The 2014 drought and California wine

Posted By Adam Beak In Economic Outlook | No Comments

It is still too early to tell how the drought will impact California’s wine business. We’ve had a wet stretch of days, but with drought at historic levels, it would take rain of Biblical proportions — 5 to 6 large storms between now and May — to bring us to where we should be. We won’t know the ultimate impact until we see how things progress.

vineyard at sunset, with closeup on grapes [1]If the drought continues, it won’t devastate every vineyard, but it would create real challenges for some. With water in California, it ultimately comes down to a case of the “haves” and “have nots”: Those who have water rights or ground water on their land will be OK. The real issues will be with dry-farmed vineyards.

This year’s unseasonably warm January also creates the potential for early bloom, which means the vines face a longer risk period for frost damage. Vineyards rely on water to protect new buds from frost, so the combination of drought and warm weather creates a dual challenge.

Given the grapevine’s lifecycle, we could also be looking at a two-year fallout from the drought. When vines are stressed during bloom, it significantly impacts not only the current year’s crop but also the crop for next year (i.e., grapes for the 2015 vintage are growing inside the vine as the 2014 bloom is pushed). In ongoing drought conditions, we would expect the 2014 yield to be lower, but the scary question is how the 2015 vintage will be.

In the near term, we continue to see a strong market for U.S. wines due to some soft international 2013 harvests. With weaker worldwide harvests pushing the value of U.S. wines higher, a shorter 2014 vintage in the U.S. wouldn’t be all bad: California had a large harvest of high quality vintages in 2012 and 2013, and with those wines already in production, another big harvest in 2014 might have pushed us towards a glut.

Overall, the biggest impact will fall on the growers without water, as the wineries already have two large vintages in production, and the growers with water will be able to charge higher prices for un-contracted fruit.


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