SESSION SPONSORED BY:

MARKET CONDITIONS FOR THE NORTH COAST WINEGRAPE INDUSTRY:

What Wineries and Growers Can Expect in 2016

MARKET CONDITIONS FOR THE NORTH COAST WINEGRAPE INDUSTRY: What Wineries and Growers Can Expect in 2016Time: 1:00pm – 2:15pmModerator: Glenn Proctor – Partner, Ciatti Company

Speakers:Bill Pauli – President, Pauli Ranch and Yokayo Wine CompanyCameron Lyeth – Sales Manager, Beckstoffer VineyardsScott Warren – Director of Grower Relations, Constellation Brands

2015 HARVESTHow has it changed the market?

Glenn ProctorPartner, Ciatti Company

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21 DEDICATED BROKERS IN 8 COUNTRIES

GLOBALLY BASED TO BUILD YOUR BUSINESS WORLDWIDE

SUPPLY DYNAMICS

Grower

Winery

GrapesFor SaleCheap!Help!

Three Years of Healthy Crops had filled our tanks

Wine/Grape Market – Before 2015 Harvest

Buyers

Sellers

Long to Balanced

Buying

Selling

Supply/Demand Dynamics – Before

2015 Harvest

Buyers

Questions:Bulk MarketSales GrowthCrop Size?

Buyers

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

50

100

150

200

250

300

166

231216

199

169

213

192

167

267271

256

195

In T

ho

us

an

ds

Sonoma Grape Crush: 2004-2014 …2015?

?????

Buyers

Sellers

Balanced or Short?

Buying Selling

Supply/Demand Dynamics

Questions:Older Vintage BulkSales GrowthFuture Crop Size?

Sellers

Psychological Adjustment

GRAPE MARKET

North Coast Supply Situation

Short Slightly Short Balanced Slightly Long Long

Early Season vs Mid Season vs Late Season

North Coast Grape Demand/Activity

UP STABLE DOWN

Chardonnay

Sauvignon Blanc

Cabernet Sauvignon

Pinot Noir

Merlot

Zinfandel

Early Season vs Mid Season vs Late Season

BULK MARKET

Bulk Market

• Overall long market with historically slow activity / high volume

• Overall balanced market - Removal of bulk inventory because of changing supply - 10 million gallons

Before Harvest:

After Harvest:

Cab Sauv

Chard

Merlot

Pinot Noir

Zin0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2014 Vintage May Total Gallons (All Vintages)January Total Gallons (All Vintages)

November Total Gallons (All Vintages)

California Bulk Wine InventorCalifornia Bulk Wine Inventory 2015

Jan. 2013 Jan. 2014 Jan. 2015 Nov. 20150

100000

200000

300000

400000

500000

Cabernet Sauvignon ChardonnayPinot Noir Zinfandel

Bul

k G

allo

ns A

vaila

ble

Sonoma County Bulk Wine Inventory 2013-2015

2014+2015 Vintage

Jan. 2013 Jan. 2014 Jan. 2015 Nov. 20150

50000

100000

150000

200000

250000

300000

350000

400000

Cabernet Sauvignon Chardonnay Merlot Pinot Noir

Bul

k G

allo

ns A

vaila

ble

Napa County Bulk Wine Inventory 2013-2015

2014-2015 Vintage

THOUGHTS FOR 2016

Thoughts – The Market Has Changed!

• Market Has Changed – Buyers back to being buyers again – for now

• Shorter supply could push producers to take bottle price increases or change sourcing plan

• Sellers selling too cheap; Buyers paying to much – The Dance Continues

• Older Vintage bulk wine will continue to challenge some producers

• Global dynamics of wine business with a strengthening dollar

• What is a normal crop? That answer has a big effect on the future supply/demand?

Ciatti Reports / Publications• World Report• California Market Report• Bulk Value Report• www.ciatti.com

THANK YOU FOR YOUR TIME AND ATTENTION

Glenn Proctor glenn@ciatti.com 415.458.5150

New Vineyard Acres Coming Into Production

Bill PauliPresident, Pauli Ranch and

Yokayo Wine Company

• Constructed in 2008 to handle 11,000 tons per season

• 3 Million Gallon Custom Crush and Bulk Wine Facility

• Fully insulated/temperature controlled and State of the Art

Yokayo Wine Company

• Fourth Generation family farm

• Wine grapes and Pears in Potter Valley, Ukiah, and Redwood Valley

• 1200 acres of Vineyard, with 12 different varieties

• Three largest varieties are Pinot Noir, Chardonnay and Cabernet Sauvignon

Pauli Ranch

Bill Pauli- BS Ag Econ/Business, University of Nevada Janet Pauli- PHD Zoology, University of Hawaii and University of WashingtonHal Pauli- BS Mechanical Engineering, U.C. DavisFrost Pauli- BS Ag Business/Viticulture, C.S.U. Cal PolyWill Pauli- BS History, C.S.U. Chico Dawn Pauli Forman- BA Communications/Marketing, St. Mary’s CollegeJake Pauli- AA Enology/Viticulture, Napa College

Pauli Family

• The Foundation for Understanding the 2016 Outlook 2012, 2013, 2014 Vintages- Above

Average Crops A Period of Prosperity for Growers and

Wineries

• Reflecting on the 2015 Winegrape Growing Season

• 2015 by the “Numbers”- Setting the Stage for the 2016 Outlook

• 2016 Market Conditions and What We May Expect

Market Conditions for North Coast Winegrape Industry

Market Conditions for North Coast Winegrape Industry

2012, 2013, 2014 Estimated Reduction in 2015 Crop County/Variety Average Crop (Tons)* % Tons #Cases**Mendocino

Chardonnay 24,600 30 7,400 443,000Sauvignon Blanc 3,600 5 182 9,600Cab Sauvignon 9,000 10 900 54,000Merlot 6,800 0Pinot Noir 8,300 35 2,900 175,000Zinfandel 6,800 25 1,700 102,000

SonomaChardonnay 85,600 25 21,400 1,280,000Sauvignon Blanc 18,000 15 2,700 162,000Cab Sauvignon 45,700 20 9,100 549,000Merlot 19,000 10 1,900 115,000Pinot Noir 52,000 35 18,000 1,087,000Zinfandel 19,000 25 4,700 285,000

The End.

Current and Future Marketplace Positioning Cameron Lyeth

Sales Manager, Beckstoffer Vineyards

History• Est. 1970• Beckstoffer Vineyards – Napa• Beckstoffer Vineyards – Mendocino• Beckstoffer Vineyards – Red Hills• 3,600 acres of grape growing properties• Innovation and Sustainability

My position at Beckstoffer Vineyards• Grape Sales/Grower Relations• Manage Bulk Wine Production• All Bulk Wine Sale

Beckstoffer Vineyards

• Vineyard from St. Helena to Carneros Carneros

o Las Amigas, Carneros Lake and Carneros Creek

Oakvilleo Missouri Hopper and To Kalon

Rutherfordo Georges III, Melrose

St. Helenao Dr. Crane, Las Pierdras and Bourn

• Cabernet Sauvignon, Merlot, Chardonnay, Malbec, Petit Verdot and Sauvignon Blanc

Napa

• Missouri Hopper• Georges III• Las Piedras• Bourn• Dr. Crane• To Kalon

Vineyards having Historically Producing the highest quality grapes for fine wines

Over 50 fine wines are designated as originating from one of these Heritage Vineyards

Beckstoffer Vineyards – Napa Heritage Vineyards

• Vineyard from Hopland to Ukiah Hopland Talmage Ukiah

• Chardonnay, Merlot, Cabernet Sauvignon

Beckstoffer Vineyards – Mendocino

• Red Hills of Lake County AVA Amber Knolls Vineyard Red Hills Vineyard Crimson Ridge Vineyard

• Cabernet Sauvignon, Malbec, Sauvignon Blanc

Beckstoffer Vineyards – Red Hills

Amber Knolls, Crimson Ridge & Red Hills Vineyards – Cabernet Sauvignon

North Coast High Elevation

Volcanic Soils

• Napa Grape Prices Chardonnay

Wine Merlot Wine Cab Sauv Wine

 

Bulk vs. Grapes

Historic Grape Prices - District (4) Napa

2014 2013 2012 2011 2010 2009$5

$10

$15

$20

$25

Napa Carneros Chardonnay Bulk Wine - Average Beckstof-fer Vineyards per Gallon Price

Average price per Gallon

2014 2013 2012 2011 2010 2009$5

$7

$9

$11

$13

$15

$17

$19

$21

$23

$25

Napa Merlot Bulk Wine - Average Beckstoffer Vineyards per Gallon Price

Average price per Gallon

2015 2014 2013 2012 2011 2010 2009$15

$20

$25

$30

$35

$40

$45

Napa Cab Sauv Bulk Wine - Average Beckstoffer Vineyards per Gallon Price

Average price per Gallon

• Napa Grape Prices Chardonnay Wine Merlot Wine Cab Sauv Wine

• Mendocino Grape Prices Chardonnay Wine

 

Grapes vs. Bulk

District 1 (Mendocino) - Average Historical Grape Prices

2015 2014 2013 2012 2010 2009$0

$5

$10

$15

$20

Mendocino Chardonnay - Average Beckstoffer Vineyards per Gallon Price

Average price per Gallon

• Napa Grape Prices Chardonnay Wine Merlot Wine Cab Sauv Wine

• Mendocino Grape Prices Chardonnay Wine

• Red Hills Grape Prices Cab Sauv Wine

Grapes vs. Bulk

District 2 (Lake) – District Average Historical Cab Sauv Grape Prices

2015 2014 2013 2012 2011 2010 2009$5

$10

$15

$20

$25

Red Hills Cab Sauv Bulk Wine - Average Beckstoffer Vineyards per Gallon Price

Average price per Gallon

• Weather (Heat, Drought)• Fires• Light Crop • Ups and Downs of the Market • Regulations

Looking Forward• Market (new opportunities) • 2016 Harvest (expectations)• Varieties (trends)• Clients Needs (growing for quality)• Competition

2015 Harvest

Current and Future Marketplace Positioning Scott Warren

Director, Grower RelationsConstellation Brands

Our Mission: To Build Brands that People Love

WIN Expo| December 3rd, 2015 Scott Warren| Director, NOC Grower Relations

Our Mission: To Build Brands that People Love

Topics

• Constellation Brands in the NOC• Overview of 2015 Napa and Sonoma markets• Outline of the challenges ahead in 2016

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Our Mission: To Build Brands that People Love

Constellation Brands in the North Coast

• What North Coast Grower Relations does:• I work with a team of four grape buyers to make sure

we contract the right quality grapes for our wines• We build relationships with our growers – we have

many growers that have contracted with us for more than twenty years – and we understand their business

• We strive to include our growers in the winemaking process (after harvest) through grower tastings, feedback and sharing of best practices

• We work as the liaison between the grower and the winery

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Our Mission: To Build Brands that People Love

Constellation Brands in the North Coast

• In Napa Valley

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Our Mission: To Build Brands that People Love

Constellation Brands in the North Coast

• In Sonoma County

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Our Mission: To Build Brands that People Love

Constellation Brands in the North Coast

• Brands using North Coast grapes:

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Our Mission: To Build Brands that People Love

Constellation Brands in the North Coast

• We farm over 2,500 acres of grapes in Sonoma and Napa

• 100% certified sustainable (CSWA, Fish Friendly Farming, Napa Green, third party certified)

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Our Mission: To Build Brands that People Love

2015 Market Overview Napa

• Year started out strong for Cabernet Sauvignon and Zinfandel (not a lot of expiring contracts)

• First quarter quiet for Chardonnay, Sauvignon Blanc, Pinot Noir and Merlot

• Bloom was early and extended, cluster counts looked good• Market started to heat up as season progressed and

cluster weights/crop size diminished• Wineries realized crop was light and made sure almost all

available tons were bought up before harvest

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Our Mission: To Build Brands that People Love

2015 Market Overview Sonoma (looks a lot like Napa)

• Year started out strong for Cabernet Sauvignon with very few tons coming out of contract

• First quarter quiet for Chardonnay, Sauvignon Blanc, Zinfandel and Merlot

• Bloom was early and extended, cluster counts looked good• Market started to heat up as season progressed and

cluster weights/crop size diminished• Pinot Noir had a few active buyers, especially when it

looked like the crop could be off by 25% or more • Wineries realized crop was light and made sure almost all

available tons were bought up before harvest

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Our Mission: To Build Brands that People Love

Questions going into 2016…Viticulture

• Will we have another drought year? What will that mean for crop size,

water use, and disease pressure?

• Will we continue to see a significant increase in damage from Eutypa and

Pierce’s?

• Will red blotch show up in any of our new plantings or existing vineyards?

• Are there areas of improvement learned from last year? New

sprays/sprayers, new equipment, cover crops, trellis systems, etc.?

• Do we have vineyards that had poor quality or declining quality in 2015?

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Our Mission: To Build Brands that People Love

Questions going into 2016… Viticulture

• What contracted or expired vineyards need to be replanted?

• What quality/yield ratios are we looking for?

• Are there any unique varieties out there we should try?

• Are there planting opportunities? Where? For what?

• Are there water issues to deal with? Recycled water, district

limits?

• How do we continue to work with our growers on

sustainability?

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Our Mission: To Build Brands that People Love

Questions going into 2016… Buying grapes.

• What do we need for HY16?

• What expired contracts need to be renewed?

• How many grapes are coming out of contract? For us? From

other wineries?

• How many new grapes are coming into production?

• How much 2015 went into bulk?

• How much bulk from 2014 prior is still out there? At what

price?

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Our Mission: To Build Brands that People Love

Questions going into 2016… Buying grapes.

• What do our growers think about the market this year?

• What does the local and statewide market look like?

• What does Glenn think?

• How are wine sales? What are the trends for wine pricing?

Which categories are doing the best?

• Buy early or buy later?

• What additional grapes do our growers have this year?

• So, what is the right price?

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Our Mission: To Build Brands that People Love

To conclude…

• Whatever works for both parties! Thank you.

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Questions?

Thank You to Our Session

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