The wine market in a state of flux…
How has the collectible Bordeaux wine market performed over the past several months? According to Liv-ex, the London based Fine Wine Exchange, www.liv-ex.com, using figures released by the major auction companies, worldwide auctions of fine and rare wines fell in value from $301 million in 2007 to $276 million in 2008. While the 8 percent drop seems modest compared to the plunge of the world’s major stock indexes during the same time period, those numbers don’t tell the full story. Most of last year’s auction sales took place during the first three quarters of 2008, a time when collectible wine remained in high demand, seemingly recession-proof. In the aftermath of the financial markets’ meltdown, which began October, 2008 and continues today, wine has mysteriously retained more of its value than most traditional investments. As of the first quarter 2009, wine values had not dropped as far as most stocks, bonds, real estate and many other types of standard investments. If financial markets keep declining in value, prices for wines should continue falling as well. Obviously, investing in wine for profit today remains fraught with risk.
Some of the famous names in collectible Bordeaux wine that have taken the biggest losses on a percentage basis were amongst the highest flyers over the past few years. First Growths from 2005, Chateau Lafite-Rothschild, DRC Romanée Conti and various high-end California Cult wines like Harlan and Screaming Eagle have taken big hits. Some vintages have recently sold for 50% less than they previously trading for.
Aside from prices, another way to look at today’s market for collectible Bordeaux wine is comparing percent-sold rates, the proportion of auction lots actually selling to real buyers. In the first quarter of 2008, average percent-sold rates ran close to 93%. By the end of 2008, that average sunk to a low of almost 72%. That trend appears to be changing. While wines at auction are currently selling for less money than last year (a lot less in many cases), the percentage of lots sold has moved higher, back into the 90% range. This higher movement is due to dramatically lower prices for collectible Bordeaux wine.
Speculators of collectible Bordeaux wine purchasing in the year of 2008 have been hit hardest. Many of the wine investment funds have also lost tremendous amounts of value. It will be interesting seeing how the funds handle their loses and possible need for cash. Will they wait for better market conditions before selling? Or will the wines come back onto the market in the near future, further reducing prices? Some funds are rumored to have quietly sold part of their stock in private transactions.
As prices fall for collectible Bordeaux wine, auction houses are having difficulty stocking their sales with in-demand items, since some sellers are balking at allowing their wines to be sold at current, low priced market levels. In Los Angeles, a Zachy’s sale set for March was canceled because they were unable to obtain ample consignments. If you’re considering selling, continued market conditions do not bode well.
If you’re seeking to start a collection or add to your existing cellar, now could be a very opportune time to buy. Collectors like the new, lower price levels and have been actively, albeit with trepidation, purchasing wines again. Savvy, cautious buying today could produce dividends! If you’re seeking profits, focus on the top, blue chip wines rated 100 Pts by Robert Parker in full wood cases selling for close to 50% or less than they were before prices fell.
Much of the current wine buying activity in stores has been directed toward lesser priced wines. The average price per bottle has dropped. Wine lovers are focusing on drinking what is in their cellars. High end collectibles are not selling well without steep discounts. Currently, one of the most active segments in today’s market is 2007 Chateauneuf du Pape, tremendously successful that year. The wines are rich, round, opulent, ripe, silky, alcoholic and most importantly, very tasty! They will drink well young and over the next 15-20 years. These wines, nonetheless, are for drinking, not investing. Most Chateauneuf sell at full value. Purchasers of these wines should plan on drinking them. It’s unlikely they will offer future profits
If you’re looking for wines to cellar, there are a lot of choices available. As we discussed in the last article, before jumping in with both feet and stocking your cellar, it’s imperative to taste a lot of wine and discover what you like best. Assuming you’ve done your homework and are all set to buy, what’s next? Do you purchase wines to consume now, or to lay down for future drinking? Where do you buy?
Auction and retail serve different purposes. For mature bottles, more often than not, auctions are the cheapest way to buy wine. The same can usually be said about younger vintages. But, normally, you will need to purchase full, 12 bottle cases of wine. If you’re bidding, know the market. Learn what the wine has recently sold for. Do not get caught up in bidding wars. When deciding how much to bid, remember buyer’s commission’s can add 20% to your final price. Plus there could be applicable taxes. Bid only what the wine is worth to you. Never exceed your bid — it’s only wine. It will be offered for sale again.
When purchasing from merchants in the current economy, ask for a discount. It can’t hurt, especially when you’re buying full cases or expensive bottles. The worse that can happen is the store will say no. But in today’s economy, many merchants will give discounts, especially for costly bottles. They need to sell wine.
What to buy in today’s economy depends on whether you’re purchasing for current consumption, cellaring or resale. For drinking, seek out the best possible deals on mature bottles from great vintages. A lot of fabulous wines from 1982-2000 have recently sold for their lowest price in years! If you’re seeking to obtain wines to cellar, it’s important to focus on the top wines in the best vintages you can afford. For example, in Bordeaux 2000 and 2005 are key years to buy. The 1996 and 2003 Left Bank wines as well as 1998 Right Bank bottlings are also worth seeking out. There is no reason at this time to purchase 2006 or 2007 Bordeaux. Rumor has that 2008, when priced as a future, will be offered for less than the current prices being asked for 2006 and 2007. If that rumor proves true and 2008 is almost as good as the 2006 and 2007, let alone better, prices will plummet for the 2006 and 2007. That makes it prudent to wait until 2008 is in the bottle before buying. It makes no sense purchasing those wines today when the probability of prices remaining flat or dropping is very strong.
Lighter vintages like 2001 and 2004, offering quality early drinking, have recently trading at heavily discounted prices. Numerous deals on 2004 below the original offering price have popped up lately. Because the vintage is relatively recent, ample supply remains and sellers are motivated to move the wine.
Another hard hit area in wine collecting has been the famed California cult wine category. Cult wines are very low in production, earning extremely high scores that sell for much more money in the secondary market. Until late last year, the hottest cult wines were in very high demand. That segment of the market has almost been completely wiped out. Famous names like Screaming Eagle, Harlan, Bryant and other sought-after marquee brands previously trading for massive premiums are now having a hard time selling at cost.
Buyers and sellers need to exercise caution in these extremely, tumultuous times. However, drinkers can rejoice as there is no better time than today to open something special.