GLOBAL MARKET UPDATE
2016 REVIEW / 2017 PREVIEW
Volume 8 Issue No. 1
Fax
(415)
458-
5160
CIATTI GLOBAL WINE & GRAPE BROKERS
1101 Fifth Avenue #170
San Rafael, CA 94901
Phone (415) 458-5150
Argentina
2
Australia
California
3
California
Argentina
4
5
Chile
5
7
France
6
9
Germany
Spain
10
7
Italy
11
8
New Zealand
South
Africa
12
9
South Africa
Australia
10
13
SpainZealand
New
11
14
Market profile:
Scandinavia
12
Concentrate Update
6
Craft Beer
13
2016 Currency Review 15
Contacts
17
Volume 08, Issue No. 1, January 2017
As 2017 begins, the team at Ciatti wishes all of our clients,
friends and business associates a very happy and prosperous
year to come. We thank you for your continued support.
It being January, this month’s report reviews the old year on
the bulk market and assesses what the new one may bring. The
two talking points that are likely to reoccur throughout 2017 are: 1)
will (what we believe to be) a pretty much balanced market slip
into undersupply if harvests continue to come in average or below,
and 2) how will political events affect exchange rates?
Last year’s currency turbulence (illustrated on pages 15-16)
could be a foretaste of what is to come this year: Donald Trump is
sworn in as US president on 20th January and the Dutch general
election (15th March), French presidential election (23rd April) and
German federal election (sometime in August-October) are all
slated to occur in 2017. All the while, from the end of March, the
Brexit process will be underway.
As for the coming Southern Hemisphere harvests: the
beleaguered Argentine industry really needs a strong 2017 harvest
to uplift it, but is – like neighbour Chile – experiencing growing
conditions still not fully normalised after El Niño. Argentina’s 2017
grape market is very active; in Chile some 80% of 2017 grapes have
already been allocated. On the flip-side, other than the intense
November storm in Australia’s Riverland and Sunraysia regions, the
Antipodean growing seasons are proceeding smoothly. And while
South Africa continues to battle drought, its record 2015/16
carryover stock is interesting international buyers.
Ciatti looks forward to helping you navigate the twists and
turns of the 2017 market, whatever it may bring, and once again
wishes you a Happy New Year!
Robert Selby
Ciatti Global Market Update | January 2017
2
CALIFORNIA
Harvest 2016: good in quality,
approximately 4 million tons in size
2016: The Year That Was
Following a 2015 harvest that – at 3.69 million tons – was down 5% on 2014 and one of the smallest
since 2011, calendar year 2016 began with continued price increases on the market as buyers
scrambled to secure ever-scarce supply. The lighter yields from the 2015 vintage in the coastal
vineyards – whose premium offerings have been in rapidly growing demand – created demand of an
intensity not seen for 4-5 years. Meanwhile, yields in the bulk wine powerhouse areas of the interior
and Central Valley were better, and there remained inventory in tank, including for generic and
value-level wines.
By mid-2016, spot market sales for reds – especially Cabernet – were fast, with many sale prices at
historic highs, especially for coastal region high-end and sub-appellation varietal wine and grapes. Ciatti –
deeply involved as it is in the sourcing and sales of many high-end grapes and wines sold domestically –
saw how prices increased significantly on these: high-end Napa Valley Cabernet was going for USD10.5013.20/litre by October (up from USD9.25-12.00 in October 2015). In the US consumer market,
premiumization is the buzzword: price categories over USD10 are seeing the strongest growth.
Chardonnay’s 2015 volumes coming in 11.8% down on 2014’s meant that carryover Chardonnay
from past vintages was largely gone by April 2016, while other whites such as Pinot Grigio and Sauvignon
Blanc were also getting short. Thus sales of 2016 grapes on these – and all other varietals, really – were brisk
by mid-year, with higher prices and longer-term contracts being written. Prices remained firm and – on
some varieties – near or above historic highs. Cabernet and Pinot Noir led the demand.
By May it was a case of ‘if we had more, we could sell more’ on 2015 vintage wines – though, again,
value-end wines and older vintages (with buyers increasingly reluctant to move backwards on vintage)
proved tougher to move.
The 2016 harvest’s growing season experienced mercifully few dramas when it came to climate and
disease. The official harvest figure is pending but it is expected at or around 4 million tons – big enough to
replenish the supply pipeline but not enough to create any long positions or soften prices. It was straight
down the middle both in terms of quality and volume on the key varieties: Chardonnay, Pinot Grigio,
Sauvignon Blanc, Cabernet, and Pinot Noir all came in better than in 2016 to varying degrees, but none was
bumper. Other grapes such as Merlot and Petite Syrah are increasingly going into ‘heavy red’ or ‘black red’
proprietary blends like Gallo’s ‘Apothic’ – brand extensions targeted at millennial males.
By the end of the year, buyers were beginning to set themselves up as they normally do on all
varieties, prices looked very similar to last campaign for both domestic and export, and deals were
happening. International buyers were, as every year, mainly prospecting Red Zinfandel, White Zinfandel and
some Cabernet, though some were interested in California’s small Malbec output due to Argentina’s
difficulties. Brexit is a concern for the big Californian exporters: the UK takes 25% of California’s wine export
volumes, and some UK buyers are trying to pass on the cost of a weakened pound sterling to the sellers
(see pages 15-16). The strong US dollar and the attractiveness of the domestic US market – both in terms of
volume demand and its increasing thirst for premium – is serving to reduce exports.
Bottled wine imports into the US are up, assisted by the growing popularity of – among others –
Italian sparkling, Provencal rosé, and New Zealand Sauvignon Blanc. Bulk imports are at okay levels; the
level is very reactionary to market conditions and domestic supply availability. Things have slowed in bulk
but not going away. The bulk imports are filling the holes from declining production and vineyard removal
Ciatti Global Market Update | January 2017
3
in the south of the Central Valley: bulk import remain a cost-effective sourcing strategy. Most bulk is being
sold into labels that are deploying the newer packaging tends: 750ml bottles instead of 1.5 liter, and 3-liter
bag-in-box instead of 4-5 liter.
2017: Looking Ahead
Premiumization is where the action and focus of most wineries in the US is right now. These profitable sales
are driving the activity in grape contracting and new plantings, pre-harvest custom wine contracts and spot
bulk sales. Ciatti expects this to continue.
It seems that some of the steep declines seen in the purchasing of generic or value wines may be
levelling off. There seems to be price increases or reduced discounting on some generics; these generic
programs may be more profitable today. There has been a switch in some of the packaging and bottle sizes
that have affected volumes. For example, there are fewer wines in 1.5 liter glass bottles as more have moved
into 750ml bottles. Also, the growth in 3-liter bag-in-boxes may be affecting 4-5 liter boxes. The 4 and 5
liter glass packages have all but gone away. Wine in cans is getting a lot of hype right now.
There were more consolidations in 2016 than in previous years. As an example, coming in quick
succession mid-year was Gallo’s purchase of Orin Swift Cellars; Jackson Family’s purchase of Copain Wines;
Constellation’s purchase of Prisoner; and the acquisition of Far Niente Estates by GI Partners. Most of the
M&A activity is taking place in the premium segments and for big dollar amounts: this will continue in 2017.
KEY TAKEAWAYS




The 2016 harvest was bigger than 2015’s,
but still not bumper.
Prices for this 2016/17 buying campaign
look very similar to 2015/16 both for
domestic and export.
The premiumization trend is set to continue
in 2017, as is the M&A activity in the
premium wine segment.
That said, there are signs of a pick-up in
interest in generic and value-end wines.
Contacts Contacts
CALIFORNIA – IMPORT / EXPORT
T. +415 458-5150
Greg Livengood (CEO) – [email protected]
Steve Dorfman – [email protected]
CALIFORNIA – DOMESTIC
T. +415 458-5150
John Ciatti – [email protected]
Glenn Proctor – [email protected]
John White – [email protected]
Chris Welch – [email protected]
Ciatti Global Market Update | January 2017
4
ARGENTINA
Harvest watch: continuing abnormal growing
conditions could hit crop size
2016: The Year That Was
Due to El Niño weather, Argentina’s 2016 harvest was 35% down on the 10-year average at 1.75
million metric tonnes. The prior, 2015 crop was ‘small’ at 2.4 million metric tonnes, showing what a
poor harvest 2016 was. Malbec volumes came in 50% lower than the average. The bulk wine market
thus became very active, domestically and for export. The prices for 2016 grapes and carryover stock
rose sharply, and continued to firm-up when 2016 wines came online: most pricing – on bulk Malbec
and generic reds – increased by 100% or more on the previous year. Malbec at USD1.50/litre and
below quickly became short, with higher-end Malbec at USD1.70-2.50 available for longer.
This pricing dissuaded some traditional international bulk wine buyers from sourcing from Argentina
this time. Bulk wine exports were thus down 32% in January-August 2016, from 51.2 million litres to 34.7
million litres, due mainly to the loss of US and Canadian custom. Domestic players were impacted by the
high price and short supply of generic red, passing on some of the cost to Argentine consumers already
labouring under high inflation and a recession (the new government began the rollback of the previous
government’s energy subsidies: some people’s energy bills rose as much as 400%). The pressure on the
consumer price in Argentina has been intense: a 1-litre Tetra Pak of entry-level wine costing 15 pesos
(USD1) at the start of 2016 cost closer to 28 pesos (US1.87) by September, a nigh-100% price hike.
From October, Argentina’s domestic big three players began shipping in generic bulk wine from
Chile to cover their Christmas and New Year needs. Some 17 million litres was imported in October and
November combined. The Argentine buyers braved a Chilean market likewise affected by El Niño, and
forced to pay a bulk price of approximately USD0.65/litre, up from USD0.40-50 some weeks before. By the
end of the year, there was very little wine in Argentina to interest international buyers. Grape juice
concentrate prices remains at their high level of USD1,300-1,400/MT, up from USD800/MT a year before,
and sales are slow (see page 6).
Argentine growers have been facing severe headwinds: the cost of all the spraying that was required
on the small 2016 harvest, combined with increased energy bills throughout 2016 – and interest rates at 4050% making borrowing unrealistic – mean that some will have endured a year without income, and longing
for a decent 2017 harvest.
Growing conditions for the 2017 harvest have not been ideal; it seems the weather has not fully
returned to normal after El Niño passed. Heavy spring frosts and October hailstorms were experienced in
Mendoza. The wine industry needs a good 2017 harvest so that it can harness the new government’s fiscal
encouragement of exports and agriculture: the Argentine president, Mauricio Macri, wants his country to
become “the supermarket of the world”.
2017: Looking Ahead
For 2017 in Argentina, Ciatti expects another tough year depending on the harvest result. Argentina will
need a fantastic crop size but – due to the weather events already experienced – Ciatti is not very optimistic
about that. Prices will remain high for the first half of the year due to lack of stock and high demand.
The 2017 grape market will be very active: the most important players are already talking to the
growers to secure their needs so strong pricing can be expected. Even though the availability situation
could improve on some wine varietals, Malbec pricing will remain strong.
Domestic consumption in 2017 will be down from 24 litres per capita to 20-21 litres per capita, so
demand could be softened by the second half of the year.
SEE NEXT PAGE FOR KEY TAKEAWAYS
Ciatti Global Market Update | January 2017
5
KEY TAKEAWAYS
The 2017 grape market will be very active following
a very short 2016 crop and with another short crop
feared for this year. A continued output shortfall
could be partially offset by domestic consumption
declines as Argentine consumers rein in spending.
Ciatti Contact
Eduardo Conill
T. + 54 261 420 3434
E: [email protected]
GRAPE JUICE CONCENTRATE: UPDATE
TIME ON TARGET
California’s 2016 generic grape harvest for white grape juice concentrate (GJC) will probably go down as
one of the lowest in the state’s history. Unsustainable growing costs and more profitable alternative crops
continue to cause massive pull-outs of generic grapes. Despite this fact, there is still product available as
demand has dwindled in a food and beverage industry plagued by the ongoing war on sugar.
Rubired grapes used in standard and high color red GJC continue to sell at a premium as winery
demand and the food/beverage market demand for natural colors continues to grow. While the volume of
this year’s crop was average, the color levels in the grape were very low, causing higher production pricing
and lower yields in finished product.
The 2016 harvest of grapes for concentrate in Argentina was considerably down because of poor
weather conditions throughout the growing season. Most generic grapes that could be harvested went to
wineries. What product was available to the concentrate marketplace was higher-priced and of less than
desired quality. The industry is anticipating a much better harvest in 2017 which should bring pricing and
volumes back into a competitive position.
Spain’s generic harvest was shorter than anticipated because of the lingering drought in the
growing regions. Most of the generic grapes went into wine, leaving the white GJC market short. For this
reason pricing has increased and most of the product has been sold for the season. Current stock pricing
may drop depending on what the 2017 Argentina harvest brings.
On the red GJC front, Spain pulled out of the market as EU demand soared for the red grapes in
Spain’s wine industry. This demand increase occurred because availability of Chilean product was
diminished due to Chile’s very poor 2016 harvest. Massive rains at the end of Chile’s harvest meant that all
available red grapes went to wineries in 2016: Chile’s red GJC is thus very limited and expensive at this time.
Ciatti is anticipating product availability as the 2017 harvest nears, barring another weather problem.
KEY TAKEAWAYS
Lower yields in Argentina, Spain and Chile – due to
adverse weather conditions – have raised GJC
prices in those markets. A low white GJC yield in
California, the result of ongoing pull-outs of
generic grapes, has been offset by the war on
sugar. The state’s red GJC volume is low due to
very low color levels in the grapes.
Ciatti Contact
Grape & fruit juices, concentrates,
natural colorants
John Ciatti
T. +415 458-5150
E: [email protected]
Ciatti Global Market Update | January 2017
6
CHILE
Harvest watch: abnormal weather possibly
causing lighter, not uniform bunches
2016: The Year That Was
El Niño weather conditions reduced the 2016 Chilean harvest to 1.014 billion litres, down 21% from
1.2 billion litres in 2015 (an average year) but in-line with the frost-hit year of 2014. The 2016
volume figure was better than previously feared – an earlier estimate had the harvest at 800-900
million litres – because the wineries tried to crush as much as possible, accepting grapes affected by
the El Niño rains. Thus, unlike in the earthquake-impacted year of 2010 for example, quality was
down as well as volume. DOC reds came in at 590 million litres, with DOC Carmenere (-36%), Merlot
(-28%) and Cabernet (-27%) well down on 2015.
The harvest was late, as growers waited for sugars and colours to materialise due to the abnormally
cool conditions. These cool conditions were conducive for the whites (Valle Central Sauvignon Blanc quality,
for example, was better than ever), but the quality of the reds was more affected. The reds were further
impacted as they were still on the vines when late heavy rains came: Carmenere and Syrah, then Cabernet
and Merlot, were worst hit. By August it was pretty clear that if buyers needed good quality wines in large
volumes – particularly reds – they would need to step into the market immediately if they hadn’t already
done so. On the flip-side, there would be some very aggressively-priced low-end red wines available on the
spot market.
The industry ensured its prices did not get out of control like they did in 2010; varietal Cabernet for
international buyers increased to USD0.85-90/litre, but not upwards of USD1.30/litre as in 2010. Because
pricing increased less markedly than in 2010, some buyers disbelieved reports of the severity of the year’s
production shortfall, and held off – some for too long.
Tintorera for colour was in great demand. Tintorera, Sauvignon Blanc – both down 17-20% in output
– and Pinot Noir grapes were almost completely pre-harvest allocated and sold out before the crush. After
crush in May and June there was a market frenzy on all wines as domestic and international bulk buyers
sought to cover their needs.
Before the late rains, Chile was visited by Spanish and Argentinian buyers who held off as prices
remained firm; when the rains came and prices firmed-up even more, these buyers went away. Argentinian
buyers, however, were back prospecting the market in August and September as Argentina’s tight market
situation grew more acute. From October, Argentina’s domestic big three players began shipping in generic
bulk wine from Chile to cover their Christmas and New Year needs. Some 17 million litres of Chilean bulk
wine was imported into Argentina in October and November combined. The Argentinian buyers were
paying USD0.65/litre, up from the USD0.40/litre they could have paid a couple of months earlier.
2017: Looking Ahead
Looking forward, the market could potentially be stable. Unfortunately this has never happened in Chile,
and there will likely continue to be its characteristic volatility. Currency exchange, increasingly unpredictable
weather and the small domestic market will normally cause price fluctuations in this market.
More than 80% of Chile’s 2017 grapes have been allocated: their prices have been high, and
continue to rise. The grape prices are the base for the wine price calculations, and the result of current
market prices. The first grapes to be allocated were those grown on vertical trellis systems. Until December’s
start there was very low demand for the pergola grapes; transactions for these are happening now.
Chile is still receiving good demand for its wine, and Ciatti believes all the traditional buying
countries will continue with their normal needs. Argentina, not a traditional buyer, may continue to be a
Ciatti Global Market Update | January 2017
7
buyer for the 2017 crop, but its demand pressure should reduce; China is always a big player, though bigger
in some years than others.
Weather remains abnormal. Last month the Central Region received record rain levels for the month
of December, as well as record highest temperatures. Harvest seems to be coming earlier than normal,
which potentially decreases the level of rain damage on the grapes. Viticulturists speak of lighter and not
uniform bunches being the reason for a potentially smaller 2017 crop. One potential crop forecast figure
appears to be 1.1 billion litres. As mentioned, prices should remain stable for a while. The crop size and
demand will dictate the market, especially by the end of the year when wineries need to have their wines
allocated in order to receive the next crush.
KEY TAKEAWAYS
More than 80% of Chile’s 2017 grapes have already
been allocated. Their prices have been high, and
continue to rise. Transactions on pergola grapes
are happening now. Prospect of the harvest’s
bunch weights being affected by abnormal weather
is intensifying transactions.
Ciatti Contact
Marco Adam
T. +56 2 2363 9206 – or – T. +56 2 2363 9207
E. [email protected]
Chilean Export Figures
Wine
Export
Figures
January 2015 – November 2015
January 2016 – November 2016
Volume
Million
US$ FOB
1.386,04
Average
Price
3,17
Million
Liters
444,83
Million
US$ FOB
1.376,01
Average
Price
3,09
Variance %
Bottled
Million
Liters
437,04
Bulk
337,85
235,44
0,70
351,07
239,97
0,68
3,91
Sparkling
Wines
Packed
Wines
Total
4,03
16,49
4,09
4,81
19,33
4,02
19,34
25,98
44,19
1,70
29,39
49,25
1,68
13,13
804,90
1.682,16
2,42
830,11
1.684,55
2,37
3,13
Ciatti Global Market Update | January 2017
1,78
8
FRANCE
Harvest 2016: at 43.2 million hectolitres,
down 8% on five-year average
2016: The Year That Was
With almost 48 million hectolitres of wine produced, France’s 2015 vintage was larger than the five‐
year average, with more volumes produced in Languedoc (+1 million hectolitres versus 2014), the
Southwest and Bordeaux, and less in the eastern regions (Burgundy, Alsace and Champagne).
The overall market pricing for varietal and AOP wines had remained firm and steady, accompanied
by smooth and regular loadings until the end of winter 2015-16. However, the market experienced an
important slowdown from then on, with less demand and a slow loading pace. Rosé was the most impacted
category with an important unsold carryover stock until the beginning of the 2016-17 buying campaign.
This led to the emergence in 2016 of protest groups organised by southern French growers, who
attributed slow sales and large carryover stocks to the growing level of foreign wine imports (mainly from
Spain and Italy and also from Chile and South Africa). These protest groups carried out such actions as
forcing Spanish trucks to dump their Spanish wine cargo at the border.
The explanation for the increase in imports is price: France losing share to Spain and other countries
on 3-litre or 5-litre bag-in-box programmes – due to being uncompetitive on price – has exaggerated
French wine’s market share loss in terms of volumes. French supermarkets are sourcing foreign wines not
only to make a bigger margin but also to maintain the retailing pricing: French wine prices have simply
exceeded the maximum that retailers can absorb. The problem regarding export sales is the disparity
between the price and the quality offered by French wines, with French wines’ price-quality ratio having
struggled to adapt to international buyers’ increasing expectations.
In contrast to 2015-16, the current, 2016-17 buying campaign got underway with smaller 2016 crop
results for most of the producing regions (except Bordeaux and Côtes du Rhône), together with a slow kickoff. The harvest is reported at 46.5 million hectolitres. At the beginning of summer 2016, hopes for a goodsized crop were strong but the southern European heatwave, combined with sporadic hailstorm episodes,
impacted growers’ expectations. In the end the 2016 crop was characterised by an important heterogeneity
in terms of quality: red wines are better than whites and rosés (lacking acidity and aromaticity). Due to the
slow-moving market for the old carryover stock, growers’ price expectations have steadily been reduced
until the beginning of 2017 – also due to the slower than usual buying activity (specially for varietal wines).
2017: Looking Ahead
Pricing on the 2016 vintage now seems to have stabilised and should remain at current levels for the next
couple of month at least. Of course, the inventory on the best qualities is getting lower faster.
Although French producers have seen important market share losses in export markets over the last
couples of years, the national market remains active and shows steady demand. This demonstrates the
home market’s predominance and importance, remaining as it is the first destination for French wines. The
problem for French producers is that good demand from the bag-in-box segment – currently representing
40% of overall sales – provides comfort, but it is also the segment least attached to country of origin, thus
French IGP wines are potentially always under threat of being replaced. With a much-needed price adjustment
and a price hierarchization starting to take place, slower but still good activity overall should be assured.
KEY TAKEAWAYS
Slow activity on 2015 carryover and 2016 vintage
has served to reduce prices. France’s much-needed
price adjustment is seen to be taking place.
Ciatti Contact
Florian Ceschi
T. +33 4 67 913532 E. [email protected]
Ciatti Global Market Update | January 2017
9
SPAIN
Harvest 2016: volumes reportedly in-line
with 2015; rosé down
2016: The Year That Was
Calendar year 2016 began active following a 2015 crop – at 41-42 million hectolitres – down some 810% on 2014. Although the white grape crop in the powerhouse Castilla La Mancha region had come
in 15-20% down, this was compensated for by lower GJC production (see page 6) and satisfactory
wine inventories were maintained. The red grape crop came in larger than the year before, thanks to
higher production in the south-eastern regions of Manchuela, Jumilla, and Valencia.
Carryover stock from 2014 helped soften the overall price increase on the Spanish market.
International varietal wine inventories were starting to get low during 2016, especially for Chardonnay,
Sauvignon Blanc and Merlot, but good opportunities remained for Muscat, Cabernet Sauvignon, and Syrah.
In generic wines, the market reacted differently, with domestic and international buyers buying aromatic
blenders, high alcohol wines and colour enhancers, in order to cover only their short- to mid-term needs as
part of a wait-and-see strategy.
Following a very hot and dry summer, the 2016 harvest season started with huge uncertainty about
the crop potential. Non-irrigated vineyards suffered the most from the dry conditions (seeing a 30% drop)
whereas irrigated/trained vineyards coped better to moderate the final average loss. The actual crop size is
not yet known, but it is believed to be roughly 42-43 million hectolitres, roughly in line with the year before.
The quality was very good overall, the only issue being the low average alcohol degree (especially for white
wines) and a low acidity on whites/rosés.
Due to the inability to assess the real crop size, the beginning of the harvest season saw a rapid and
regular grape price increase (+10-15%), mainly led by Spain’s top three players in an attempt to secure the
supply for their case goods programs. Automatically, the average market price for bulk increased by
approximately 10% on all kind of wines as co-ops and private wineries had to reflect the grape price
increase in their bulk wine offers.
Even though 2015 vintage carryover was moderate, the 2016-17 campaign started very slowly (with
mainly domestic activity) as most of the international buyers maintained a wait-and-see position until more
precise crop figures appeared. In fact, according to the latest figures published by the Spanish Ministry of
Agriculture, the 2016-17 campaign started with an initial inventory of 40.59 million hectolitres of wine and
almost 4.52 million hectolitres of non-concentrated must (45.11 million hectolitres in total).
2017: Looking Ahead
Ciatti considers the Spanish market to be in a balanced situation with enough supply for a smooth bulk
wine campaign. International buyers know perfectly well the situation and are only covering their immediate
to mid-term needs, waiting for better opportunities to arise. As a consequence, Ciatti has seen the market
price slowly but surely decrease from the high peaks of October, especially on the white wines. The price
drop on the reds is moderate whereas the rosé pricing remains stable due to the fact that wineries
produced their 2016 volumes based on the level of volume sold of the 2015 vintage, plus a balanced
inventory.
KEY TAKEAWAYS
A slow start to the 2016-17 buying campaign has
seen prices fall since October. Rosé pricing is stable
as 2016 production was significantly down.
Ciatti Contact
Nicolas Pacouil
T. +33 4 67 913531 E. [email protected]
Ciatti Global Market Update | January 2017
10
ITALY
Harvest 2016: at 46-47 million hectolitres,
the world’s largest
2016: The Year That Was
Although world production in 2016 was one of the lowest in recent years, Italy had a normal crop
and you can see this on the market. In theory Italy’s market should have been more active, with
prices rising. Instead the market was simply staying more or less level with the last vintage. The year
saw an increase in demand from Germany and Eastern Europe but not enough to raise prices.
The Prosecco market in 2016 was still growing and the varietal was slowly stealing shelf space from
Pinot Grigio, which was suffering a little, mainly due to the confusion created during 2016 regarding the
possible transition to the DOC for the main production area of the north-east.
International varietals, especially of the higher quality, were still in good demand and – in general –
demand was increasing for the high-level wines. Entry level wine was always in competition with Spain’s:
often the buyer’s final decision was based upon a simple calculation of the difference in transport costs. For
some countries such as Russia and those in Eastern Europe, Italy seemed to be the more competitive
solution. For France and Germany the final calculation was very close and the decision was made on the
quality and commercial condition, but the feeling was that lots of companies were still waiting for prices to
lower on the entry-level qualities. In the nine months until the end of September 2016, Italy was regaining
market share in Germany but its overall exports to the German market was down by approximately 6%.
2017: Looking Ahead
Ciatti won’t be surprised if 2017 will bring a general increase in the bulk wine price. Lots of large European
companies, given the fact that a lot of supermarkets were delaying some big tenders, still have to finalise
their purchasing. If this happens during the coming months the market could change a little and there may
be a shortage in some wine categories like the good sparkling bases and the good red wines in general.
It is very improbable that Spain will downgrade its prices soon; it will wait to get more information
regarding the 2017 South Hemisphere harvests.
The impression is that consumption around Europe is changing: sparkling is on the rise, as is
sparkling wine mixers. Some cheap wine of very low quality will be very hard to sell in future.
Regarding the global economic environment, it is probable that the euro will weaken against all the
main currencies throughout the year, assisting exports. But inflation may rise off the back of the oil price
and this would not be good for consumption levels. The new US president’s policies should in theory help
the purchasing power of US workers, but a round of protectionist measures might hinder European exports
to the US. China is still a very small market for Italy but with a different approach maybe it can become a
more important player.
KEY TAKEAWAYS
Italy’s buying campaign has commenced slower
than expected. Italian sellers are keeping a close
eye on the important UK and US markets; an
unconducive exchange rate with the former and
potential protectionist measures in the latter could
make things harder for Italian imports.
Ciatti Contact
Florian Ceschi
T. +33 4 67 913532
E. [email protected]
Ciatti Global Market Update | January 2017
11
SOUTH AFRICA
Harvest watch: drought may affect
the 2017 crop size
2016: The Year That Was
South Africa’s 2016 harvest started two weeks earlier than normal, due to eight very dry, preceding
months, which made it possibly the driest ripening season in 40 years. The crop was predicted to be
10-12% smaller; it in fact came in only 6.7% down on 2015, though still the smallest crop since 2012.
Already by the end of February, predictions were that varietals like Cabernet, Sauvignon Blanc and
Chardonnay would be short; after Q1 2016, Merlot and even possible Chenin Blanc shortages were
predicted. Following the largest-ever carryover stock (46%) from 2015 to 2016, this gave producers new
confidence. By the start of Q2, pricing showed increases on short varietals and exports showed an 8%
growth year-on-year.
Good rains in late April and early May and increased contracting and shipments over that period
bolstered producers further, especially after a disastrous depreciation in the SA Rand over the previous 1518 months. The Rand weakened from January 2014 to Jan 2015 by a shocking 40%+, rallied again quickly,
but was still 27% down on that 2014 base by end of Q1 2016. At year-end 2016, the Rand was still 20%
down on that 2014 base.
Following a dry spell in June, further cold spells with good rain and snow in July and August raised
hopes for 2017, but catchment dams were still only around 55% full. Shortages in Chile and corresponding
price increases there raised expectations of a buyer influx into South Africa, but that was only realised
around October. Domestic sales grew exponentially month-on-month, but were mostly driven by bag-inbox sales; value, therefore, didn’t show the same domestic growth as volume. On the export front, exports
to the UK and Germany showed a decline by the end of Q3, while France is now South Africa’s third-largest
export client-country after a very short history of importing South African product. This has been driven
mostly by Cinsaut Rosé and varietals Sauvignon Blanc, French Colombard and/or blends of these varietals.
Brexit raised major concerns in July: even though South African producers sell in Rand, a muchdepreciated UK pound sterling raised concerns of decreased UK consumer spending. That was fairly shortlived as, by the end of September, consumer confidence in the UK had already returned.
By October, dry conditions again returned, compounding the effect of last year’s drought. Producers
had to start irrigating much earlier than usual, on top of low catchment dam levels. At the time of writing –
Christmas 2016 – that drought still persists and strict water restrictions are in force even in the cities,
carrying heavy penalties. October also brought a spell of Black Frost to the important Worcester and
Breedekloof bulk wine areas, which will affect the 2017 crop to some extent.
2017: Looking Ahead
The last quarter of 2016 brought the sudden influx of buyers that was expected to have arrived by midyear.
Russian, Chinese, EU and US buyers are contracting everything, including generic reds and whites, with
shipments planned ASAP in the New Year. This has brought welcome relief from that record 2015/16
carryover and also resulted in price increases at all levels on all products. The continuing drought may result
in another small 2017 crop and with lower starting-stock levels, the higher demand and expected pricing
will bring welcome relief to a country where sustainability has been at extreme risk for many years.
KEY TAKEAWAYS
South Africa is receiving a lot of interest from
international buyers on all categories, including
generic reds and whites, denting the carryover stock
and increasing pricing at all levels on all products.
Ciatti Contacts
Vic Gentis
T. +27 21 880 2515
E. [email protected]
-orPetré Morkel
T. +27 82 338 8123
E. [email protected]
Ciatti Global Market Update | January 2017
12
AUSTRALIA
Harvest watch: early indications point
to a harvest average-sized
2016: The Year That Was
Australia’s 2016 crush figure came in at 1.81 million tonnes as per the Winemaker’s Federation of
Australia (WFA). This figure is a 6% increase on the 2015 crush of 1.67 million tonnes. The main
increase came from a surge in volume of cool climate fruit. Prices firmed as the average purchase
price increased 14% to AUD526/ tonne. Ciatti has seen slight upward pressure on pricing throughout
the year, not only due to higher fruit prices but the cost of water earlier in the season, as well as
increased demand from China. Australia saw additional interest due to the smaller volumes available
in Chile and Argentina. Pricing pressure has also occurred due to an increase in the amount of
vineyards and agricultural land being converted to almonds: the potential for larger incomes and
profitability from these crops has enticed many farmers to convert.
As at September, Australia’s wine exports have seen an overall increase in value to AUD2.17 billion,
up 10% in the last 12 months and a 0.2% increase in volume to 734 million litres. White varieties such as
Pinot Gris and Sauvignon Blanc were popular from early in the year with irrigated parcels of Shiraz and
Cabernet being the main red wines of interest. The quality level of 2016 fruit was very good with no disease
pressure.
China’s interest in Australian wine has increased exponentially in 2016. In January, the US was
Australia’s No.1 export country by value whilst China was third. By September, China had risen to pole
position with 90 million litres of wine being shipped there at a value of AUD474 million. This was an
increase of 52% in volume and 51% in value in the past 12 months. Chinese interest in wine continues to
grow as we see more foreign parties looking to purchase vineyards, winery infrastructure and brands. Many
wonder where the Australian wine industry would be without this Chinese interest.
The Wine Equalisation Tax Rebate (WET) has been a continuous debate throughout 2016 with a
number of potential amendments considered for the ruling. The WET Rebate was originally initiated to help
small wine producers offset the tax’s cost to them. The government has finally opted to remove the WET
Rebate from bulk wine and cleanskins as of 31st July 2018. This removal will ensure a consistent price
offered for bulk wine versus two set prices.
Water availability at the beginning of 2016 was in short supply and high in cost – some growers
were forced to pay as high as AUD300 per megalitre in order to sustain their vineyards. Growers were
initially advised that they would only receive 36% of their allocations from 1st July and were grateful when
the winter period provided decent rainfall which flowed through to spring. Growers now have 100% of their
allocation for the upcoming summer period. Aside from November’s hail and wind event, which affected
the Riverland and Sunraysia areas, the growing period has been smooth.
2017: Looking Ahead
Demand for Australian wine has been strong and Ciatti expects this to continue into 2017. Domestic buyers
for next year’s irrigated fruit have been active in the market to obtain the material required early in the
season. Chinese interest is expected to continue with further demand for reds such as Shiraz and Cabernet
from both irrigated and cool climate regions. White varieties such as Pinot Gris and Sauvignon Blanc are
expected to be in high demand with a good amount of material to be signed up in pre-harvest
contracts. Early indications point to an average-sized harvest but this will be dependent on any future
weather conditions. Growers have access to a good supply of water and expect a dry summer period (with
no disease pressure).
SEE NEXT PAGE FOR KEY TAKEAWAYS
Ciatti Global Market Update | January 2017
13
NEW ZEALAND
Harvest watch: early indications point
to a harvest average-sized, smaller than 2016
2016: The Year That Was
The 2016 crush figure for New Zealand came in at 436,000 tonnes, up 34% from 2015. The main
variety, Sauvignon Blanc, accounted for over 303,000 tonnes of this amount. The start of the season
was very dry with limited rain before wet weather commenced in March, causing disease pressure for
many growers. The larger volume of grapes available saw downward pressure on bulk pricing for
Sauvignon Blanc – from NZD4.00-5.00/litre to mid-high NZD3/litre.
It was revealed in mid-2016 that the value of New Zealand wine exports increased to NZD1.54
billion in 2015, up from NZD1.42 billion in 2014. Wine is currently the country’s sixth-largest export with the
majority of material being shipped to the US and Australia. Can New Zealand meet the world’s demand for
Sauvignon Blanc? The availability of suitable land for vineyard development to either purchase or lease is
becoming in short supply with potential buyers now looking to develop terraced-style vineyards. Some
36,192 hectares of vineyards are currently planted with an average yield of 12.0 tonnes per hectare, a
production capacity of 313 million litres of wine. The average price for fruit from 2016 was looking to reach
NZD1,800 per tonne – in the past prices have fluctuated heavily from as low as NZD1,239 per tonne in 2011
to NZD2,161/tonne in 2008.
November’s 7.8 magnitude earthquake on the South Island caused a 2% loss in volume and varying
damage on 20% of the storage tanks. Many wineries are looking to have these repairs fixed as soon as
possible in the lead up to vintage. Others are also looking into repairs for their irrigation systems. This could
have some effect on the 2017 crush, but the size of the impact is still unknown.
2017: Looking Ahead
The demand for Marlborough Sauvignon Blanc is expected to continue as market activity remains
strong. Sales to the US and Australia continue to grow. Good-size inventories remain of the 2016 material
and prices are staying firm at their current level. Aside from the earthquake, there has been minimal impact
on the growing season this year. Early indications are for an average year, lower than the large crush of
2016 – but there is still five months to go before vintage commences.
AU & NZ KEY TAKEAWAYS
Ciatti Contacts
Australian wine remains in strong demand, with
increased Chinese interest putting pressure on
prices and pre-harvest 2017 contracts being made.
Shiraz, Cabernet, Pinot Gris and Sauvignon Blanc
particularly are in demand. Due to its big 2016
crop, NZ’s prices are steady; Sauvignon Blanc will
remain in strong demand and suitable space for
increasing production is growing scarce.
Matt Tydeman
E. [email protected]
Simone George
E. [email protected]
T. +61 8 8361 9600
Ciatti Global Market Update | January 2017
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2016 CURRENCY REVIEW
with charts from currenciesdirect.com (charts are clickable)
In the past year the Australian dollar has strengthened against pound sterling because of Brexit
fears, then the vote itself in favour of Brexit. Pound sterling’s depreciation is good for UK exports,
but not for Australian imports into the UK. For the 12 months to 30 September 2016, the UK
remained Australian wine’s leading export market by volume. Because 83% of this export is bulk, the
UK is only Australia’s third largest export market by value (AUD361 million). The US is Australian
wine’s second biggest market by value (AUD448 million). The AUD-USD exchange rate fluctuated
throughout 2016, with the Australian dollar ending the year slightly stronger against the US dollar
than it was at the beginning. China became Australian wine’s most valuable export market in 2016
(+52% to AUD474 million).
By the end of 2016 one US dollar was worth approximately 13.5 South African rand, down from
nearly 17 rand at the start of the year; one euro was worth 14.4 rand by the end of 2016, down from
approximately 18.5 rand at the start of the year. This strengthening of the rand (albeit from a very
low base) did not slow an influx of interest for South African generic reds and whites from EU and
US buyers (as well as Russian and Chinese buyers) in the last quarter of 2016.
Ciatti Global Market Update | January 2017
15
Brexit fears, then the result of the referendum on 23rd June, saw pound sterling slump against the
euro in 2016. The UK market has become a concern for European wine traders with a UK focus, such
as Italy’s Prosecco and Pinot Grigio producers and France’s Côtes du Rhône region. Suppliers to the
UK are being asked by UK buyers to absorb the cost of the weakened pound. However, UK
consumers are repeatedly being prepared – by government and through media – to expect higher
prices in 2017, which may allow some space for price rises to be passed on to the consumer without
sales being unduly shocked. On the flip-side, the US dollar has fluctuated with but strengthened
against the euro, assisting imports into the US of French and Italian sparkling wines, and French rosé.
Brexit saw pound sterling weaken substantially against the US dollar in 2016. At the start of the year
one dollar was worth approximately GBP0.68; by the end it was worth over GBP0.80. The dollar’s
strengthening relative to the pound is placing some strain on some big US brands with a UK focus.
As European suppliers are finding out, some UK buyers are essentially asking sellers to discount
their prices at the rate the pound has fallen. The UK received 25% of US wine export volume in
2015. Canada, meanwhile, is the second biggest destination for US wine exports after the EU-28 (in
2015, US wine sales surpassed wines from France and Italy for the first time to claim the largest share
of imported table wines in the Canadian market). At the start of 2016, one US dollar was worth over
CAD1.45; however, the Canadian dollar rallied in relation to the US dollar by mid-year following a
poor 2015, and ended the year at CAD1.32.
Ciatti Global Market Update | January 2017
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CONTACT US
ARGENTINA
Eduardo Conill
T. +54 261 420 3434
E. [email protected]
CHINA / ASIA PACIFIC
Simone George
T. +61 8 8361 9600
E. [email protected]
AUSTRALIA / NEW ZEALAND
Matt Tydeman
Simone George
T. +61 8 8361 9600
E. [email protected]
E. [email protected]
FRANCE / ITALY
Florian Ceschi
T. +33 4 67 913532
E. [email protected]
CALIFORNIA – IMPORT / EXPORT
CEO – Greg Livengood
Steve Dorfman
T. +415 458-5150
E. [email protected]
E. [email protected]
CALIFORNIA – DOMESTIC
T. +415 458-5150
John Ciatti – [email protected]
Glenn Proctor – [email protected]
John White – [email protected]
Chris Welch – [email protected]
CONCENTRATE
John Ciatti
T. +415 458-5150
E: [email protected]
CANADA & US CLIENTS
OUTSIDE OF CALIFORNIA
Dennis Schrapp
T. 905/354-7878
E. [email protected]
CHILE
Marco Adam
T. +56 2 2363 9206 or
T. +56 2 2363 9207
E. [email protected]
GERMANY
Christian Jungbluth
T. +49 6531 9734 555
E. [email protected]
SPAIN
Nicolas Pacouil
T. +33 4 67 913531
E. [email protected]
UK / SCANDINAVIA / HOLLAND
Catherine Mendoza
T. +33 4 67 913533
E. [email protected]
SOUTH AFRICA
Vic Gentis
T. +27 21 880 2515
E: [email protected]
-orPetré Morkel
T. +27 82 338 8123
E. [email protected]
JOHN FEARLESS CO.
CRAFT HOPS & PROVISIONS
CEO - Rob Bolch
T. + 1 800 288 5056
E: [email protected]
johnfearless.com
Ciatti Global Market Update | January 2017
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