Australian winemakers are optimistic that the wine glut in the U.S.--Australia's biggest market--may be easing and profits may be returning. The caveat, though, is that the rebound may come to fruition slowly. "There's certainly going to be a recovery-you should see a slow but steady improvement," remarked an analyst at ABN Amro in Sydney, who says he doesn't expect grape supply and demand to regain balance until at least 2006.

Further, red wine grapes could be in oversupply in Australia, with some in the business predicting that a record Australian grape harvest of 1.75 million metric tons is likely this year. That amount would be 25 percent more than last year's harvest.

Winemakers in Australia had profited from a decade of global expansion, only to see profits choked this past year as a grape glut and stiff competition generated steep price discounting in the United States.

According to the Winemakers Federation of Australia, in the past 18 months the industry has experienced:

• Wine exports surpassing $2 billion in sales annually (over 1 million bottles per year)

• Exports overtaking domestic sales

• The U.S. market overtaking the U.K. market for Australian wine exports