CAUSE FOR CELEBRATION: CALIFORNIA’S HARVEST DOWN 20%
California’s 2006 grape crop is expected to fall 20% from last year’s production of about 3.8 million tons to 3 million tons, according to the USDA. The latest forecast is lighter than the 16% (or 3.2 million ton) decline put forth in September.
The drop likely comes as a relief to U.S. winemakers after experiencing the bumper harvest in 2005, which led many producers to hold onto a large inventory in case the 2006 harvest proved subsequently lower. The Australian grape harvest is also expected to be much lower.
Christine Farkas of Merrill Lynch says:
“This could be a major inflection point for both the grape growers and wine producers - with the bottom of the grape cycle now potentially in sight. Although there are many moving parts that follow from differing grape harvests (higher/lower cost of goods, quality differentials, etc.), we see it being fairly clear cut in that a material reduction in grape supply reduces wine supply. For a global wine market generally in excess, this should be good news for wine producers.”
There will likely be fewer grapes available for both U.S. and Australian wine producers in 2006-2007, which should help further ease current surpluses. ML predicts that Constellation will fare the best due to its access to low cost grapes.
“We believe that producers with particular access to low cost grapes, such as Constellation Brands should benefit. In contrast, Australia's Foster's Group remains challenged in both its beer and wine businesses,” says Merrill Lynch.
The drop likely comes as a relief to U.S. winemakers after experiencing the bumper harvest in 2005, which led many producers to hold onto a large inventory in case the 2006 harvest proved subsequently lower. The Australian grape harvest is also expected to be much lower.
Christine Farkas of Merrill Lynch says:
“This could be a major inflection point for both the grape growers and wine producers - with the bottom of the grape cycle now potentially in sight. Although there are many moving parts that follow from differing grape harvests (higher/lower cost of goods, quality differentials, etc.), we see it being fairly clear cut in that a material reduction in grape supply reduces wine supply. For a global wine market generally in excess, this should be good news for wine producers.”
There will likely be fewer grapes available for both U.S. and Australian wine producers in 2006-2007, which should help further ease current surpluses. ML predicts that Constellation will fare the best due to its access to low cost grapes.
“We believe that producers with particular access to low cost grapes, such as Constellation Brands should benefit. In contrast, Australia's Foster's Group remains challenged in both its beer and wine businesses,” says Merrill Lynch.
posted at 1:51 PM
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