How big the 2018 North Coast wine grape harvest now won’t be known for a couple more months, but it’s become increasingly clear that banking the emerging wine business cycle will take different or revived tactics after years of steady consumer sales growth.
The first official tally of last year’s wine grape harvest in California is now set for release April 10, according to the federal National Agricultural Statistics Service, which produces the annual grape crush report together with state ag regulators. The federal government shutdown nixed the preliminary report usually released in early February.
North Coast growers and vintners since late summer were talking about grape tonnage coming in around 15 percent above projections earlier in the season. While more grapes are welcomed by some vintners that have been looking to make more for fast-selling brands, the extra tonnage wasn’t in such hot demand this year as they had during smaller harvests like 2011.
The 2017 North Coast crop, not including Solano County, was nearly 465,000 tons, down 7.8 percent from 2016 and about 1 percent from the 10-year trend, according to U.S. Department of Agriculture tallies. Sonoma and Napa counties had below-average harvests last year of almost 205,000 tons and 141,600 tons, respectively.
Too much Napa Valley cabernet sauvignon or Russian River Valley pinot noir and any decline in pricing for the wine could hit vintners that are too aggressively leveraged, according to Charles Day, who leads Rabobank’s North Coast wine business.
“We like to look at a deal where they are not investing in what is already at peak value,” he said.
A practical impact of a big harvest for lenders is some vintner customers will seek more working capital to handle additional inventory, according to Rob McMillan, founder of Silicon Valley Bank’s Napa-based premium wine division.
“Banks don’t like to do inventory financing, but when you do this full time, you figure it out,” he said. “As long as you’re selling the wine, the banker can analyze the risk by understanding the client’s sales strategy.”
For brokers of excess grapes and wine, this change in availability and pricing for both has been expected with larger crops and slowing growth in sales of finished wine.
“Nothing is different from the dynamics we have seen in the past,” said Steve Fredericks, president of Novato-based Turrentine Brokerage and a bulk-wine market expert. “We’re better off than after the global financial downturn, because people want wine. And at that time, nobody wanted it.”’
Fredericks said his team isn’t hearing from vintners or lenders about the value of wine in tanks falling enough to become a worry to either.
“Usually, we do hear about it,” he said. One service the brokerage provides is valuation of wine inventory. “We’re benefiting from the lenders and vintners’ having learned from the past.”
Overzealous borrowing and speculative financing approaches before the banking crisis surrounding the Great Recession of 2007-2008 largely has given way to more cautious practices than in past business cycles, Fredericks noted.
The company years ago developed a “wine business wheel of fortune” to visually describe what happens to vintner grape and wine buying behavior as the market swings between shortage and excess. It charts the typical transition toward excess as involving a slowdown in consumer sales amid a rise in wine supply and marketing costs on top of planted acreage coming into commercial maturity.