By Tom Westbrook
SYDNEY (Reuters) - Australia's hottest summer on record is hitting its $4.4 billion wine industry hard, with grape yields set to drop to the lowest in years and hopes the heat could produce tastier tipples starting to shrivel like fruit on some of the nation's vines.
As harvesting gets into full swing, forecasts show winemakers are the latest to succumb to a catastrophic drought that has already wilted the winter wheat crop and is expected to drag the wool clip to a record low.
Rabobank in January forecast Australia's total grape crush would fall about 5 percent from the year before to 1.7 million tonnes, but heatwave conditions since then have industry players predicting the smallest harvest since a disease-hit 2011 crop, at around 1.6 million tonnes at best.
"The general consensus is things are pretty grim," said Greg Knight, a grower in the Barossa region, a premier winemaking area in the state of South Australia.
He began picking the season's first pinot noir this week, about three weeks sooner than usual, after his dams dried up in January, and expects his crop to be between half and two-thirds the size of last year's.
"It was a heatwave we didn't really need," he said on the phone after working from dawn until the temperature nudged 39 Celsius (102 Fahrenheit) at lunchtime. Although he noted that the quality of his surviving grapes was good.
Australia is the world's sixth-largest wine exporter, with the weaker yield coming as top producers in Europe harvested a bumper crop in 2018.
"There's no question that (the Australian grape harvest is) going to be down," said Perth-based wine broker Peter Briggs, who trades about 10 million liters of wine annually.
Bulk grape prices have already surged by about a fifth, he said, squeezing local winemakers who don't run their own vineyards and who will find it very difficult to pass on price rises to customers, especially bulk buyers overseas.
"A lot of the bigger players don't care where they get the wine from as long as they can get it at a (good) price," he said.
Australia's weather bureau on Friday said that the Southern (NYSE:SO) summer just ended was its hottest since national records began in 1910, and among the 10 driest. It forecasts hot, dry weather persisting through autumn.
"You just could not keep the water up to the vines," said winemaker Neil McGuigan, chief executive of Australian Vintage Ltd, on a conference call after the firm announced it expects its 2019 tonnage to drop from a year ago.
"When you cook the fruit, they just disappear. They become raisins and they just dry up ... It's a little upsetting when you've worked so hard."
But not all vineyards are suffering, with Australia's west coast spared the worst of the weather. Irrigation, though expensive, has offered a cushion to some growers in the east.
FADING HOPES
Hopes the dry weather could produce a vintage with a stronger flavor due to more sugar in grapes are also starting to fade, with some in the industry saying conditions have simply been too hot.
"Vines won't do anything while it's stinking hot," said Briggs in Perth.
"The grapes just start to shrivel and you get that horrible raisiny character. When it's this hot ... it doesn't necessarily improve quality at all."
However, some are more optimistic. Australia's largest wine exporter, Treasury Wine Estates Ltd, said it did not generally forecast the quality of its vintages but was "really encouraged" this year.
And Mark Dietz, owner of Stuyvesant's House, a Sydney restaurant famed for its wine list, calls out Hunter Valley shiraz as a drop to watch.
"I reckon '19 is going to be pretty spot on," he said.
"It's a part of why you go into it - it's not just the romance about picking grapes, you've got to fight against all these natural things that come."