Slides 1 & 2-

Title & Intro slides

Slide 3-

This graph shows the amount of grapes crushed by California processors from 1994 to the current year. Note that the year 2002 is an estimate. The actual numbers will not be available until February 10, 2003 when the Preliminary Crush Report is released by the State. The blue portion of the bars on the chart represent wine grapes, while the red portion represents other grapes crushed such as raisin or table varieties, mostly used in concentrate. Note we are estimating a 2002 total amount crushed to be close to a record crush. Estimates of winegrapes crushed statewide run anywhere between 3.0 million to 3.3 million tons, and we think there could have been up to 700,000 tons of other types crushed to come close to 4 million tons statewide. Note the increase in other types crushed from 2001 to 2002 due primarily to the increased concentrate demand and concentrate grape supply.

Slide 4--

Defines the regions that are the primary focus of the concentrate presentation. Almost all concentrate grapes are grown in crush districts 13 and 14 stretching from Madera County in the north to Kern County in the south.

Slide 5-

This pie chart shows the breakdown of total 2001 production throughout the state, putting it into categories designated by Allied. Note we differentiated the San Joaquin Valley wine and concentrate crush pointing out that 16% of all grapes crushed in California went to the production of concentrate in 2001. We expect 2002 to be closer to 19%. Further note that the San Joaquin Valley south of Lodi produced 57% of all grapes crushed in the state.

Slide 6-

Self-explanatory. Review of San Joaquin Valley 2002 crush. *Additional note- As the 4th bullet point indicates, some growers left raisin varieties hanging on the vine this year due to lack of harvest money and/or potential low returns from the raisin industry as well as a lack of ability to locate buyers to purchase for crush. Many raisin growers were forced to make raisins simply because they could not find buyers to buy their grapes for crushing.

Slide 7-

The total amount of grapes used for concentrate combines all grapes crushed for concentrate use. This graph breaks down how much of each type Allied estimates was used from 1999 to 2002 for concentrate production. The total tons used between 1999-2001 was reported by the processors. Total 2002 tonnage is an estimate based on our discussions with buyers. Note that concentrate production seems to be fairly consistent other than in 2001 when the Thompson crop was short and demand for concentrate grapes was not as strong due to a volatile marketplace.

Slide 8-

This slide summarizes the grape types and some of the varieties used for white concentrate. Note that there are red varieties included. Most red grapes actually have clear juice and so are more suitable for white concentrate than red. However, many processors have to “clean up” the juice made from red grapes to take out as much color as possible that may be imparted by the skins during processing. Red grapes are generally not as desirable as white grapes for white concentrate because of this. However, red varieties with white juice don’t have nearly the color depth needed to be processed for red concentrate.

Slide 9-

This "raisin varieties" slide would include primarily Thompson Seedless. As the chart shows, the amount purchased has been up and down over the recent years, primarily depending on the price paid by buyers. Note that for much of the 1990’s, when the raisin market was in relative balance, as buyers paid more for the product they generally got more. Generally in supply/demand situation as the supply increases the price decreases, but raisin varieties react a little differently because there no real ceiling on the amount of supply available to buyers as there is with wine grape varieties that have no other outlet. There is typically a large supply available for wineries and concentrate producers to buy from the raisin industry. However, in 1999 when the supply was limited by an extremely short crop and high demand from the raisin industry the price skyrocketed and the supply for concentrate ended up short. To the contrary, in 2000 & 2002 when there was plentiful supply because of a large crop and a depressed raisin market the price decreased as the supply increased. Many growers could not sell to wineries and concentrate producers even if they wanted because buying activity was limited. In 2001 we saw the 10-year trend reborn whereby lower pricing brought decreased amounts of product to crush.

Slide 10-

Table varieties act much like raisin varieties in their supply/demand characteristics. Again, this is due to the conditions under which these grapes are available to buyers from the table grape industry. However, the trend in the table industry has stayed more consistent (i.e. the more you pay, the more you get) This is because they don’t have the effects of the raisin industry influencing their decision to sell or not sell. Simply stated, the more processors pay, the more they get.

Slide 11-

This slide focuses on the supply side of Thompson Seedless because of its unique versatility for raisin, wine, table or concentrate use. The point is that as long as only 20% of Thompsons go to crush, the raisin industry price will always guide the concentrate price. It doesn’t work vice versa. There is no doubt the raisin market is the largest determining factor when it comes to pricing and available supply for wineries and concentrate producers in any given year.

Slide 12-

This slide shows what the annual utilization of raisin varieties is, broken down into “crush” and “other”, again pointing out that the crush generally takes between 15-20%. However, it is worth noting that in 1996-1998 over 20% was utilized, primarily because of the shortage of product for WINE as well as concentrate.

Slide 13-

This slide reiterates the raisin variety utilization as a ten-year average.

Slide 14-

Fairly self-explanatory. The key to understanding the points made on this slide is understanding that the market for raisin varieties generally develops at, or slightly before harvest time. The reason for this is simple – buyer’s base their offering price on what the EXPECTED return will be from the raisin industry. Since the raisin industry return is very affected by the annual supply, it is in the grape buyers’ best interest to wait as long as possible to try to estimate the raisin crop, understand trade demand, and allow time for concentrate markets to develop.

Slide 15-

This slide shows the difference between the equivalent green raisin price and the crush price from year to year. The point of this slide is to show that raisins have historically commanded a higher price. However, the cost to produce raisins is higher, and in fact, is estimated at $40-$50 dollars per green ton. Therefore, in reviewing the years, one can see that in the years where the equivalent green raisin price was at least $40 per ton more a grower would have realized more return through the raisin industry. Notice that a Thompson grower would have definitely been better off making raisins in 2001, but better off going green in years like 1997, 2000 and 2002. The problem is that even if a grower was better off going green, he may not be able to sell to a grape buyer if he doesn’t have an established relationship. Most grape buyers exhibit some loyalty to growers who historically sell to wineries and concentrate processors vs. growers who have historically made raisins, but want to crush for the first time.

Slide 16-

This slide reviews the white concentrate market and gives an outlook for the future. There are a couple of unexplained items in this slide that refer to a growers inability to receive financing as well as the unknowns in the raisin industry. First of all, many growers are struggling financially. As a result, many lending institutions are unwilling to extend credit causing some growers to make decisions based on cash flow instead of maximizing revenue potential. The unknowns in the raisin industry refer to things such as: annual trade demand (and the fact that it continues to decrease), the volatility of the raisin field price based on the current absence of a master contract negotiated between packers and growers, the increasing trend towards alternative production systems (i.e. DOV raisins), unknown amounts of acreages that may be foreclosed on, abandoned, or aborted, etc. etc.

Slide 17-

Self explanatory. We don’t even know this year’s (2002) raisin field price. How can we say what next year’s crush price will be?

Slide 18-

Self explanatory. Dark reds include Rubired, Royalty, and Salvador grapes, which are primarily used for the production of red concentrate. Rubired is by far the predominant grape of the three.

Slide 19-

Note that because of a shorter than desired supply in the late 1990's the price and tonnage had continuously increased until 2000. Supply finally caught up, and an overall depressed wine grape market along with limited crush capacity contributed to a significant drop in pricing for 2000. The years of 2001 and 2002 witnessed even lower pricing as well as continued production increases. Previously, we thought we were only at the beginning of an increased supply of dark reds since they had been widely planted between 1997-2000, but now we feel that we may be hitting the peak of production already due to the amount of acreage that has been, and most likely will be, pulled out. Pull-outs have started due to the extremely low prices received on the spot market for Rubired. The amount of newly bearing acres will probably be more that offset by older vineyard pull-outs.

Slide 20-

This table shows the reported acreage of non-bearing Rubired for the last few years. Note that in 1996 there were 135 acres reported planted that year. By 1999, the year in which those 1996 acres came into production, the 135 acres had increased to 328 acres. Likewise in 1997, 123 acres were reported to have been planted but by 2000 that 123 acres had turned into 522 acres. In 1998, 499 acres were originally reported. By the time 1998 plantings produced a crop, the acreage had grown to 1,359. How did this happen? It is a result of the voluntary reporting method used by the State, which does not capture all of the acreage increases when planted. The acres were there all along. It’s simply that they were not reported to the State. You can see by looking at each year that the reported acreage increased. This is a trend we see very consistently with the State acreage report. To compensate for the non-reported acreage, Allied has made some estimates on actual non-bearing acreage for 2002 and 2003. Note that by 2003 we could easily have nearly 13,000 acres producing, however this does not take into account any pull-outs, which we are very likely to see with pricing where it has been for the last two years. To further illustrate the point that acreage is under-reported, the yield line has been added to the bottom of the table. It shows Rubired yields increasing significantly from the mid 1990’s. The reality is that yields didn’t necessarily increase, but acreage in the more recent years have been grossly under-reported. For example, in 2001, we crushed over 135,000 tons of Rubired, but only had 10,898 acres reported as bearing. This means the average Rubired vineyard yielded 12.5 tons per acre. In reviewing 2001 yields by vineyard it is very clear to see that Rubired did not yield 12.5 tons per acre on the average. It was actually probably less than 10 tons per acre. We just don’t have sufficient acres reported in the “system”.

Slide 21-

Summary of Rubired outlook over the next few years. The percentage of Rubired contracted under multi-year agreements is fairly high. These contracted growers should receive $200-$250 per ton depending on their contract and the annual demand for red concentrate. However, spot market sellers will be highly affected by the current year’s market. These growers will be subject to up and down price fluctuations that are very similar to the types of fluctuations we see in the white concentrate industry.

Slide 22-

Summary transition slide.