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Napa Vineyards Tank
From The Daily Capitalist
I just saw an offering of the famous Screaming Eagle 1997 cab for $52,000 for the case, or minimum 3-bottle offering at $13,000. Parker gave it 100 points. I passed. I don't think anyone told the purveyors that the market has loosened up a bit. My guess is that the offering (32 cases--1996, 1997, 1999--of the Eagle) may have been sprung loose by the economy. Some hedge fund guy blew up and ... Maybe Paulson and Kovner fought over it.
For the rest of us, the great unwashed, bargains are awaiting. Here's an article from Bloomberg reciting a sad tale.
In California’s Napa Valley, producer of the most expensive U.S. wines, 2010 may be a vintage year for foreclosures as the industry is squeezed by falling land values and a consumer shift to cheaper brands.
As many as 10 wineries and vineyards in Napa will change hands in distressed sales or foreclosures this year and next, up from none in 2008, according to Silicon Valley Bank. In a bank survey of vintners, 7 percent called their finances “very weak” or “on life support.”
“We have 250 vintner clients saying this downturn is the worst in 20 years,”Bill Stevens, manager of the bank’s wine division in St. Helena, California, said in an interview. “Anybody who was late to the party won’t have staying power.”
Land values in Napa, home to about 400 producers, have fallen 15 percent from the 2007 peak, driven in part by slumping demand for high-end wine, said Robert Nicholson, principal at International Wine Associates, a consulting and financing firm in Healdsburg, California. The decline makes it harder for owners to refinance mortgages, especially if the property is worth less than the loan.
Napa winery and vineyard loan defaults rose fourfold to 18 in the year through January, according to San Diego-based research firm MDA DataQuick. In the survey by Silicon Valley Bank, whose clients are mostly high-end West Coast wineries, 71 percent of respondents said credit is harder to get.
The recession has set in motion a “secular change,” with budget-conscious consumers trading down to less expensive wines, said Peter Kaufman, managing partner at Pleasanton, California- based Bacchus Capital Management LLC, a private-equity fund that provides mezzanine financing to wineries.
Personally, as a consumer I think I like "secular change."
Cheaper imports from countries such as Chile, Argentina and Australia are cutting U.S. winery margins, according to Stephen Rannekleiv, lead analyst on the Rabobank report.
“Consumers are looking at price point and saying that Napa is not the price they want to be buying at,” New York-based Rannekleiv said in an interview. “Wine prices drive grape prices drive land prices.”
Bill Harlan, maker of Napa’s Harlan Estate Proprietary Red that counts four perfect ratings from widely followed critic Robert Parker, said he expects to see foreclosures mount.
“No area is going to be unaffected by this financial meltdown,” he said in a telephone interview. ...
Average prices are $150,000 to $200,000 an acre for a vineyard planted with red varietals such as cabernet sauvignon and $115,000 an acre for white grapes such as chardonnay, said Sean Maher, president of Maher Advisors Inc., a brokerage in St. Helena. The most desirable sites in Rutherford and Oakville can fetch $250,000 an acre, he said.
The wine business is slow here in Santa Barbara County. But that doesn't seem to stop wealthy immigrants to our fair land from buying big estates here and then getting the dream vineyard and winery. Nothing like seeing your name on the label. Did I tell you Al Gore will be my new neighbor?
Mortgage defaults will also hit Napa residential parcels owned by hobbyists, or those who intend to produce 100 to 300 cases a year, said Deborah Steinthal, principal of Scion Advisors. In October, the Napa-based consultants forecast that “hundreds of properties will go into foreclosure.”
That’s the scenario facing Sandra Sutherland, who bought a four-bedroom house and more than seven acres of chardonnay, merlot and pinot noir grapes for $2 million in 2005. She and her business partner haven’t made loan payments to Charlotte, North Carolina-based Bank of America Corp. since January 2009.
“We went in like blind fools,” Sutherland said. “We didn’t really expect to get the loan, but felt committed when we did.”
A lot of wineries are dumping their wine. So they won't ruin their cachet, they are creating down market labels and selling it cheap. If you're a wine enthusiast, deflation isn't that bad.
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I'm surprised the agribusiness conglomerates haven't moved in on this business. Course if they do it will all be Charles Shaw, (only not as good as their cabernet probably). What they need to do is set up a wine exchange, then have the government regulate the exchange so that foreign importers have to dump their product at below cost, driving domestic producers out of business, so the US corporate giants can buy their land at a tax sale, all in the name of National Security, and putting a chicken, (with some Marsala) in every pot.
LOL Napa. Who can stomach more than a sip of that grape-based motor oil anyway? I have no doubt most of it will eventually come to parity with the stuff made by Mobil 1 and STP.
OTOH, there WILL be a lot of great knives worth catching on the Burgundy front. Since the 05 vintage moonshot, both speculation AND ex-cellar prices are at an all-time high. Being on the other side of the trade as cases and cases of elysian juice are slowly puked by retailers, restaurants, and speculators is IMO the only compelling reason to keep a sizable pile of physical FRN on hand instead of sinking it all into hard assets.
Last time I did a leisurely afternoon drive through Napa was about a year ago. Shunning big-name wineries I discovered a couple of hidden gems -- family operations, excellent wine at down-to-earth prices. A dirt road off the highway... the owner's two dogs pictured on the bottle's label. May he be well and unaffected by any crisis.
thank you, econophile for this article. i printed it out and mailing to my business partner. this is good news for boutique wineries like our. we never ever used our winery as an ATM machine. no debt and it works. california isn't the premier maker of domestic wines, any more. california has bigger problems with moths and pests infesting and invading their soil and grapes. plus climate change is a huge impact on grapes. NOT GOOD†
colorado grows just as succulent grapes as california. good, california needs some competition. plus the pot that is grown on the western slope is as good as any grown in california. notorious paonia weed. free market still exists in the wine business. our peaches are the best in the world and so are our grapes.
Peaches? I've yet to find any place that beats Georgia and South Carolina peaches. Vintners are starting to pop up in the Western foothills of the Appalachian mountains in North Carolina.
Had peach moonshine about 30 years ago. Best drink I have ever had! The moonshiner supplied the local bars (Va) and made a bundle!
Peach & Pot moonshine. Could it get more American than that?
I've been making peach wine for years. Great stuff and real cheap if you know someone with a tree (or orchard)! Believe me if I could safely distill it without risking a huge insurance/legal kerfufflle, I would.
I bought a case of 2007 Stag's Leap Cabernet that they slapped a generic label on for $13 a bottle! Needs a little time, but sure beats paying $50/bottle. With the Euro on the ropes too, the great 2005 vintage will be a steal.
"With the Euro on the ropes too, the great 2005 vintage will be a steal."
Recently I had a bottle of the 2005 Chateau Talbot that was absolutely superb.
Will be looking for Chateau Rauzan Segla 2005 and a few others as well!
Thanks for the heads up!
She felt committed to taking the loan when she got it but less committed to paying it.
Pretension is on sale, now half off. I'll have a Pabst.
Bank of America Corp. since January 2009.
Yup.
Don't think the situation is much different here in Australia.
So much borrowed money has been put into vineyards in recent years. Don't see it getting paid back.
Are you saying we now have to fear a sub-prime vineyard-mortgage crisis? I think I need a drink.