Growing Grapes in Kentucky Production, Market, and Expected Return December 2008 copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Table of Contents Overview Market Opportunities Production Characteristics Cost and Return Analysis Risk Analysis Summary Appendices References copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Overview Commercial winegrowing was started in Kentucky as early as in 1799 Due to the prohibition in 1930s, the winemakers out of business and back in 1980s Wine grape acreage quadrupled from 1998 to 2002 Vinifera types have the potential to make the best quality wine Grapes require about 200 frost-free growing days and can be grown in most area in KY copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Market Opportunities Market in KY is limited, concentrated at the farmers market and fine dining levels Varieties of grapes can be consumed fresh or used to make grape juice, Jams, Jellies, and wine Wine grapes offer the opportunity to market larger volumes Several wineries operating in KY are interested in purchasing certain KY grown grapes copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Market Opportunities Export Market (for large producers) Marketing Grapes in Kentucky (Marketing Profiles) - Kentucky Market maker - Kentucky Restaurant Rewards Program - Marketing Fresh Produce at Farmers Markets - Marketing at Produce Auctions - Marketing Fresh Produce to Restaurants - Community Supported Agriculture (CSA) - Pick-Your-Own (U-Pick) Marketing - Grower Cooperatives (Co-ops) - Marketing Via the Internet copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Health and Nutrition copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Site Selection and Planting Grapes reach full bearing potential in four years and bear annually Sites should have full sun exposure, good air circulation, and well-drained soil Rolling hillsides with stabilized soil are fine, best sites are above the level of adjoining land, so that cold air drains away from the planting The site need to have adequate water for irrigation copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Also need to consider potential biological problems, such as perennial weeds, disease organisms, insects, and birds Once find the suitable site, need to send soil sample for the analysis of pH, Ca, Mg, B, P, K, etc Gapes perform best where soil pH is between 5.0 and 6.0 – at planting, adjust the soil pH to 6.5 Need to take a soil test and follow test recommendations prior to planting copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics After adjusting the soil prior to planting, additional fertilizer is not needed at the first year During subsequent years, apply fertilizer in late winter or early spring There are many grape varieties (cultivars) and each category of grapes has its own characteristics and each cultivar within the categories has advantages and disadvantages copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Vines are normally planted in the spring, but can be planted in late fall Grape vines require a trellis for vine support which should be in place by the start of the second growing season A trellis for vine support should be designed and constructed to be strong and long-lived and require low maintenance – should last more than 20 years copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Maintenance Vineyards require canopy management, in addition to pruning and training, to ensure high-quality fruit is delivered to market Canopy management includes: shoot thinning, shoot positioning, cluster thinning, shoot hedging and leaf-pulling Thinning strengthens the vine and improves grape quality by increasing the ratio to fruit copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Most growers use herbicides and / or mechanical cultivation for weed control Netting and noisemakers are the two most common methods of bird control used Common grape diseases include anthracnose, black rot, Phomopsis cane and leaf spot, powdery mildew, downy mildew, gray mold and crown gall Fungicide applications, along with good cultural practices, are critical for the management of these diseases copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Pest management Insect pests such as the grape berry moth, flea beetles, phylloxera, leafhoppers, Japanese beetles, green June beetles and grape cane gall makers can all attach grapes Regular scouting is necessary to monitor insect populations. Grapes usually require 12 to 15 pesticide sprays per season copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Harvest and storage Harvesting is the busiest and most labor intensive part of grape production Grapes are typically harvested in the Fall, from September through October, but some grapes are picked in beginning of December Optimum harvest time depends on the cultivar, growing season, and intended use of the fruit copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics For the fresh market harvest grapes should maximize the color and flavor Many factors affect the quality of wine grapes and mainly based on percentage of sugar Harvest wine grapes after the due has dried off, and keep them out of bright sunlight until pressed or refrigerated Grapes are best stored near 31°F and at 85% relative humidity copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Picking and Pressing Grape harvesting is an age-old tradition that still occurs to this day Grapes are picked by hand and processed using methods that were devised centuries ago Once the grapes are picked and collected by pickers, then send to a pressing area for process copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Characteristics Labor requirements Labor needs per acre during the first and second years include planting (30 hours), training (30 hours) and maintenance (24 hours) A fruiting vineyard will require vine and trellis maintenance (80 hours) along with spraying and mowing operations (48 hours) Harvest will require approximately 48 hours per acre copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Opportunities Wine grapes are feasible in Kentucky when the market prices approach $1,000/ton Sound management that maximizes wine grape yields and minimizes input cost, as well as marketing that captures top grape prices, are necessary making wholesale grape production economically viable in KY Use Vinifera (European Hybrids) for the Cost estimation copyright eStudy.us 2008 michael.roberson@eStudy.us
Product Cost and Return Estimates Planting cost Production cost - Fertilization, pesticides, cultivation, etc - Equipment costs (irrigation and machinery) - Harvest lugs Labor cost - Assigned at a wage rate of $8.00/h for untrained labor, $10.00/h for others Fixed costs copyright eStudy.us 2008 michael.roberson@eStudy.us
Production Cost Overview copyright eStudy.us 2008 michael.roberson@eStudy.us
Gross Revenue, Costs, and Return Price: $1,400 / ton copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Risk Assessment Market Risk: Price is variable ($800 to $1,600 – Vinifera) Production Risk: Financial Risk: Grapes reach full yield after four years of growth, especially no out put first two years. Must have capital sources before the full yield Net Present Value of 10-year cumulative return estimated with 7% discount rate copyright eStudy.us 2008 michael.roberson@eStudy.us
Risk Assessment – Payoff Table Price & Yield Return Chart for Total Return copyright eStudy.us 2008 michael.roberson@eStudy.us
Risk Assessment – Payoff Table Chart for Net Present Value (10 years) copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Basic Summary Market Opportunity - Wine Industry - Regional Groceries Advantage of Kentucky for Grape Growing - KY has long history of growing grape - Several wineries in KY are interested in local grown grapes - The weather in KY is suitable for growing the most grape cultivars copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Appendices Data Source - Year 2005 University of Kentucky copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us Appendix – Price Paid Per Ton (By variety, 86 wineries surveyed in IL, IN, KY, OH, MO, TN, VA) copyright eStudy.us 2008 michael.roberson@eStudy.us
Appendix – Production Detail copyright eStudy.us 2008 michael.roberson@eStudy.us
Appendix – Production Detail copyright eStudy.us 2008 michael.roberson@eStudy.us
Appendix – Production Detail copyright eStudy.us 2008 michael.roberson@eStudy.us
Appendix – Production Detail copyright eStudy.us 2008 michael.roberson@eStudy.us
Appendix – Production Detail copyright eStudy.us 2008 michael.roberson@eStudy.us
Appendix – Production Detail copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us References Health and Nutrition http://www.thefruitpages.com/chartgrapes.shtml Market Opportunities http://www.alliedgrapegrowers.org/info.html http://www.kyagr.com/marketing/ Production Characteristics http://www.ca.uky.edu/agc/pubs/id/id126/id126.htm copyright eStudy.us 2008 michael.roberson@eStudy.us
copyright eStudy.us 2008 michael.roberson@eStudy.us References Risk Assessment http://www.uky.edu/Ag/NewCrops/grapesvinifera05.pdf http://www.uky.edu/Ag/NewCrops/grapesbudget05.pdf Disease Management http://www.ca.uky.edu/agc/pubs/id/id126/id126.htm copyright eStudy.us 2008 michael.roberson@eStudy.us