Carmenere's poised to get even more exclusive.
Freak weather has Chile's largest wine producer, Vina Concha y Toro SA, under-performing its Latin American beverage peers. Connoisseurs and investors alike may have to get used to it, analysts say, because unusual weather could become the norm, driving prices up.
The Agriculture Ministry estimates Chile's last grape harvest fell 10 per cent after unseasonably heavy rains early last year were followed by record hot temperatures and forest fires over the summer. It was the second year in a row of poor harvests and threatens to push up costs for Concha y Toro, which makes wines including Carmenere, Cabernet Sauvignon and Merlot.
Carmenere grapes originally came from Bordeaux but were virtually wiped out by blight in the 19th century. They are now rarely found in France, with the vast majority of Carmenere wines coming from Chile.
The consensus recommendation for Concha y Toro by equity analysts fell in March to 3.4 on a scale from 1 (sell) to 5 (buy), its lowest level in about four years. This month, two firms downgraded the wine producer to neutral from a buy or equivalent rating. BTG Pactual cited higher costs and the effect that a stronger peso will have on Concha y Toro’s exports, while Bradesco BBI’s downgrade report cited a lack of visibility on the grape harvest recovery. Concha y Toro declined to comment.
Skyrocketing temperatures during the Chilean summer brought the harvest forward by two weeks, and by as much as a month in some cases, cutting production. Banchile warned in January that wildfires fueled by the high temperatures will have a negative impact on grapes and wine output in 2017, eliminating any potential growth for the industry. Investors will be closely watching next month’s grape harvest data for more clues.
"This harvest’s an important one, risk-wise, and could have an effect on Concha y Toro’s margins, as it buys about three quarters of the grapes it needs from other producers," Moritz Bernhard, an analyst at Banco de Credito e Inversiones, said in an emailed interview. "The price may rise and that may have a big impact on margins."