Grape, Nut and Tree Fruit Expo Malcolm Media’s Grape, Nut and Tree Fruit Expo State of Winegrape and Concentrate Industries Jeff Bitter Allied Grape Growers November 16, 2016

Presentation Outline Part 1: The Supply/Demand Foundation Production History & Trends Driving Supply/Demand Part 2: Segmenting the Wine Business Future Supply by Price & Variety Part 3: Application to the SJV Winegrower What Does the Future Hold? Part 4: Concentrate Industry Review

Supply/Demand Foundation

U.S. Economic Confidence Surges After Election

Wine Shipments U.S. Wine Market Volume Graph Source: The Gomberg Fredrikson Report - 2015 Annual Wine Industry Review

Wine Shipments

Wine Shipments

Wine Shipments

Building The Supply Foundation Light crop in a much stronger market Record state crops & huge coastal crops Three short crop sets stage for balance 2016 & Beyond: Huge premium opportunity; low end balancing occurring Strengthening economy, but relatively weak dollar Strengthening Dollar, Economic Optimism Recession

Over the Hump….. Our prediction for 2016 is 16,000 new acres. Almost Entirely Northern Interior

Our Production Potential……

Essentially, the change is happening “within” the wine industry, not “to” the wine industry.

Segmenting the Wine Business

Breaking it Down…. Value - (<$7/bottle) Interior (excluding Lodi/Delta) Mid - ($7-10/bottle) Lodi/Delta High - ($10-20/bottle) Coastal (standard) Luxury - (>$20/bottle) High-end Coastal (AVA Designations)

Comparing Production and Demand

Varietal Trends, by Segment….. California +6% +25% +62% -15% -8% +26% +75% +1% Note: Change stated cumulatively Annual attrition rates estimated

Varietal Trends, by Segment….. California +3% +15% +1% -6% +32% +39% +49% +2% Note: Change stated cumulatively Annual attrition rates estimated

Varietal Trends, by Segment…. +32% California +11% +23% -2% +6% +23% +2% +16% Note: Change stated cumulatively Annual attrition rates estimated

Varietal Trends, by Segment…. +8% California +2% +8% -4% 0% +1% +9% +4% Note: Change stated cumulatively Annual attrition rates estimated

Estimated categorical acreage growth 2015-2018 Too much of a good thing? Maybe not enough of a good thing?

So What Supply Isn’t Growing? A largely undiscussed category of varieties, primarily in the San Joaquin Valley: Generics Zinfandel (for White and Red) Merlot Syrah (as a varietal) From here on out: Florals

Source: Nielsen Scan Data U.S. Scan Data 52 Weeks Ending 10/08 Source: Nielsen Scan Data

Application to the SJV Winegrower

So what does all this mean? I just want to know if my grapes are worth anything next year….

The value of your winegrapes depends on a lot of factors: Do you have a minimum price contract? What variety do you have? What will next year’s supply (crop size) be? Is your vineyard productive/disease free? What’s the status of global competition? How strong will the US Dollar be? Will the new Administration create opportunity? Etc. Etc. Etc.

Where Opportunity Lays… Regional: Interior – Producing quality blenders with “reasonable” yields…..examples: Chenin Blanc, Florals, Petite Verdot, Petite Sirah, Tannat, Tempranillo. Lodi/Delta – Continue increasing quality (and exposure) with the existing varietal mix to target blending opportunities in the $10-20 market. Coastal – Increasing production and/or incorporating mechanization WITHOUT compromising quality. Varietal Opportunities: Sauvignon Blanc at all price points Pinot Grigio at higher than traditional price points Possibly Pinot Noir (>$10/bottle) if demand remains unfilled Non-traditional varieties that add layers to traditional wines

Concentrate Industry Review

Go Green or Make Raisins?

Raisin Varieties in Crush

Concentrate Market

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