(Wines&Vines) - For the first time in many years, the annual State of the Wine Industry report from Silicon Valley Bank wasn’t very optimistic.

As outlined in the 76-page report and summarized via video broadcast, Rob McMillan, founder of the bank’s wine division, forecast a temporary drop in per-capita and total domestic wine consumption.

He also said that imports would gain U.S. market share in bottled wine fueled by the strong and strengthening U.S. dollar. They now represent 27% of the U.S. bottled wine market by value, according to Nielsen. McMillan warned, “Premium wine producers will start to feel pressure from imported wines.”

He also proclaimed, “Low priced generic/jug wine is dying or dead,” and lower priced wines selling for less than $8.99 (per bottle) will continue to decline. Both volume and price will continue to drop in wines selling for less than $8.99 per bottle, he said, a trend that has reduced low-end bulk imports.

On a more positive note (particularly for the boutique wineries that form the bulk of the bank’s large wine company portfolio), he forecast sales growth in fine wine in the range of 9%-13%. That is down slightly from last year’s 14%-18% forecast.

McMillan also predicted modest price increases of 4%-8% in bottles selling for more than $10 this year, but he noted that higher end producers are less hopeful than high volume producers that they can raise prices.

He said that direct-to-consumer sales, which are made primarily at tasting rooms and through wine clubs, will continue to grow, though they are threatened by local regulations aiming to control tourism.

McMillan stated that almost 60% of sales for the “average” winery (likely Silicon Valley Bank’s customers) come from direct sales, typically 30% from tasting room sales, 23% from club sales and only 4% from Internet and other direct sales. By comparison, 39% of sales happen through wholesalers.

Meanwhile, tens of thousands of acres of vineyards will be permanently removed from California’s Central Valley, McMillan predicted. Coastal plantings will continue, but it’s becoming difficult to find land and plant it due to increased environmental regulations. He predicted the plantings that do happen won’t be enough to meet demand.

There’s a bright spot for Sacramento Delta and Lodi growers, however, as they can move from supplying low-end brands to coastal-type segments at higher price points.

McMillan added that wineries will continue to seek vineyards for premium and luxury wine production in Oregon and Washington state due to the relatively low prices for land and high quality of the wines they produce.

And for vintners looking to cash in, he forecast that large wine companies would continue to buy premium brands and vineyards.

Supply issues

McMillan estimated that the total 2015 harvest in California was 3.6 million tons crushed, about 8% less than the 3.9 million tons crushed in 2014. Quality was excellent, but some areas had challenges from weather issues in the spring. Harvest was early everywhere.

It was an average crop size year in the San Joaquin Valley, and light elsewhere.

Oregon’s 2015 harvest was early, huge and another consecutive “vintage of the decade.”

Washington’s harvest was similar to Oregon’s in timing and quality, but more of a normal yield.

Meanwhile, McMillan warned that worldwide supply of wine is beginning to rise, particularly in the European Union, while world and EU per-capita consumption is decreasing.

He summarized overall supply in California as still slightly in excess, but close to balance in premium wine regions. “A light 2016 harvest wouldn’t be desirable,” he noted