By Vicky Boyd

Although the supply glut that plagued the California wine industry for much of the decade has moved more in line with demand, most winegrape growers still are losing money.

Growers and wineries along California’s North Coast, because of their high costs of production, face greater challenges than those in the lower-cost Central Valley or even those along the Central Coast.

Nevertheless, Nat Dibuduo, president and chief executive officer of the Fresno, Calif-based Allied Wine Grape Growers, points to several economic signs as cause for optimism.

Concentrate prices have firmed over the past year, and wineries already are beginning to talk about pricing for the 2011 crop—way ahead of the time schedule they followed heading into the 2010 season.

“I’m upbeat, even for wineries on the North Coast,” he says. “Wineries are already talking about their needs [for this season], which the last year or two it was closer to harvest then they started talking.”

DiBuduo gave his prognosis at the Unified Wine and Grape Symposium’s state of the industry session Wednesday in Sacramento.

As part of his presentation, he called on growers and wineries to work together for the good of the entire industry.

“I think the farmer needs to work with the winery—it’s not us against them,” DiBuduo says.

The California Agricultural Statistics Service is expected to issue its preliminary crush report for the 2010 growing season in about two weeks. DiBuduo says Allied puts the 2010 California winegrape crush at about 3.18 million tons.

When you deduct the Ruby Red tonnage that goes to concentrate, the actual winegrape crush is more like 2.95 million tons, he says. That compares with a 2009 final crush of slightly more than 4 million tons.

DiBuduo attributed the smaller 2010 crop to a late spring, coupled with a cool growing season, two heat spikes and rain during harvest of late-season varieties.

Of that, chardonnay and cabernet still occupy the top varietials. Plantings of pinot gris/grigio and pinot noir have waned, while plantings of muscat Alexander, French colombard and Ruby Red have picked up.

Based on surveys of the state’s largest winegrape nurseries, DiBuduo says growers planted 14,000 to 17,000 acres during 2010. The actual acreage depends on spacing and the sales of small nurseries that didn’t participate in the survey.

Unlike past years, when DiBuduo warned growers against planting, he softened his stance this year.

“We have to be cautious if we do plant that we don’t want to go overboard,” he says.

Part of the restraint is tied to the recession’s effects on retail wine sales. On-premise wine sales continue to stagnate as consumers cut back on eating out, says Danny Brager, vice president of beverage alcohol clients for the Nielsen Co.

At the same time, off-premise sales benefited as consumers drank wine at home.

Overall, consumers watching their pocketbooks traded down.

“Early in the recession, it was panic,” Brager says. “Now, it’s a much more discriminating, much more pragmatic approach, weighing the plus and minus of each purchase.”

That, in turn, has affected the state’s production areas differently.

The North Coast, home to the higher-end production areas of Napa and Sonoma, has seen grape prices decline as production costs continued to climb.

Based on an analysis conducted by Allied, DiBuduo says Napa County growers needed to receive about $6,000 per ton for their 2009 crop to cover production costs and net a 7 percent to 10 percent return on investment for the owner.

Yet growers in that area averaged only $3,283 per ton. The Lodi-Clarksburg area and the Central Coast, known for more value-priced wines, saw grape prices decline, but not to the degree as the North Coast.

The same analysis showed Monterey County growers needed $1,250 per ton to break even, yet growers averaged about $1,137 per ton.

The interior, comprising Modesto south to the Fresno area, saw little price decline and at the same time had the lowest cost of production.

Break-even per ton was $605 in 2009 compared with an average price of $465 per ton.

Wineries who were trying to fill value-priced lines increasingly sourced grapes from the lower-cost production areas.

“We have grapes available where the market isn’t today, and we have demand where we have no grapes,” DiBuduo says.

The North Coast also saw growers file for bankruptcy as expenses caught the better of them, wineries backed out of contracts or didn’t pay contracts in full.

DiBuduo says Allied negotiated about $65 million worth of winery contracts in 2009 and only had about $100,000 that was late in coming.

He says he expects to represent about $70 million in winery contracts on 250,000 tons for the 2010 season with the same high rate of payment.

“You have to know who you’re selling to,” DiBuduo says.