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 2016 Time: 1:00pm – 2:15pm Moderator: Glenn Proctor – Partner, Ciatti Company Speakers: Bill Pauli – President, Pauli Ranch and Yokayo Wine Company Cameron Lyeth – Sales Manager, Beckstoffer Vineyards Scott Warren – Director of Grower Relations, Constellation Brands

2015 HARVEST How has it changed the market? Glenn Proctor Partner, Ciatti Company

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SUPPLY DYNAMICS

Grower Winery Grapes For Sale Cheap! 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 Market Sales Growth Crop Size? Buyers

Sonoma Grape Crush: …2015? ?????

Buyers Sellers Balanced or Short? Buying Selling Supply/Demand Dynamics Questions: Older Vintage Bulk Sales Growth Future Crop Size? Sellers

Psychological Adjustment

GRAPE MARKET

North Coast Supply Situation Short Slightly Short Balanced Slightly Long Long

North Coast Grape Demand/Activity UP STABLE DOWN Chardonnay Sauvignon Blanc Cabernet Sauvignon Pinot Noir Merlot Zinfandel

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:

California Bulk Wine Inventor California Bulk Wine Inventory 2015

Sonoma County Bulk Wine Inventory Vintage

Napa County Bulk Wine Inventory 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 THANK YOU FOR YOUR TIME AND ATTENTION Glenn Proctor

New Vineyard Acres Coming Into Production Bill Pauli President, 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 Washington Hal Pauli- BS Mechanical Engineering, U.C. Davis Frost Pauli- BS Ag Business/Viticulture, C.S.U. Cal Poly Will Pauli- BS History, C.S.U. Chico Dawn Pauli Forman- BA Communications/Marketing, St. Mary’s College Jake 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

The End.

Current and Future Marketplace Positioning Cameron Lyeth Sales Manager, Beckstoffer Vineyards

History Est 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  Oakville o Missouri Hopper and To Kalon  Rutherford o Georges III, Melrose  St. Helena o 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 CoastHigh Elevation Volcanic Soils

Napa  Grape Prices  Chardonnay Wine  Merlot Wine  Cab Sauv Wine Bulk vs. Grapes

Historic Grape Prices - District (4) Napa

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

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

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 Relations Constellation 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 |

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 55 |

Our Mission: To Build Brands that People Love Constellation Brands in the North Coast In Napa Valley 56 |

Our Mission: To Build Brands that People Love Constellation Brands in the North Coast In Sonoma County 57 |

Our Mission: To Build Brands that People Love Constellation Brands in the North Coast Brands using North Coast grapes: 58 |

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) 59 |

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 60 |

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 61 |

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? 62 |

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? 63 |

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? 64 |

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? 65 |

Our Mission: To Build Brands that People Love To conclude… Whatever works for both parties! Thank you. 66 |

Questions?

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