Wine industry lenders are keeping an eye on the likely sizable 2018 North Coast wine grape crop and smoldering concerns about wildfire smoke in wine.
Some vintners have been turning down opportunities to buy fruit beyond the volume specified by contract, lenders and growers said. The haul last year from North Coast vineyards was 467,000 tons, 1 percent below the decade-long average and almost 8 percent under the five-year average. But the 2018 crop for key North Coast varieties such as Napa Valley cabernet sauvignon and Sonoma County pinot noir is shaping up to be sizable. The first official tally will come in early February.
“For most of our growers, all their contracted fruit was paid at the contracted price,” said Charles Day, North Coast manager for Rabobank’s wine business. “For uncontracted fruit, prices paid by wineries were all over the map. They ranged from the contract price to steep discounts that, in some cases, barely covered harvest costs. There probably will be a few deals with processors to crush on spec. Clients of ours who are negociants and rely on bulk wine will be pretty happy with this year.”
For the past few years, bulk-wine prices have been rising as the supply dwindled, squeezing margins for negociants. But with the potential for more fine wine becoming available on the bulk market, prices are likely to come down, helping these virtual vintners but also potentially calling for adjustments in the percentages that lenders advance to negociants based on bulk-wine value, Day said.
The North Coast had two massive waves of wildfires in the past 12 months, with October 2017 blazes coming at the tail end of harvest and Mendocino Complex Fires this past summer igniting wildlands of Lake and Mendocino counties.
There have been grower reports that thousands of tons of grapes in Lake County were rejected over vintner concerns about “smoke taint.” That’s the term for resulting wine deemed “off” because of smoky smell and taste characteristics.
“It was my experience in past year that the wineries that wanted to find way to work around their relationship found ways to do that, whether that means taking the fruit and both parties being on the hook,” said Rob McMillan, founder of Silicon Valley Bank’s Napa-based Premium Wine Division.
Such business bonds were especially important during and after the massive October 2017 wildfires in the North Bay, Day said. Though almost all the grapes had been harvested, some of the fruit still on the vine was among the region’s most valuable, particularly high-end cabernet sauvignon grapes in Napa County hillside vineyards.
“For those wineries, it was very important for their programs, so in most cases we saw they made an effort to bring all that fruit in and honored the contracts,” Day said. “They crossed their fingers that smoke taint wasn’t going to become an issue later on. The long-term maintenance of (those relationships) was most important to them.”
While any extra costs for testing the received wine and treating suspect portions of it for smoke taint isn’t specifically spelled out in borrower agreements, a common vintner tactic has been to hold back a certain amount of the grape-purchase price until the full cost of such measures is known, Day said.
“As long as those payments are still outstanding, we (as lenders) typically will adjust for that,” he said.