Friday, February 29, 2008

Sourcing Grapes for 2008

Today Provina president Greg Snell and I went to visit vineyards in Napa and Sonoma, looking for 2008 Cabernet Sauvignon for WinePod clients. It is shaping up to be an interesting year for grape contracts. Prices are up – way up. Where fruit went unsold the last couple of years, I have heard that 80% of the vineyards in Napa are already contracted for the year, before budbreak.

I am not clear why this is happening. The supply has not changed – at least I have not noticed North Coast vineyards being pulled or replanted any more than usual, and have no reason to believe that we are headed for a massive frost or other crop failure. So if supply is unchanged, rising prices must be due to rising costs of production and/or rising demand.

Certainly costs of production are up – way up. Labor costs are up. Workmans' comp costs have risen dramatically for the last 5 years. While I'm confident that the vast majority of North Coast vineyard managers employ only properly documented labor, the crackdown on undocumented immigrants has created fears of labor shortages and increased costs. Fuel costs are certainly up, as is the cost of capital. And since much vineyard capital equipment is imported, the weak dollar is also having an effect. But these costs have been going up for years, while grape prices have been steady, or even falling.

Which suggests that the main driver of the contract price jump is increased demand in 2008 – hard to believe in the current economic climate, but remember that grapes purchased this year won't impact the wine supply for 3-5 years. Apparently the smart guys out there are betting that we are now at or near the bottom of the business cycle.

Whatever the causes, 2008 grapes for the WinePod will cost more than the 2007 fruit, period – just as they will for commercial producers. I'm happy to say that the vineyards we contacted yesterday appear to be able to supply fruit of a high quality, worthy of the cost. We are still looking, but IMO we are going to have to make offers and have them accepted in the next couple of weeks.

And if this is what we are up against for Cabernet, I just can't wait to see what we will face when we look for Pinot Noir.

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