Vino or financial vehicle?
It looks ominous to me. Bordeaux, the world's number one fine-wine region, has just had its best vintage since 1990. Journalists and merchants won't get a chance to taste until next spring, but all the signs are that in 2000, Bordeaux has dug up a large golden nugget.
2000? Even if it had been a half-decent vintage, those three magic noughts on the label would have made it 'collectable'. A great 2000 vintage will be irresistible. Brace yourselves for speculative frenzy.
Let me just outline what has happened over the past decade to fine Bordeaux as a commodity. Because of the recession of the early 1990s and the superfluity of great Bordeaux vintages in the 1980s, the 1990 vintage itself was initially underpriced. It seems incredible now, but you could buy a case of the voluptuous 1990 Cheval Blanc for just over £400 in 1993. It is now worth almost £3,000.
The market broadened internationally, and strengthened financially, at an extraordinary rate between 1994 and the point at which the 1996 vintage was sold en primeur in June 1997. These three years turned claret investment from a little game played by a few European and American wine enthusiasts into a global hobby for anyone with a few thousand to spare. Interest from the new collectors of the Far East, in particular, whipped prices of "trophy wines" (like Le Pin) to a frenzy. When the Tiger Economies faltered in 1998, many of these wines were then re-sold at a loss.
The elementary truth of this financial wheeze is that Bordeaux investment is based on Bordeaux drinking. Prices rise because as the wines slowly reach maturity, less and less is available on the market (more and more having been drunk). What remains will command a higher and higher price. Pure collectors and investors, by contrast, do not drink. If no-one is drinking, claret is truly (to use the tax man's phrase) a wasting asset. A hopeless investment in other words.
There is, too, a market price for the best fine wine in the world which relates to global prosperity. The world peace dividend, and an end to recession, has stoked this price up to levels unimaginable back in 1993 or 1994: only the world's seriously wealthy can now afford to drink top classed-growth Bordeaux, which accounts for its total disappearance from most ordinary restaurant wine lists.
Since the Bordeaux producers want to retain as much profit as they can for themselves, the starting prices for en primeur sales have risen by about 100% since 1995 (and were even more grossly inflated for the light 1997s). In strict investment terms, therefore, buying claret en primeur has been a waste of time since 1996. Only 1995 has seen interesting improvements on its opening prices, and even these have dropped since 1998. The prices for 1996, 1997, 1998 and 1999 have either dropped since the en primeur campaigns or remained static - investors would have done better buying dreary old government bonds.
"Producers will raise prices, if they didn't the merchants would immediately take huge margins"
Noting and understanding all of this, though, is equivalent to reading the
fine print on your insurance policy - most punters don't bother. Indeed the
idea that claret investment is a sound idea is slowly insinuating itself into
the wider financial community. The latest, astonishing proof of this is EuroNext's
plan to establish a futures market for fine Bordeaux. EuroNext (which combines
the Paris, Brussels and Amsterdam stock exchanges) stated that this would be
a 'financial vehicle' rather than a wine market. The trade would be in derivatives
contracts rather than wooden cases. Bordeaux has reacted with horror: the first
growths have issued a joint statement of opposition, and last week a group of
14 leading négociants announced that they would refuse to take part in
any such scheme. That kills it, then?
Probably - for the time being. The bottom line in any futures trade is the moment of reconciliation: no one should ever sell (or accept a contract on) a box of wine to which they don't have access. Without the support of the négociants and proprietors, the scheme will not take off, as EuroNext itself has acknowledged.
"If they cannot get the wine, the scheme fails by itself," Christian Moueix of Château Pétrus told me. "I can confirm," says Bruno Rossignol, the press office for the Paris Bourse, "that we won't be able to launch if the place [the Bordeaux wine trade] is opposed to the idea."
Yet the EuroNext scheme does show which way the wind is blowing, and in theory there can be no principled objections to such a market. Why not? Because it already exists. Anyone buying en primeur claret takes out a futures contract - the only real difference between Berry Bros & Rudd selling to a hopeful private claret investor and the EuroNext plan is one of financial sophistication.
Indeed the Bordeaux place has long been derided by outsiders as archaic and inefficient, tailored to a bygone era where proprietors often needed help to get through dismal vintages. The main challenges today concern efficient distribution and price maximisation. The EuroNext plan may not be ideal for the former, but it would certainly achieve the latter.
The plain fact is that the lure of 2000 Bordeaux will exceed that of any other vintage in the region's history. The producers will certainly raise prices, since if they didn't the négociants, brokers and merchants would immediately take huge margins. If financiers can find a way to make money on a futures market already in existence, and already worth £300m, they will. Purchasers will forget the lessons of the last four vintages. Whether or not all this has catastrophic consequences depends on one thing alone. Can anyone afford to drink this stuff?
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