Wine Industry Report

As California’s 2006 grape harvest began in earnest last week, many North Coast grape growers were still scratching their heads and trying to make sense of July’s dire predictions of global warming.

As if summoned by Al Gore himself, an inconvenient and deadly July heat wave spread across the western United States including California’s Wine
Country, wilting humans and plants alike. On the exact day the heat kicked
into high gear, front pages of virtually every major daily newspaper
foretold a tale that Napa and Sonoma’s premium wine grape industry would
become burnt toast in a hundred years if global warming was left unchecked.

“We take these studies of global warming very seriously,” said Randy
Ullom, Kendall-Jackson’s Winemaster. “I’d love to speculate on what the
future holds, but at the moment we have trucks loaded with grapes headed to
our wineries and, by all early appearances, it’s another stellar year in
terms of ripeness, quality and quantity.”

Indeed, while the weather experts argued over global warming, a
substantial 2006 grape harvest was in progress. The State of California is
expecting its wine grape harvest to be smaller than last year’s record, but
nevertheless still large in terms of tonnage-3.2 million tons. In general
terms, the overall harvest across the coastal regions of California is
being considered “normal,” or “slightly less than normal,” by
Kendall-Jackson winemakers and vineyard managers.

The global warming study, released by Purdue University through the
National Academy of Sciences, purports to show through a series of
complicated computer models, that the North Coast’s premium wine industry
is extremely vulnerable to the effects of global warming and will not stand
up to multiple weeks of predicted 95-degree weather. In other words, the
cool coast could end up baking in the heat like California’s interior
Central Valley region.

“Weather computer models have a poor track record,” quipped one
unruffled Sonoma County grape farmer after hearing about the study. “The
last time I checked, the Pacific Ocean is still a major cooling influence
and forecasters still don’t know what the weather is going to be next
Sunday, let alone 100 years from now.”

The prolonged July heat had little effect on California’s coastal
grapes even though wine regions such as Napa Valley’s Calistoga and Sonoma
County’s Healdsburg recorded multiple days at 115 degrees. Most of
California’s generally cool coastal wine regions logged a record three
weeks straight of 90 degree-plus days. By August, the coastal fog returned,
helping to slow the grape maturity process to a more normal pace.

The big news in 2006 at Kendall-Jackson, however, was not the weather
or the harvest, but a series of focused vineyard acquisitions and an estate
grape planting strategy to support its multiple tiers of wine — Vintner’s
Reserve, Grand Reserve and Highland Estates.

Over the past 18 months, Kendall-Jackson has acquired and/or planted a
substantial number of new coastal vineyards. Located primarily in the
mountains above Sonoma County’s Alexander Valley, the ridges of Mendocino
County’s Anderson Valley, and Monterey County’s Arroyo Seco bench, these
new vineyard plantings secure and strengthen Kendall-Jackson’s Estate Grown
position in the marketplace.

With the 2004 vintage, Kendall-Jackson’s Vintner’s Reserve Cabernet
Sauvignon and Merlot join America’s popular Vintner’s Reserve Chardonnay in
featuring “Jackson Estates Grown” on the front label. By owning and
controlling the grape sources, Kendall-Jackson winemakers are able, through
precision farming methods, to ensure the consistent quality of each bottle.

Kendall-Jackson farms grapes in five major California cool coastal wine
regions. The climate and harvest conditions on the Central Coast are vastly
different from the climate conditions on the North Coast. To avoid
generalizations about the harvest, comments are from vineyard managers,
region-by-region:

Napa Valley: “We managed to make it through another rainy winter. A
cool spring followed by more rain pushed our normal harvest schedule back
by about ten days. The Cabernet Sauvignon displayed vigorous growth again
this year due to the high moisture levels in the soil. The warm days and
cool nights of July and August brought us back to a slightly normal harvest
schedule. We expect to be harvesting grapes through the end of October.”
- Mariano Navarro, Vineyard Manager

Sonoma County/Russian River: “Pinot Noir crop levels from the Russian
River Valley and Shiloh ranches are right on target — up slightly from
last year. Chardonnay and Pinot Noir brix levels are running neck and neck
this year, with the crop expected to come in about two weeks late. 2006
will be an excellent year for Russian River and Sonoma Coast grapes.”
- Hector Bedolla, Vineyard Manager

Sonoma County/Alexander Mountain Estate: “In the terraced vineyards of
Alexander Mountain Estate, about 1,800 feet above the Alexander Valley
floor, climate conditions vary block to block. Overall, the grape berries
are very small, with concentrated fruit flavors. The crop tonnage at
Kendall-Jackson’s Hawkeye Mountain Estate is average in size. Because of
the rugged soils and cool climate, we won’t begin to harvest Merlot and
Cabernet Sauvignon until the end of September or early October.”
- Tony Viramontes, Vineyard Manager

Sonoma County/Bennett Valley: “Bennett Valley, one of Sonoma County’s
newest AVAs, had near perfect weather during the late spring. Dry, warm
days aided the bloom and set. Kendall-Jackson’s Taylor Peak Estate Merlot
blocks are producing an ‘average to heavy’ crop this year. We expect to
finish harvest by the end of October.”
- Brandon Axell, Vineyard Manager

Mendocino County: “We are in the process of adding nearly 250 acres of
new Pinot Noir vineyards on the Jackson Ridge property above Boonville.
Farming on the top of mountains and ridges is always a risky proposition
this close to the Pacific Ocean, but this year, conditions worked in our
favor. We expect to be picking the Philo and Grizz Ridge grapes by
mid-October.”
- Dennis Winchester, Vineyard Manager

Monterey County: “The planting of our new 450-acre Panorama Vineyard in
the Arroyo Seco appellation is nearly complete. Cool evenings and warm days
were the norm during September. We’ll begin picking the Pinot Noir and
Chardonnay by late-September and into early October.”
- Bill Hammond, Director of Vineyard Operations

Santa Barbara County: “The grape crop in the Los Alamos region of Santa
Barbara is healthy this year. The 2006 harvest will really kick into gear
by the end of September. We have heavy morning fog that gives way to sun
and heat by noon. This weather pattern provides the perfect conditions for
ripeness and maturity.”
- Grant Cremers, Director of Vineyard Operations