SOURCE: Rabobank, N.A.

Rabobank, N.A.

July 02, 2015 12:30 ET

Vineyard Expansions Challenge Production-Demand Balance in California

A Structural Mismatch Between Grape Supply and Demand in Certain Wine-Price Tiers Will Impact Inventories and Future Production

FRESNO, CA--(Marketwired - July 02, 2015) - California's wine industry is struggling to find a balance between production and demand in certain price tiers following rapid vineyard expansion and a shift in demand in recent years, according to a new report by Rabobank.

"Too much of a good thing?" published by Rabobank's Food & Agribusiness Research (FAR) group reports that the most challenging dynamics are found in the San Joaquin Valley, where approximately 45 percent of California's wine is produced. Demand for the region's wines, many of which are priced at less than US $10 per bottle, is down mainly due to declining consumption among baby boomers, core drinkers of low-cost, large-format wines. Millennials, whose income levels and affinity for higher-priced wines are rising, are gravitating towards more premium wines priced $10 to $25.

While demand for wines under US $10 continues to drop, supply in the San Joaquin Valley is on the rise. Rabobank's report states that approximately 57,000 acres of vineyards have been added in the region since 2012, and are set to come into production by 2017. Due to declining demand, growers have already begun removing vineyards in the San Joaquin Valley, and unless demand for low-priced wines rebounds, or regional producers capture a larger share of the $10 to $25 price segment, up to 40,000 more acres will likely be removed over the next three years.

"The degree to which fruit from the SJV (San Joaquin Valley) -- particularly the northern SJV -- is used in wines priced $10- $25, will reduce the structural excess and the need to remove vineyard acreage..." conclude the report's authors, Stephen Rannekleiv, executive director, Food & Agribusiness Research at Rabobank, and Vernon Crowder, senior vice president and senior analyst and manager at Rabobank.

Their report also examines production and other dynamics in California's two other main wine regions -- the Central Coast and North Coast. In contrast to the dynamics in the San Joaquin Valley, supply for key varietals in California's North Coast is expected to remain relatively tight. In the Central Coast, grape production capacity may be slightly ahead of demand at the moment, but this situation should correct itself fairly quickly in the coming years.

The full report is available exclusively to clients of Rabobank and to media upon request.

About Rabobank, N.A.
Rabobank, N.A. is a California community bank and a leading provider of agricultural financing and full-service banking products to California consumers, businesses and the agriculture industry. With more than 100 retail branches, we serve the needs of communities from Redding to the Imperial Valley through a regional structure that promotes local decision-making and active community involvement by our employees.

Rabobank, N.A. is a division of the Rabobank Group, the premier lender to the global food and agricultural industry and a financial services leader providing commercial, retail and agricultural finance solutions in 48 countries around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the world's largest and safest banks. Rabobank, N.A. is a Member FDIC and Equal Housing Lender.

About Rabo AgriFinance
As a leading financial services provider for agricultural producers and agribusinesses in the United States, Rabo AgriFinance adds value using industry expertise, client-focused solutions, and by creating long-term business relationships. Rabo AgriFinance offers a comprehensive portfolio of services that give producers the right products to prepare for, and take advantage of, market opportunities. Rabo AgriFinance representatives offer a wide array of financial services and knowledge to help customers realize their ambitions. This comprehensive suite of services includes loans, insurance, middle market agribusiness, input finance and sophisticated risk management products. Rabo AgriFinance is a division of Rabobank, the premier bank to the global agriculture industry and one of the world's largest and safest banks.

About Rabobank Food & Agribusiness Research and Advisory (FAR)
The Rabobank Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to collect key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and examine the megatrends that ultimately influence clients' business strategy. These analysts are internationally respected experts in sectors from protein to produce, inputs to oilseeds, and their knowledge is shared with Rabobank customers.

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