I. The Market Summary
After two quarters in which we had seen substantial falls in many wine prices, the first quarter of 2012 has seen market stabilisation and, indeed, signs of a bounce back. All of the major Liv-ex indices have now shown an uptick in activity. Even the Liv-ex Fine Wine 50, which solely tracks prices for the ten most recent physically available vintages of the five First Growths, has made modest, yet encouraging, gains since the turn of the New Year (see graph below).
With distress sales now dissipating, First Growth prices in numerous vintages have reached levels at which the market is beginning to see value once again – Chateau Lafite has witnessed resurgent interest in recent weeks, though it is highly unlikely that we will witness the Lafite-mania of the last twenty-four months. First Growth trading appears to be overshadowed by a sustained interest in proven chateaux in the Second to Fifth Growth classifications, as we suggested through much of last year might be the case. The general broadening of the market was cemented by Robert Parker’s re-evaluation of the 2009 vintage which did much to confirm the credentials of solid band of properties vying for Second Growth status. The Liv-ex 100 index reflects some of this broadening as it does not solely comprise First Growths.
Confidence would seem to be slowly returning. In part this is buoyed by the recent demand for the 2009s and partly it is a result of a perception that the wines of specific properties and vintages have fallen far enough to now represent genuine value. The mood is significantly more optimistic than in the last quarter. It will be interesting to see if the market really gets into its stride as we enter the principal trading quarter for the fine wine industry. Signs are undeniably more promising than they were but six weeks ago. If we see a significant reduction in the Bordeaux release prices this year, the market could be propelled still further.
II. Parker’s 2009 review
We fully anticipated an enthusiastic set of notes from Robert Parker when he finally released his “in bottle” scores for the 2009 Bordeaux. He had already, recently, commented that it was the most impressive vintage of his 33 year wine-tasting career. Nevertheless, when he did announce his scores on the 29th February 2012, it is doubtful that anyone expected as many 100 point scores – 19 in one vintage review.
Since his “Magical 20” tasting back in November 2011 which focused solely on the 2009 vintage, we were convinced that the vintage would be thrown further into the limelight and our buying strategy and recommendations reflected this. What is fascinating is that throughout the last six months Parker has championed the quality of more lowly classified estates rather than focusing entirely on the predictable great and good at the top of the tree.
The 19 wines that achieved the perfect score fall into the following appellations:
Of these properties, a significant number fall into the ‘second tier’, non-First Growth, category mentioned above. The list below illustrates the pride of place given to this category in the 100 point 2009 vintage club with their prices pre- and post-Parker’s definitive scores.
It is noteworthy that three out of the five First Growths did not score 100 points. Lafite-Rothschild, Margaux and Mouton all fell short of this heralded status, though they did each achieve a not insignificant 99 point score.
It would seem that Parker has re-asserted his authority in the market. His ‘Magical 20’ tasting did much to boost his profile in Asia, just when it appeared that buying was increasingly driven by ‘brand’ rather than ‘critic’ and ‘consumer’. The much-awaited 2009 review has fuelled plenty of Parker-related debate. Indeed his website www.erobertparker.com was overloaded at 11.30pm GMT on the night of the 29th February making it impossible for many subscribers to log in. The furore created when hard copies arrived with subscribers before the information could be accessed electronically took a considerable time to simmer down on his bulletin board and even elicited an apologetic response from the man himself. Waning influence? Apparently not.
III. Focus on Lafite
So much had been made of Lafite’s prominence in the Asian market. And yet from spring last year, the appetite for Château Lafite-Rothschild had started to wane. Lafite was considered a super-brand, with ex-Château releases fetching astronomical sums at auction. It seems more than a little bizarre to think that the 2009 vintage sold for £43,054 per 12 bottles at a Sotheby’s Hong Kong auction in October 2010, when the very same wine was trading for £11,000 per 12 in London; such was the hype. Even ‘off-vintages’ showed good investment returns; vintages such as 2007, that had previously been considered too expensive for the market when released at £2,500 per 12 in London, soared to as much as £8,000 on the Liv-ex platform (and that was an inter-merchant price!). To cite but one more example; the 2008 vintage, with the magic ‘8’ on the label, signifying wealth and prosperity was driven up from £1,800 per 12 to as much as £14,500 before its fall. Today it trades for around £7,500 per 12. It has certainly been a roller coaster for the brand, but as one client of ours often suggests ‘no tree grows to God’.
At its peak, and according to Liv-ex, Lafite (viewed as a brand) commanded a premium of just under 130% over the remaining four First Growth. To understand the cycle of this premium, the graph below from a recent Liv-ex blog paints a clear picture. This is based on the average of the ten most recent physical vintages.
The progression of Lafite’s price in the market was taken as a guide to the Chinese market’s confidence. Since December 2010, there has been a distinct slide as global economic woes have loomed large coupled with the fact that Chinese tastes in fine wine have shown signs of broadening. In many respects it isn’t surprising to view a chart such as the one above as there must come a point when even the wealthiest start to question why they are purchasing something they themselves have driven to such significant heights.
So what is the outlook for Lafite in 2012? Since the beginning of the year the brand has witnessed a modest resurgence in both interest and price, but appears to have found its level for the time being. Recently Chinese Premier Wen Jiabao commented that he would ban the use of public funds to buy high-end alcohol in a step to curb the corruption, which he believes will endanger the Communist Party’s survival. The impact on the Chinese wine market could be significant as we are told that Lafite has been used as a form of ‘currency’ for the payment of corrupt officials. Bribery, kickbacks, theft and misspending of public funds is said to account for at least three percent of China’s GDP.
In the long-term, it is likely that Lafite will appreciate in absolute value terms but it is our view that the hay days of yesteryear will not return any time soon and that any new charge in the fine wine market is unlikely to be led by the super-brand. In the next four to five years, we envisage the four other First Growths, namely Latour, Mouton-Rothschild, Haut-Brion and Margaux gaining in price and further eroding Lafite’s current premium. We also anticipate the gulf between the First Growths and other notable classified growths will continue to close as has been witnessed in recent months.
V. Prospects for the 2011 vintage
As I finish writing this report, we are preparing to head to Bordeaux for the 2011 En Primeur tastings. We prefer to keep an open mind until will have tasted for ourselves, but the murmurings have already begun. At a recent Château Margaux seminar in London, Paul Pontallier, the director of the estate, showed some varietal Cabernet Sauvignon from three distinct parcels across the Margaux vineyard mass. The quality of these samples was promising; the wines were not insubstantial and were pleasingly ripe. The only cause for consternation was the comment he made concerning low yields leading to only minor reductions in release prices……we will see.
Robert Parker has just returned from his tasting trip and has commented that ‘despite the unusually mediocre summer, the wines are ripe, deeply-coloured, very aromatic, generally quite pure, medium weight and with higher acids than the two great years of 2009 and 2010’. Certainly we are expecting a mixed vintage just from the weather pattern alone – four months of drought to early July, wet weather and the risk of rot in August/ early September, only for fine weather to return in September and to lead to a remarkably early harvest. The only other recent vintage to have seen the harvest completed in September was the incredibly hot 2003 vintage, to which there is absolutely no correlation in terms of weather pattern.
Beyond concerns over wine quality (and we expect successes and failures in such a year) the key question is that of release pricing. Prices might need to be down as much as 40% on 2010 to generate significant buying activity. Will we see such a dramatic reduction in pricing? It would seem unlikely despite the fact that the general quality is certain to be lower than that of 2009 and likely to be lower, on balance, than 2010. Other factors such as the correction that we have witnessed in the fine wine market and the fact that many loftily priced 2010s remain unsold on merchants’ books and in negociants’ cellars may or may not weigh on proprietors’ minds. Perhaps the fact that various Chinese merchants have delayed payment on 2010s until shipment and a few have reneged on purchases altogether may cause the Château-owners to view the more stable western markets in a more favourable light and therefore price at more realistic levels. Who knows?
VI. Bordeaux 2011 – blog and newsfeed on client pages
Please look out for our Bordeaux feature on the client pages which will be launched on Monday. There will be a daily blog starting on the 2nd April, which will detail our travails. In addition there will be a newsfeed, called ‘soundbytes’ to keep you up to date with our comments whilst in Bordeaux. We hope it proves interesting and look forward to your feedback.
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