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California's bumper 2014 harvest means overstock on bulk wine, broker warns

Published:  09 February, 2015

California produced a "shed-load" of wine - 4 million tonnes - in the chronic drought conditions of 2014, which will lead to an inventory surplus, a top bulk broker has warned.

California produced a "shed-load" of wine - 4 million tonnes - in the chronic drought conditions of 2014, which will lead to an inventory surplus, a top bulk broker has warned.

The bumper harvest came on the back of two large vintages - and cheaper wines and their growers, will struggle to find a market, experts have said.

California inventory surplus on bulk wineCalifornia is facing overstock on wines, particularly at the lower end.This will mean prices falling, and tough times for many growers, experts have warned.

"What will happen if they find some rain?" asked Daniel Murphy, of bulk wine broker Murphy Wine Company. "At 4.2 million tonnes, then you've got a problem."

"Stocks in California are high, prices will loosen on certain items, and some [varieties] will really have to be offloaded. It will also have an impact on imports into the US. It will hit Chile, and affect its pricing for next year," Murphy said.

"It's a surprise number - some vineyards found themselves with 50% less water, some had none and some paid to get more. If it's a value crop it will get watered, if not, it won't."

He said that having "appellation California" on the label was a clear plus in the US market, as US consumers are buying Californian wine first."

Gomberg Fredrikson recently conducted a survey into wine shipments into the US in the last year, finding that while overall shipments, including imports, rose 1% to 375 million cases in 2014, California wineries outperformed the market, increasing shipments by 4% to 224 million cases.

While growing by 4% in the US is a good performance, it's not clear whether this level of growth will "keep the stock situation in check", one source told "My feeling is not," he added.

Jeff Bitter, vice-president of operations at Allied Grape Growers in California's Central Valley, which provided the preliminary crush figure of 4 million tonnes said the state is currently long on lower end inventory (for wines below $10/bottle).  "The drought hasn't 'helped' us yet.  Inventory is expected to remain long through 2015 unless we have a really short crop or demand picks up for cheaper wines.  Grape prices will be very challenging for spot market grapes from those regions that supply lower end wines. Many growers will suffer," Bitter said.

Rabobank's latest Wine Quarterly report stated: "US wineries now have ample inventories and tank storage space is extremely limited, which appears to be dampening demand for bulk wine imports."

Another major Californian bulk wine supplier told that the supply/demand balance was so "sensitive" that a 1-2% swing in demand either way can have a major effect, either sending pricing "to the toilet" or "the ceiling". "There's a very fixed demand - it swings about 1% while crops can chatter up and down 10%".

He added that rising land and water prices could make farmers think twice about planting grapes - "the price you get for grapes hasn't really changed in the past 20 years", he pointed out, unlike for another of California's leading crops - almonds.

"The low end of the grape business is under a lot of pressure - there are more attractive alternative crops and beverages out there."

Unlike growers in Europe, our source said many in California can afford, and have capacity, to hold extra stocks until markets rebound.