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California is facing an emerging wine shortage, according to Stephens Moody with Turrentine Brokerage in Novato, California.

Turrentine, which handles bulk wines, grapes, and bottled wines, has developed a model of the typical wine cycle, which it calls the “Wine Business Wheel of Fortune.”

Speaking at a grower caucus presented in November by the Washington Association of Wine Grape Growers, Moody explained that an emerging shortage is a period when wineries eliminate discounts and increase their margins, growers receive higher prices and longer contracts, and top growers get planting contracts. Retail prices for wines increase slightly, providing opportunities for imports.

The emerging shortage is typically followed by a period of acute shortage, with extremely high prices for growers and a planting mania. Consumers get sticker shock and take more interest in imports.

This leads to an emerging excess of wine during which wine prices decline, growers receive lower prices and one-year deals, recently planted vineyards come into bearing, and consumers can find great deals.

An acute excess of wine follows, when grower prices are low, winery margins are slim, and new plantings stop. That leads to an emerging shortage, and the cycle begins again.

Such cycles can be influenced by the volumes of imports coming into the country, but, typically, the ­complete cycle takes 10 to 14 years, Moody said.

California produced big crops in 2000 and 2002, and a huge crop of 3.8 million tons in 2005, causing a glut. The 2012 California grape crop is estimated at 3.7 million tons, up from 3.3 million tons in 2011, but the difference is that inven­tories are low because of strong demand, Moody said.

“We will have an increase going forward, but it’s not going to reach the peaks of the past,” he said.

Last year, growers received record prices, and every grape was sold. This year, pricing will be above the ­historical ­average, but down from last year’s peaks.

Sustainable contracts

Moody said he’s surprised that neither growers nor wineries do what they should during the various phases of the cycles. He wonders why wineries don’t give growers contracts at a sustainable price during oversupply periods so the growers can take the money to the bank. “Wineries will not sign a five-year contract unless there’s a shortage, and then they will pay double,” he said.

Despite the emerging shortage, Moody is not recommending growers go out and plant, plant, plant, he said. Bankers in California are wary about loaning money to plant grapes. Nuts and tree fruits are cheaper to establish and earn higher returns. There are no speculative grape plantings in California. Everything is done under contract.

The bulk wine market has changed and has become global, he said. It’s now possible to ship bulk wine around the world and maintain quality, and large quantities of wine are imported from South America into California. However, there is no glut anywhere in the world currently.

Strategic partnerships

Turrentine Brokerage has strategic partnerships with San Nicolas Wine Services in South America, CIVS (Compagnie Internationale de Vins et Spiritueux) in Europe, and Austwine in Australia to facilitate the export of wine to California.

Australia had an average wine grape crop in 2012 and has a low inventory of value-priced red wines, Moody said. Its Chardonnay wines are in demand locally, so international buyers have to pay for it. There is no excess.

France has a more balanced inventory of bulk wines, but the 2012 crop was about 30 percent down from normal. French suppliers will do custom bottling of premium varietal wines, such as for Trader Joe’s Revelation brand.

Moody sees Spain as Washington’s chief competitor in bottled wines, because they have a similar style, quality, and price point—at around $10 to $12 a bottle. Spain exports mainly Cabernet Sauvignon and other dry red wines, as well as Moscato.

“Your biggest threat could well be the Spanish imports,” he told growers. “Watch what they’re bringing in. When we’re short, they ship it in, and it’s very hard to find a bad one.”

However, Spain’s 2012 grape crop was 30 percent below normal because of the third season of dry growing conditions. This year, there is pressure to keep European wine in Europe. “You can get it, but you have to pay for it,” Moody said.

Argentina produces mainly Malbec, dry red varieties, and Moscato. The 2012 grape crop was good quality, and bulk inventory is available and affordable.

Chile, which exports Cabernet, Merlot, and Moscato, also had a good 2012 crop and has plenty of inventory available. It tends to ship low-priced wines to the United States, Moody said. “They’re here because ­California wineries are short, and they want to ­supplement it.”

United States

Washington dominates the Riesling market, Moody said, noting that Washington ­produced 32,000 tons this year, versus 27,000 tons crushed in California.

In California, varieties that Moody classifies as florals (White Riesling, Gewürtztraminer, Malvesia Blanca, Symphony, Viognier, Rousanne, ­Muscat of Alexandria, Muscat Blanc, Orange Muscat, and Muscat ­Hamburg) are growing fast, and totalled 170,000 tons this year. Volume could double in the next six years. However, they are not premium wines.

Cabernet Sauvignon is still king and will always be in high demand, Moody said.­“People can’t get enough in California.”

California produces about 400,000 tons of Cabernet grapes annually, and growers are negotiating 10- to 15-year contracts because of the emerging shortage, with more acreage being planted. Sales of Cabernet Sauvignon wines in the $12 to $15 a bottle range increased by more than 12 percent last year.

California’s Merlot production has been running at about 300,000 tons. Moody said people feel more indifferent about Merlot, though sales are growing. “It’s more of an ­add-on to Cabernet,” he said.