The Shaking of America (3)
The subprime mortgage crisis was a hot topic even at school. Of course, among the students in the Viticulture and Enology department, there was still more talk about Warren Winiarski’s recent moves, but the real estate issue rocking the entire United States was just as significant.
For those of us who were children of families running wineries or farms, this issue was impossible to ignore. As it happened, all three of my friends and I were currently managing farms.
"It feels like it’s going to get really serious, doesn't it? It’s a relief that the vinegar is selling so well; otherwise, whew..."
Armando shook his head, his expression grim. We were sitting in our usual hangout—a glass-walled meeting room on the second floor of the student union—eating two large pizzas for lunch. I was sick to death of pizza by now, but since there wasn't anything else decent to eat, I picked at it with a sour expression.
"You’re probably fine since your alcohol is selling well, right?"
At Armando’s question, Jacob gave a sheepish smile.
"Thankfully, that’s true, but... I think I just got lucky. Brian made the alcohol so well, and since it’s not a high-end luxury spirit, I don’t think it’s as sensitive to the economic climate."
The profit margin per bottle was smaller, but considering the scale of the distillery, the actual profits were already far exceeding expectations. The dividend profit I’d earned from Jacob’s distillery alone had already surpassed $500,000. Since this was profit after paying off the initial investment, I knew exactly how much money his distillery had been raking in from the end of last year through this year.
"I’m so jealous..."
It wasn't strange for Armando to be envious, considering the amount.
"Still, you’re making a pretty good living with your vinegar, too."
"If I wasn't, I’d be in deep trouble."
If it had been wine, he would have undoubtedly been struggling in this subprime crisis. Since wine requires at least a year of aging, the earliest he could recover his capital would be November, or possibly even next year. But because it was vinegar, sales had started in May, and by August, there wasn't a drop left in the warehouse.
Armando, though envious, had also made a significant amount of money, which he used to pay off a good portion of his debt, allowing him to weather this crisis without too much difficulty.
"How about you?"
Armando turned to ask Chloe. Chloe, who had been eating her pizza daintily, blinked her large eyes and shrugged.
"I’m... well..."
"Ah, you get money from the cherries starting in May, right?"
Chloe chewed and swallowed her pizza before speaking.
"It’s not like I’m completely unscathed. Especially since I took over the pear orchard from my dad after converting the tomato farm. There’s a fixed rate, but part of it is a variable rate, so the interest has spiked. The ridiculous part is that the costs are skyrocketing because diesel and fertilizer prices are going up, too. It’s a good thing our cherries are tastier and look better than others, so we get a good price for them; otherwise, it would have been really tough."
"Really? Are other cherries not selling?"
Chloe sighed, set down her pizza, and continued.
"Don't even ask. The wholesale market is completely falling apart right now. It feels like the money supply for wholesalers and processors has dried up. I can really feel the drop in transaction volume compared to last year. Looking at the cherries other farmers are bringing in, it seems like they’re taking back a third of their stock unsold."
"Wow... that’s intense."
"There are even cases where they ask to delay payments for three months on what they *do* buy. Most of your vinegar goes to big marts or department stores, right?"
"Yeah, that’s right."
"That’s why you don’t seem to feel the impact yet."
Thinking back to the Chloe of a few years ago, it was clear that she had become a completely different person. The way she discussed cherry prices in the wholesale market, along with diesel and fertilizer costs, made her look like a seasoned farmer through and through.
"I’m feeling the rise in diesel and fertilizer prices, too, but... is the wholesale market really that bad?"
"Yeah. I’m lucky because I’m not a small operation and I have consistent sales channels, but they say small farms without much capital are in a huge crisis. There isn't just one or two farms borrowing money because their credit lines were cut off. I think three or four people have already come to my dad asking for help at our farm."
"Ah... that’s serious. Come to think of it, I’m really glad I listened to you and started making vinegar."
Armando patted my shoulder, visibly relieved.
"If you’re that grateful, can we eat something other than pizza next time?"
"Don't be like that. Why don't you open a restaurant? I’m sick of pizza too, but it’s the only thing worth eating around here."
"...Sigh, the food here is too salty, too sweet, and too heavy. Everyone’s getting fat because we only eat stuff like this."
"True. Korean food is really delicious and good, isn't it?"
Armando teased Chloe as she suddenly chimed in.
"Ooh, you must be eating Korean food a lot lately?"
"It’s not like I eat it *that* often... but sometimes when I go to Brian’s house, his mother makes it for us."
"At this rate, you’ll be cooking Korean food yourself soon, huh?"
"Is there anything wrong with that? I’ve got a knack for cooking."
"Hmm~ Are you two going to move in together soon?"
Just as Chloe and I turned our gazes away, someone knocked on the meeting room door. Since it was a glass wall, I could see a cute-looking female student with a bob cut standing outside. Jacob, who was closest to the door, opened it, and she stepped in shyly and spoke to Armando.
"I’m sorry. It’s a favor from my mom, but I was wondering if I could get some vinegar."
"Vinegar? A lot? Oh, wait a second... let me talk to you for a bit..."
Armando gave a greasy smile, put down his pizza, wiped his hands with a tissue, and led the student out.
"The pizza was already tasteless, but now I really can't eat it."
"Armando really has a talent for that. I’m actually envious of that side of him. I’m done eating, so I’m going to head out. I need to get back quickly."
Jacob, with his large frame, stood up after having eaten almost an entire pizza by himself. It was natural for him to move as soon as class ended since his distillery was busy.
"Yeah, go ahead."
After Jacob left, I stared blankly at the remaining pizza and said to Chloe.
"When’s your class?"
"In an hour."
"Then shall we go out and eat?"
"What are we eating? Buy me something delicious."
Chloe looked at me with sparkling eyes, full of anticipation.
"Hmm... Steak? You know Mason’s Chophouse, right?"
"Great! Let’s go!"
Honestly, I wasn't starving, and I wasn't particularly craving steak, but I took Chloe and left the school. Driving with the top down and feeling the warm breeze, I felt grateful for the student who had come looking for Armando.
At that same time, Silveroak Hills Vineyards.
Elowen Pike sat in his office, staring down at a single sheet of paper. His face was so stiff and serious that one could tell just by looking at him that the document was causing him a major problem.
It was a contract termination notice for 30,000 cases of export volume. The European distributor that had been discussing a contract extension just a month ago had been the first to cut ties as soon as the subprime mortgage crisis hit. Considering the additional terminations as of today, 60% of their total export volume had been canceled.
Elowen bit his lip.
"...Is it really this bad?"
He had been somewhat prepared, as it was natural for sales of high-end luxury goods like wine to slump when the market was poor. But wasn't this too much?
The problem, however, was that this was only the beginning.
"Elowen! The bank... the situation is spiraling out of control."
Tom, his partner manager who had opened the door, handed him a blue file. Tom, in his early 40s, was a partner who had helped grow Silveroak for a long time and was also a winemaker.
Loan Rate Adjustment → New Effective Rate: 10.25%
Elowen’s eyebrows trembled as he checked the file.
"Are they insane? How did it go from 4.8% last year to...?"
Tom spoke with a look of despair and exhaustion.
"The banks are terrified. The capital market itself has frozen over, so they’re not just stopping new loans—they’re re-evaluating all existing borrowers."
As the news became increasingly desperate, Elowen took a slow breath. The real weakness of the wine industry wasn't flashy labels or premium branding.
The true weakness was the structure where money is tied up for at least a year from grape cultivation to winemaking, aging, and shipping. The money that needs to be cycled in between is ultimately debt, and the fact that interest rates had skyrocketed meant the bank was squeezing the very heart of the winery.
He inadvertently placed his hand on the map of California lying on his desk. His farm, marked with a triangle on the map—ironically, it was promising the highest quality Cabernet Sauvignon in history this year.
"It’s ironic... that we’re collapsing in the year our wine is at its best."
Tom hesitated before speaking.
"Elowen... two employees, Isabella and Bolton, have left. They said they found positions elsewhere. And as salaries are being delayed, worse rumors are spreading."
"Haa..."
He held his head. This place was 30 years of history that he had inherited from his father and built up. A place that insisted on serious, classic Napa-style Cabernet. But now, all that tradition was wavering in the face of a single word: liquidity crisis.
"How many cases of inventory are there?"
"If you combine everything, it’s over 40,000 cases."
"This is driving me crazy..."
It was the moment inventory stopped being an asset and became a liability. If it didn't sell, every single case would become a weapon, strangling the farm with warehouse maintenance costs, insurance premiums, and interest.
Tom continued cautiously.
"What if..."
"Yeah?"
"I’m not saying we *have* to do this, but there’s a rumor that a few other farms are going to come onto the market. They’re probably farms in worse shape than us."
"So? Are you suggesting we sell the farm and the winery?"
Tom stepped closer to Elowen Pike and spoke seriously.
"You need to think carefully. Right now, your long-term debt is over $1 million, and your short-term liquidity debt is close to $1 million, too."
"Haa, appearing on that Paris Judgment TV show last year turned out to be poison."
Thanks to that TV show, Elena had become a celebrity, and by clearing out the wine that had been piling up in the warehouse, the farm’s difficult situation had improved significantly. The problem was that they had used the money earned that way to pay off urgent debts, and used the remaining funds to buy grapes.
"Exactly. We shouldn't have done the same thing as other farms—buying grapes to make wine... Who would have known it would turn out like this?"
Elowen gritted his teeth. Seeing Redwood—the place that had hit the jackpot with wine made from grapes bought in Sonoma and elsewhere—he had done the exact same thing.
He had been convinced that he could sell everything if it were wine boosted by Elena’s popularity, but he had never imagined a global financial crisis would strike.
"The total debt is $2 million. If the bank seizes the winery and puts it up for auction, it’ll be worth pennies."
"Damn it..."
"Wouldn't it be wiser to sell it now before that happens?"
Elowen couldn't believe that 30 years of effort could be wiped away so futilely.
"Do we really have to do this?"
"Right now, while the grapes are still hanging on the vines, might be the best time. If sales don't materialize by the time the harvest season ends and the aged wine is released, the debt will snowball from the moment we have to start the tanks again."
Dazed, Elowen leaned back and closed his eyes.
"Ah..."
"Maybe... you should pray that the farm gets sold. If it doesn't even sell... the place you’ll have to go then might not be an auction house, but a courtroom."
Tom’s realistic yet desperate words dragged Elowen’s spirit down to the very bottom.