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US wine industry facing 'unprecedented' third large harvest, says SVB

Published:  22 January, 2015

Silicon Valley Bank is forecasting an "unprecedented" third large harvest in a row for the US, and that 2015 will be the "breakout" year for fine wine, which will grow 14 to 18%.

California2015 will be the 'breakout' year for wines over $20, says SVBThe Bank's annual report also forecasts a third consecutive large harvest

The bank, which has just published the results of a survey of 600 wineries on the US West Coast alongside its own ongoing research, believes that while some varietals and regions face an excess of supply, those fine wine producers "who feel slightly long will find the gallons in their cellar to be a blessing in disguise by the end of 2015".

The State of the Wine Industry 2015 report's author Rob McMillan, executive vice president and founder of SVB's wine division, asks: "In California, one has to wonder if the 4 million ton harvest is now the norm. Or will volume of domestically produced fruit retreat?"

The report also predicts that "massive bulk imports will continue to dominate the wine categories at the lowest price points", but adds these will be curtailed by the size of the 2014 harvest and remaining stocks still in cellars.

As for higher priced wines, the report identified a clear trend for trading up which kicked off in mid-2014, as wines priced at $20 or over began selling at a stronger pace. The trend was strongest among red wines, and SVB forecasts this pattern will continue throughout 2015. Wines at the lower end of the price spectrum, under $9, performed poorly both in the on and off-sectors in 2014 - a trend set to continue in 2015.

Last year the bank predicted growth of 6 to 10% for fine wines (over $20), and given this prediction held up, it is saying 2015 will be a "breakout year of growth" for those same wines, which growth of 14 to 18% forecast.

When it comes to planting, the report says vineyards are moving north - with Oregon and Washington showing strong growth. It says these areas will continue to attract vineyard plantings given their "favourable quality/price dynamics relative to the fine wine growing regions in California".

North coastal regions are encountering more problems with planning restrictions and higher land costs, and finding suitable sites for expansion is becoming more difficult, the report states.

Meanwhile, California's Central Valley will uproot around 20,000 acres (8,000 ha) of grapes destined to make wines under $7, which are "structurally oversupplied".

The report also says "direct-to-consumer sales will continue as the largest growth channel for most wineries". Overall it believes this will be a stellar year, with most wineries forecasting that most wineries will say "2015 was one of their best seasons by the end of the year".