Bulk Wine Prices Take A Dive

While the spot market for bulk wines appeared to be tightening early in 1999, the market has since fallen, particularly for "standard quality wines." But prices for premium bulk wines appear to be holding steady in Napa and Sonoma counties.

"There is a bit of a slowdown," wine broker Bill Turrentine told the Insider. Turrentine said that the market was "really hot" in early 1999 because people were concerned about a light crop and felt that their sales had been strong. (See Insider, Jan. 23, 1999.) "They also were looking to upgrade their blends."

Since then, the initial wave of players looking to expand volumes appears to have purchased what it needed. "Buyers are still looking for high quality wine, but not that many are looking to expand volume." Prices remain high with lots of action and multiple buyers for higher-quality wines while the market for "standard quality" wine has slowed.

Wine broker Karen Mancuso confirmed that "most buyers are open for offers," and said demand remains high for coastal wines.

Turrentine did not go as far as to say that there have been substantial price drops. "I’m sure prices are drifting down somewhat but I can’t quantify it at this point," he said. "We can just say that there has really been a slowdown."

Noting that there was a light yield per acre in 1998, Turrentine also said he does not think the industry is "sitting on huge amounts of excess wine."

"There was a real strong reaction to a slow yield per acre right after harvest. Prices jumped fast, but most wineries still have a lot of 1997," Turrentine said. "Since then, demand has not been as strong as some people had anticipated."

Wine broker George Kolarovich told the Insider,
"Yes, prices are down—certainly. Kolarovich said that even in Napa and Sonoma some sellers were having a problem selling last year’s wine. "Some of the varietals are sitting and not moving, especially Zinfandel."

Lawsuit Rocks Rabbit Ridge

Darryl Simmons, vice-president of Rabbit Ridge Wine Sales, filed a civil lawsuit (SCV-221385) in Sonoma County Superior Court on April 6 against Rabbit Ridge Wine Sales, and specifically, president Erich Russell, alleging that Russell acted in bad faith on behalf of the corporation. Simmons is requesting Russell’s removal as officer and director.

Simmons alleges that Russell used corporate funds for his "personal use, entered into contracts with third parties without authorization from the board of directors, and constructed buildings without consent or approval and without appropriate building permits."

Simmons also claims that Russell "used corporate employees, assets and funds" to purchase and develop property in San Luis Obispo County, and develop and promote wine labels, "in the name of Erich Russell, rather than in the name of the corporation."

Simmons and Russell are equal (50 percent) stockholders in the corporation. Simmons is seeking dissolution of the corporation on the grounds that further management by Russell will "diminish" the value of the stock.

Simmons is seeking restitution for attorney fees, lawsuit costs, and any other court awarded damages, and is asking that all income and assets diverted by Russell be held in a trust until resolution.

"To determine the accuracy of such claims," Simmons is demanding the corporate books and records be made available by Russell for inspection "to determine whether or not corporate assets and opportunities have been squandered."

Simmons asked the court to appoint a third director, saying he and Russell "are no longer able to cooperate in the management and the operation of" Rabbit Ridge.

Simmons retained William Anderson and Leslie Perry of Perry, Johnson, Murray, Anderson & Miller in Santa Rosa, Calif., as his attorneys.

Both Simmons and Russell were unavailable for comment at the Insider’s deadline.

Bordeaux Wine Board Calls Price Dips "Desirable"

The Bordeaux Wine Council this week confirmed that current wholesale wine prices have dipped from 5 percent to 25 percent below last year's peak but called it "desirable and to be expected" in light of last year's overheated market conditions, according to Reuters News Agency.

"Bordeaux is in the process of readjusting this year after an exceptional 1998. Consumers will benefit from this readjustment," Bordeaux Wine Council vice president Eric Dulong said at a Paris news conference.

After three years of increases, French wine prices have been falling since the start of 1999, pushed down by the Asian financial crisis, declining Japanese demand and growing competition from other countries. Reuters reported that Bordeaux officials acknowledged for the first time that French exports to Japan appear to have plunged during the first three months of 1999 after soaring over 100 percent in 1997.

What Glut?

In its recent Grape Trends Report, Motto, Kryla & Fisher of St. Helena, Calif., predicts that all of California’s top premium grape varieties, except Merlot, will be in shortage or in balance over the next five years.

"The big blip in the 1997 vintage stirred fears of a ‘Glut’ or oversupply of grapes, which did not materialize. In total, the last few vintages in California have been inadequate to meet the consumer demand for these wines. The trend is expected to continue for most premium wine grapes."

MKF projects that wine prices will continue to rise, in part as a result of last year’s shortfall in wine grape supplies—particularly in the higher price ranges.

"Ironically, the higher the price, the stronger the demand for wine today," MKF consultant Vic Motto said. "We see strong growth in all the upper price ranges, led by price points at $25, $50, and even $100 or more per bottle. The consumer just can’t get enough of these wines." MKF said the premium wine industry is in the midst of the strongest demand curve ever observed for California wine.

Canandaigua 4Q Earnings

Canandaigua Brands (Nasdaq: CBRNA) reported net income before extraordinary charges of $12 million for the three months ended Feb. 28, 1999 and $62 million for FY 1999, increases of 85 percent and 31 percent, respectively.

Richard Sands, president and CEO, said it had been an "outstanding year" for Canandaigua, noting, "We had one of the most successful new product launches in wine history with Arbor Mist, and we increased the company's size and scope dramatically with the acquisition of Matthew Clark plc in December 1998."

Frosted: "Not a Pretty Picture"

The extent of the damage has not yet been quantified, but last week’s cold nighttime temperatures have caused considerable damage to grapes, particularly in the Central Valley. Areas that were frost-protected, however, appear to have escaped unscathed.

"We are beginning to get a clearer idea of the extent of damage," Allied Grape Growers president Barry Bedwell said.

Thompson seedless grapes suffered the most damage. Bedwell reported that damage estimates ranged from 3 percent to 10 percent of the Thompson Seedless crop. "Put that in terms of tonnage and it is 75,000 to over 200,000 tons lost," he said. That compares to a typical crop of 2.5 million tons of the grapes, which are used for raisins, table grapes, and for wine.

French Colombard and Chenin Blanc suffered some damage as well, Bedwell said. "We thought the damage was pretty much limited to southern Merced County and south, but we are hearing reports of damage as far north as Sacramento County."

"Initial reports are pretty bleak," California Association of Wine Grape Growers president Karen Ross said. "This is not a pretty picture."

"That last system was a monster. It had everybody scared," one grower said.

Andy Beckstoffer of Beckstoffer Vineyards noted that this year has been colder for longer than it has been for a long time. "We had some ‘29s’ at the end of last week.
You really don’t know how much the damage is until about 10 days later.

"You can suspect that there will be some amount of frost damage," said Beckstoffer. "It might be a little or might be a lot. There’s no devastation here, but it could be significant."

Beckstoffer noted that on one recent night, there was no inversion layer, so wind machines designed to bring down warm air were blowing cold air.

In Lodi, the damage was difficult to measure as most affected vineyards were to the east and most vines had not yet begun to push.

Lodi-Woodbridge Wine Grape Commission executive director Mark Chandler said there were pockets where "we are looking at 25 percent to 50 percent loss." He said that some young vines have fared even worse, but he said he does not expect the impact on the total harvest to exceed 5 percent or 10 percent.

"If you are the guy with the 50 percent loss it hurts, but overall, this district is relatively unscathed, although early evaluations indicate an average size crop, so it could be another tight year," Chandler said.

The "Oak Woodland Conservation Act"

A "spot bill" was introduced in the California legislature in late February, but Assemblywoman Helen Thomson (D-Davis) this week introduced amendments to the proposed Oak Woodland Conservation Act that provide a picture of what the legislation will actually look like. The bill, AB 242, is an incentive package designed "to encourage voluntary, long-term private stewardship and conservation of California’s oak woodlands by offering landowners financial incentives." It aims to "protect and encourage farming and ranching operations that operate in a manner that protects and promotes healthy oak woodlands."

Funding would come from park bonds to purchase conservation easements, land improvement and planning grants, public education and outreach and technical assistance. The program also may include cost-share incentive payments available to private landowners who enter into long-term conservation agreements that provide for management practices which benefit oak woodlands and promote the economic sustainability of farming and ranching operations.

Not more than 10 percent of all grants made would be allowed to go to land improvement, policy planning and public education and outreach. Not less than 90 percent of the funds would be expended for the acquisition of interests in land.

The amendments came from the Assembly Rules Committee and will be heard in the Natural Resources Committee, the preliminary hurdle in a lengthy process.

The bill states that only counties that have adopted oak woodland plans will be eligible for funds. Most counties have already done that.

The "Landowners Equal Treatment Act"

The U.S. House Committee on Resources this week held hearings on the "Landowners Equal Treatment Act of 1999," H.R. 1142, which would amend the Endangered Species Act to require that compensation be paid to private landowners when the federal government mandates their private land be used for wildlife habitat.

"Landowners in my district are discouraged by the fact that a finding of an endangered species on their property results in severe regulations and immense costs," Rep. George Radanovich (R-Calif.) told committee members. "This has caused many property owners to remove brush and other vegetation from their land to prevent species from finding habitat; therefore the Endangered Species Act has become a disincentive to protect species."

"Most landowners will provide a home to wildlife when their rights are respected," Radanovich said.

Down to the Wire on the Sonoma Hillside Ordinance

The Sonoma County Board of Supervisors this week unanimously voted to accept the proposed hillside ordinance that was hammered out last fall in a compromise between growers and environmentalists, but a few key details must be ironed out prior to the final vote.

The supervisors voted 5-0 to accept the basic proposal but the county counsel will continue to accept written commentary until April 30, before coming back on May 11 to discuss the council’s incorporated changes, make a final review and take the final vote.

Up in the air are details such as how "average slope" will be determined for purposes of designating which of three "tiers" a vineyard falls within. Other unfinished business relates to details of penalties for non-compliance.

Another unresolved detail concerns exactly which streams are to be designated for riparian setbacks.

"On the whole they gave a clear direction," United Wine Growers for Sonoma County executive director Bob Anderson said. "There are still some things outstanding that are pretty basic and well understood—it’s about how you end up putting the words on the page and work out the details."

The ordinance prohibits vineyards in Sonoma County’s steepest hills and requires erosion control plans on moderate slopes. It also requires that vineyards near streams, creeks and rivers provide a setback to preserve riparian wildlife corridors. (See Insider, Sept. 25, 1998.)

Napa Farmers Hosting Earth Day Vineyard Tours

In a pro-active public relations move, a group of growers and vintners are hosting hillside vineyard tours in honor of Earth Day.

Farmers for Napa Valley this week announced that it would hold the walking tours of historic vineyard sites. The tours will be open to the public and are being publicized via public service announcements, calendar listings, news releases, and the like.

"This is a chance for people to see the biodiversity within a vineyard, from the use of permanent cover crops to homes for birds to other intriguing aspects of hillside farming," said Mark van Gorder of Jack Neal & Son.

Although Earth Day is April 22, the free tours will be conducted on April 24 at 10:00 a.m. and 2:00 p.m. The public is invited to phone in RSVPs to specific vineyards, including Jaeger Vineyards, Renteria Vineyards, Pahlmeyer Vineyards, Vine Cliff Winery, Smith-Madrone Vineyards, Beringer Vineyards, David Arthur Vineyards, Diamond Creek Vineyards, Schramsberg Vineyards and Sterling Vineyards.

Who’s Who & Where

• Nicholas Frey, an executive with an international seed company based in Iowa, is the new executive director for the Sonoma County Grape Growers Association, replacing Rick Theis, who resigned in November.
• Mark Aubert, long time winemaker for Peter Michael Winery, has joined Colgin Cellars as "winemaker in charge," replacing Helen Turley. He will also be the consulting winemaker for a new high-end red blend for Sloan Vineyards. He also plans to release some Sonoma Coast wines under his own label.
• Domaine Saint Gregory opened a new tasting room in Hopland, Calif., and appointed Diane Nielsen retail sales manager and director of public relations.
• Geerlings & Wade hired Mike Pelletier as director of E-commerce, responsible for the geerwade.com and topwine.com Websites. Also, he will develop affinity marketing with other Internet companies. The company separately announced that it has retained Far East Direct to develop a new Internet site to sell wine to Japanese consumers.
• The American Society for Enology and Viticulture selected Justin Meyer of Silver Oak Cellars as the organization’s 1999 Merit Award Recipient. The award is given annually to an individual who has contributed to the progress of enology or viticulture or to ASEV.