1. Allied Grape Growers, 2015. All rights reserved. Mendocino Winegrowers 2015 Economic Summit Mendocino Grape Market: Understanding Trends and Utilizing Concepts & Strategies to Mitigate Risk Jeff Bitter Allied Grape Growers May 26, 2015

2. Allied Grape Growers, 2015. All rights reserved. What creates market risk? OVERSUPPLY -Either from a supply/demand imbalance caused by a multi-year, longer term issue Or from a large crop or series of large crops (generally a shorter term issue)

3. Allied Grape Growers, 2015. All rights reserved. Setting the Stage Acreage & Grape Supply

4. Allied Grape Growers, 2015. All rights reserved. Setting the Stage Acreage & Grape Supply

5. Allied Grape Growers, 2015. All rights reserved. Setting the Stage Acreage & Grape Supply * *2015 non-bearing acreage includes an assumption that approximately 20,000 acres will be planted this year.

6. Allied Grape Growers, 2015. All rights reserved. Setting the Stage Essentially, the California Coast Range is the geographic line that represents the +/- $10/bottle pivot point in the market. <$10 >$10 = <$10 = $10-20 = >$20 Segmenting the Business

7. Allied Grape Growers, 2015. All rights reserved. Setting the Stage

8. Allied Grape Growers, 2015. All rights reserved. But let’s not be afraid of our own shadow….

9. Allied Grape Growers, 2015. All rights reserved. Earlier we said “OVERSUPPLY” created market risk. Follow up question: As growers, what is one major factor that is out of our control that can create an oversupply situation? SUDDEN CHANGE IN DEMAND

10. Allied Grape Growers, 2015. All rights reserved. Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review 30.8 66.6 69.7 45.9 California Wine Shipment Volume Shown in millions of cases shipped, 1980-2014 Sudden Change in Demand For five years, the mid and upper segments have surged.

11. Allied Grape Growers, 2015. All rights reserved. California Wine Shipment Volume

12. Allied Grape Growers, 2015. All rights reserved. So why the lull in the grape market today?

13. Allied Grape Growers, 2015. All rights reserved. Supply Potential - All Wine

14. Allied Grape Growers, 2015. All rights reserved. How Does Mendocino Rank? -Understanding Your Market Position-

15. Allied Grape Growers, 2015. All rights reserved. Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review 30.8 66.6 69.7 45.9 California Wine Shipment Volume Shown in millions of cases shipped, 1980-2014

16. Allied Grape Growers, 2015. All rights reserved. Risk Management: Diversify Your Grape Marketing Efforts Different Varieties Planting contracts dictate, but consider your current mix If you plant on speculation, change it up a bit Different Buyers Local, as well as out of area Small, as well as big (Seven largest wineries = 82% of the volume) Different Terms Stagger your contract end dates (or ask for evergreens) Different Form Make bulk wine with a portion of your crop Proves your quality Extends marketability by months, if not years Perishability becomes a “soft” concern Exposes your product to buyers that don’t buy grapes Programs do exist with virtually no additional cost to growers

17. Allied Grape Growers, 2015. All rights reserved. Risk Management: Using the Bulk Wine Market Recent bulk wine examples: Mendo Blendo (Carignane, Zin, Petite) Offer…… +/-$1,200 per ton Mendo/Lake Syrah Offer…… +/-$1,000 per ton Lake County Petite Sirah $1,800 per ton offer +/-$2,400 per ton

18. Allied Grape Growers, 2015. All rights reserved. Mendocino Winegrowers 2015 Economic Summit Mendocino Grape Market Update Chad Clark Allied Grape Growers May 26, 2015

19. Allied Grape Growers, 2015. All rights reserved. Topics to Cover What varietals and locations have seen early activity? What are the current market dynamics? What are some negotiating strategies to remain financially successful?

20. Allied Grape Growers, 2015. All rights reserved. Early activity - varietals and locations Bordeaux varietals, PN, PS, CH, PG Alternative Varietals Special “site locations” or “branded vineyards”

21. Allied Grape Growers, 2015. All rights reserved. Current Market Dynamics Transition from seasoned staff to younger winemakers Small tonnage buyers Where have the large tonnage buyers gone?

22. Allied Grape Growers, 2015. All rights reserved. Negotiation Strategies to Maximize Profits Winery goals versus grower goals Price/ton & tons/acre versus return/acre & lbs./vine

23. Allied Grape Growers, 2015. All rights reserved. Mendocino Winegrowers 2015 Economic Summit Thank you!