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THE CURRENT STATE OF THE BORDEAUX MARKET

 

 

“Wherefore art thou?” This is the plaintive cry as merchants struggle to sell the 2011 Bordeaux vintage which is one of the  recent Bordeaux vintages NOT proclaimed “vintage of the century.”  Let’s see. With 90% of the century to go we have already had 3 “vintages of the century”?  Hmm. How does this work? That means there should be at least 30 by the time we turn the page into the 22nd century. Caveat emptor! Maybe we are in a period of detoxification. Consider this commentary from an east coast wine merchant:

“Let’s face it, Bordeaux is in a tight spot. Not that many care, since they have made plenty of money in the last ten years, but it is still difficult to find a market direction, and appeal to consumers, after creating difficult precedents.

In 2011, they have apparently fashioned wines that Mr. Parker has found similar to 2001. Nothing wrong with 2001, as wines are delicious and were fairly priced. Unfortunately, the prices for 2011 are similar to 2005, one of the many vintages of the century and the best ever tasted by Mr. Parker (of course until the next one comes along). So, consumers are once again treated like a bunch fools by indiscriminate merchants who are trying to pass 2011 along as a bargain. It does take balls to do that, and I guess we don’t quite measure up. The big guys in Bordeaux have tried to look like heroes by lowering prices 30%. Wait a minute.  30% off 2009/2010 prices? Not impressive at all. Of course, they can’t lower prices to 2001 levels because that would be damaging to their reputation for luxury and exclusivity. There are no other reasons, as the cost of making a bottle of classified growth Bordeaux is still probably only $10-12.

So, as always, consumers are better off waiting it out, looking back, and making decisions based on quality in the bottle and market opportunities at a given time.”

So live by the sword. Die by the sword. To say that the 2011 Bordeaux futures market is sluggish is an understatement.  Some have called it a “dismal failure.”  Many merchants have reportedly sold only 10-15% of what was sold last year. Of over 200 wines released for sale so far,  it seems only a handful have sold out or are close to being sold. Pontet Canet, Leoville Barton, Lynch Bages and a few others are in this category. The reason is simple. They are over achievers and the wines offer relatively good value. The problem with most of the 2011s is the price, where they are priced against the much better 2010s. And, they are also expensive relative to other similar recent vintages like 2001, 2002, 2004, 2006, 2007, and 2008 that are still on the market. Some expect the futures campaign to close after the Hong Kong Vinexpo (May 29-31). If this event does not trigger a wave of buying, there likely will be a huge unsold inventory of 2011s added to the remaining stock of other recent NOT “vintages of the century”.

For now the current Bordeaux market is in disarray and this is compounded by the sorry state of the European economy. Not to mention the decline in the value of the Euro which may very well continue for some time. Yet another reason to be wary of 2011 futures. But, maybe what is happening goes well beyond the current campaign? The market for Bordeaux has changed in recent years. With many more very well heeled Chateau owners not needing immediate cash flow, the markets are moving away from negociants. Chateaus seem to be holding more inventory. Chateau Latour has announced that 2011 will be the last year that they offer futures.  In recent years, Bordeaux prices have moved to historic highs. Another troubling sign for the Bordeaux wine market is the recent entry into the market of “wine investment trusts”. These are speculative vehicles investing largely in the perceived best of the classified growth Bordeaux (i.e., they are buyers of the “vintages of the century” and not vintages like 2011) and created on the promise of a steady increase in prices. If the price increases do not happen, then look out below. (To read my article on that subject click here [1])  And, to be sure, the more of the market that goes into these pools (creating a larger supply), the bigger the risk and the harder the fall. In recent years the Bordeaux market has increasingly been driven by “vintages of the century”. If  there happens to be a vintage that is not a “vintage of the century” (like 2011),  then the sell through is difficult. Looking forward, the channels of distribution for Bordeaux wine are likely to remain in flux. In this environment, there seems to be a desire of the producers to control the market. If so, good luck. The historic economic road is scattered with the skeletons of those who have attempted this in the past in many other types of markets.

 

 

So as a wine consumer you need to decide. Are you a buyer who is buying to cellar the wine and drink it later when it is mature? Or are you a buyer who is “investing” hoping that the price will go up? In my view, when it comes to the 2011s it makes no difference. Under either circumstance the answer is to wait. As was stated above…“consumers are better off waiting it out, looking back, and making decisions based on quality in the bottle and market opportunities at a given time.”  I believe this is sage advice and it is coming from an unlikely source – a wine merchant with historical ties to the Bordeaux market. Here we are simply saying “pass.” My guess is this is also a view that is shared by many of the participants in the Bordeaux trade who, for obvious reasons, are less willing to speak up.

 

In Vino Veritas,Sig

John Tilson