San Joaquin Valley Wine & Grape Industry Forum

November 29, 2012Fresno, CA

Ben Slaughter, ARACorreia-Xavier, Inc.

In the Wake of the Great Recession

• Who were the winners?• Who were the losers?• Who may catch the next wave?• Who may get left behind?

The New Normal?

• Cheap US Dollar– Exports attractive– Imports expensive

• Ag is Cool!!!!– Everybody’s doing it

• Investors• Farmers• Wineries

Vineyard Real Estate

• Data:– Correia-Xavier, Inc. database– 900+ transactions from 1992-2012– Raw numbers, only buildings are

extracted• There are outliers

– All numbers on a “per acre” basis

Sale Data

• Sort by Region/Price– Napa, District 4– Sonoma, District 3– “Coast” or Secondary Coastal

• Districts 7 & 8, Central Coast• Districts 1 & 2, Mendocino and Lake• District 10, Sierra Foothills

– Valley, Districts 11-14 & 17

Napa

Sonoma

Coast

Valley

$350,000$10,000

Per acre? Really?Why

?

Why?

• Because Grapes prices drive vineyard prices.– Duh!!!!!!!

$3,400$375

That explains it, I think...

Grape Prices

• So, if grape prices are so important why do we just look at the average?

• Doesn’t everyone just get an “average” price?– Well, no Ben, you see the average is

simply a mathematical representation of the typical situation.

– Oh, okay, thanks for clearing that up.

Grape Prices

• Percentiles– Break pricing into brackets– Uses tonnage to establish brackets– For Example, if “10th Percentile” = $100

• 10% of the tons sold for $100 or less

• All data from Grape Crush Report– Table 8

• Look for signals– Is high end behaving differently than

low?

90th

50th

10th

Napa• Overall average up (4.7%)

– Price points below $4,000 up– Price points above $4,000 down

• For the First time since 1995:– The spread between high and low went

down• 2012 Season

– Grape demand solid with early buyers– Great yields– Wineries didn’t take overages (anecdotal)

Sonoma• Overall average up (3.5%)

– Distribution mixed– Mostly just flat

• 2012 Season– Grape demand good– Great Yields– Wineries didn’t take overages

(anecdotal)– Big price change would be a surprise

Secondary Coastal• Overall average up (>10%)

– Strength at all price points• 2012 Season

– Grape demand good– Solid (not great) yield– Price increases expected– Depressed markets (Lake Co.) healed– Stronger vineyard prices

Short crop in Lodi

Land Value

Correlation between wine price and Grape Price?

The “Rule of 100”?-whereby grape price = retail bottle price x 100

Cabernet Sauvignon Napa Sonoma Paso Robles Lodi Fresno

Category Luxury Ultra-PremiumSuper

PremiumPopular

PremiumJug or Super

Value

Bottle Price using "rule of 100" $47 $21 $11 $6 $4.9

2011 Avg. Grape Price $4,660 $2,111 $1,119 $620 $486

Highest Vineyard Value (LVS) $300,000 $140,000 $50,000 $20,000 $12,000

The Winners? (so far)

• Producing grapes for wines in demand– Wines at less than $20 per bottle:– Lodi, Central Coast, Lake, Mendocino

The Losers? (so far)

• Producing grapes for wines not in demand– Wines at greater than $20 per bottle:– Napa, Sonoma

Grape Prices & Real Estate

• Lifestyle buyers still on sideline• Buyers are:

– Wineries securing product– Investors looking for returns– Growers looking to expand

• High cost of vacant land in valley

2002: $2,800

2012: $12,80017%

annualappreciation

Less land to buy?

Can’t stomach the price?

Take Home Messages

• Wine prices drive Grape Prices• Grape prices drive Vineyard

Prices• What could change that?

– Change in interest rates• Inflation?

– Change in costs• $4.00 gas in a recession?• What happens when the economy recovers?

Take Home Messages

• Winter 2010-11 was bottom of the barrel for some on the Coast– 2012 was much more optimistic

• Strong grape prices driving planting– Valley– Secondary Coastal

• No significant new developments on North Coast

Take Home Messages

• When (if?) economy recovers: – Will consumers go back to “buying up”?– Will they realize there is quality at lower prices?– Will improving economy strengthen US Dollar

and encourage imports?– Will input costs run away?

• These factors will influence grape prices, eventually…

Take Home Messages

• Nut Crops create strong competition for land

• Cost of land a barrier to entry

• Development cost a barrier to entry

• Continuing escalation of land price could change the dynamic in the valley

• Can you buy $12,000 dirt and grow $300 grapes?

Thank You!

Ben Slaughter, ARA

Correia-Xavier, Inc.

www.c-x.com