaveras, Tuolomne and Mariposa Counties. Despite the price rise, with average prices at $1,236.29 and yields of about 3 tons per acre, I am unsure how profitable growing in this district is, in general. A large majority of production is for reds, which is sensible in light of the fact that average prices for reds are $1,320.25 per ton, compared to $774.20 for whites.

The market is relatively diverse. Data for the top varieties are included in the chart below:

District 11: Lodi and Vicinity

Average Price Per Ton: $607.31, Overall Price Shift: -2.63%, Overall Change in Yield: -15.61%

District 11 produced more than $400 million in winegrape sales in 2014, more than any other inland district. The most widely grown grape in District 11 is Cabernet Sauvignon, which dropped almost 7% in price. Though I did not do any forecasts for the Lodi area, I am surprised that demand for Cabernet Sauvignon for cost-averaging didn’t prop up prices. Still, as one can see in the chart below, Cabernet Sauvignon is still priced quite high, considering the per-acre yields associated with it.

Pinot Gris and Cabernet Sauvignon look highly profitable for growers in District 11. I’m not sure how much it costs to operate a vineyard in this area, but judging by the yields, input costs are likely quite high.  Still, I couldn’t imagine that operating costs are higher than $3,500. Throw in another $1,000 for overhead, administration and financing and it looks like Lodi’s making pretty good money right now.  If I had to pick, I’d be in the Pinot Grigio business down there right now.  That type of revenue for a relatively short growing season sounds great.  The traditional Port varieties, particularly Tinta Cao and the more significant Touriga Nacional, look like they may also be quite profitable, with prices rising by double-digit amounts.

District 12: Northern San Joaquin Valley

Average Price Per Ton: $450.74, Overall Price Shift: -7.48%, Overall Change in Yield: -6.24%

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This district includes Manteca, Modesto and Merced. As we move further south in the Central Valley, the news gets worse and worse. The chart below includes the top five varieties by volume for District 12:

Pinot Gris growers look to have dodged the pain. Less important whites got hammered. As the Moscato craze has levelled off, the Muscat varieties fell as much as 47% in price, in the case of Muscat Blanc, which sold at the unprofitable average price of $227.81. Sauvignon Blanc and Symphony fell by roughly 21% and 24% respectively. Sauvignon Blanc stayed just above $500, whereas Symphony sold for $288.54.

District 13: Central San Joaquin Valley

Average Price Per Ton: $313.10, Overall Price Shift: -12.62%, Overall Change in Yield: -6.34%

As I said, the news gets worse.  District 13, which includes Fresno and Madera, saw the lowest prices per ton.  It can be tough to estimate true per ton yields in this district where acreage is seriously under-reported.  That being said, I don’t think they broke 14 tons to the acre this past harvest.  Even if they popped just above that line, average returns are only $4,400 per acre.  Considering the amount of water that takes and the amount of chemicals you’ll need to efficaciously control pests on these vineyards, I don’t see how any grower could make money without controlling part of the downstream supply chain.  No wonder so many vines are coming out.

One of the real killers for this region was the evaporation of strong demand for Muscat varieties.  Muscat of Alexandria, which accounts for almost 107,000 tons of grapes here, saw prices fall over 16% to $288.95.  French Colombard accounts for over 255,000 tons and fell almost 14 ½% to $258.67.  Rubired (<185,000 tons) fell a relatively moderate 6.6% to $305.48, while Zinfandel (<127,000 tons) got knocked down to $306.41, a brutal fall of nearly 17%.

District 14: Southern San Joaquin Valley

Average Price Per Ton: $314.73, Overall Price Shift: -22.86%, Overall Change in Yield: -10.74%

It doesn’t get worse than this.  Check out the havoc among white varieties:

Once again, Pinot Grigio farmers need to consider themselves lucky.  The hurt put on Muscat continues to be evident, but look at what happened to Chardonnay – an over 15% fall in yields and 30% lopped off the price.  At least the yields are insured by the USDA, but the price isn’t.  I see no way anyone could have made money off of Chardonnay or Muscats this year in District 15.

Cabernet Sauvignon, though not that important a variety, saw the market bottom out in a spectacular manner, with prices falling over 55% to $301.56.  The important reds are Rubired (>51,000 tons) and Zinfandel (>31,000 tons).  As in District 13, Rubired fell a relatively moderate 10.42% to $295.40.  Zinfandel dove like one of Don King’s clients, losing almost 25% of price to settle at $311.57.    Wow.

District 17: East of Solano County

Average Price Per Ton: $584.10, Overall Price Shift: -2.69%, Overall Change in Yield: -2.06%

For some odd reason, when we hit District 17, we travel back up north to an amalgamation of parts of Yolo and Sacramento Counties, which is good, because we can end on a not-horrible note.  In fact, at these yields, District 17 farmers should have been able to make money.  Increased demand for Pinot Noir for blending helped farmers stay steady here for the area’s most important red.  Prices fell just under 1%, to an average of $728.35 for the nearly 17,000 tons of Pinot Noir grown here.  My numbers estimate tons to the acre out there at between 7.5 and 8.5.  Planted, producing Pinot vineyards in Yolo County are selling for an average of $25,000 an acre, as far as I know.  Capitalize that, add in operating expenditures, carry the two and you’ve got a decent margin.

The real gorilla in the vineyard, though, is District 17 Chardonnay.  At nearly 50,000 tons, Chardonnay accounts for well over one-third of district production.  Chardonnay did a bit worse than Pinot Noir, falling 6% to $860.60.  Average yield is at least 8 tons to the acre, making Chardonnay even more profitable than Pinot.  Interesting that there’s clearly a health ROI in District 17 and I can’t remember anyone even mentioning this area ever.  Am I missing something here?

Well, that’s what I’ve got.  Hope it’s been helpful and/or interesting.  Cheers!