Back to the Futures (Bordeaux En Primeur)

In Bordeaux, not only does history repeat itself, so do the futures. Futures (called en primeur by the French) describe the long established practice of top Bordeaux chateaux selling their wine well before it is available in bottles. Asians would have no difficulty in identifying with this practice because it is identical to buying property off the plan. For this reason, wine futures are called “酒花”.

For each vintage, the grapes are harvested in late summer or early fall of that year. After the wine is made (but not necessarily the final product because the winemaker may not blend the wine until shortly before it is bottled), it is kept in barrels for over 18 months for maturing. Therefore, the wine will not be bottled until the spring of the year after. It would arrive on the shop’s shelves by early autumn. For example, the vintage 2010 would still be in barrel and would not be bottled until the spring of 2013.

Since it is an expensive proposition to be kept out of your money whilst your produce is sitting in a barrel for about 2 years, Bordeaux chateaux have latched onto the idea of selling their wine whilst it is still in barrel. The obvious advantage is that they recoup the cost as soon as possible and are protected against fluctuations in price. But how do you determine the price of a product which qualities vary from year to year? This is where the critics and the merchants come in. In the spring of each year, critics and merchants are invited to taste wine that is still in barrel. Based on their pronouncements, the chateaux set their price for the futures. This has created a love hate relationship between the chateaux on the one hand, and the critics and merchants on the other.

The critics get early access to wines which may not be available to us mere mortals for years. The merchants get a margin for selling a product which does not even exist. However, you have to pay to play. Critics and merchants are expected to give good reviews because ratings and scores have a huge impact on price. Although critics stress their independence, tasting wine is extremely subjective and such a cozy relationship can cloud one’s judgment. Chateaux love them when they give high scores but are very defensive towards negative reviews. Merchants tout their wines but are livid when they see their margins being squeezed by high prices set by the chateaux (which they ironically contributed to by giving glowing reviews).

Futures (again!)

So each year we get the same song and dance. Shortly after the harvest, reports of the quality of the vintage start trickling out, and this sets the tone for the coming campaign. If it is a good year, it will be pitched as the vintage of the decade/century. If it is mediocre, the wines will be accessible (ready to drink) and affordable. Anticipation would be built to a crescendo by the time the horde of critics, merchants, media and assorted hanger-on’s descended upon Bordeaux for the ritual tasting in March. A deluge of tasting reports would be showered upon us but all would wait with baited breath for word from the oracle, Mr. Robert Parker. Once Mr. Parker has spoken, the chateaux set their price and the merchants kick into hyper-drive to push the wines. By the beginning of July, the campaign would be finished and the carnival would leave town. So the futures repeat itself every year.

En Primeur 2010

With the new millennium, Bordeaux has produced many superb vintages starting from 2000 and in 2003, 2005 and 2009. The 2009 vintage was called the vintage of the century before 2010 came along. Critics then ran out of superlatives because 2010 is supposed to be even better than 2009. This string of great vintages can be attributed to global warming (hot weather makes good wine) and modern winemaking skills. In fact, the modern approach and the monetary rewards reaped by the top chateaux who have embraced it have resulted in fine wines even in off vintages. Nowadays, the classified growths have either produced superlative wines in good vintages or very fine wines in lesser vintages. The top wines in 2009 and 2010 all received 95+ scores from Parker and each vintage had 5 or more wines which have the potential for perfect scores. For lesser vintage such as 2008, the top chateaux also received high grades. For Lafite Rothschild, consecutive vintages from 2008 to 2010 received scores of 98-100 from Parker (although 2008 received a final score of 98 when it was tasted in bottle).

With the vociferous appetite for fine wine from China, the marquee names have discovered that quality has little bearing on demand. This can be seen from the surge in demand for and prices of 2nd wines from Lafite, Latour and Margaux (which certainly are nowhere near their 1st wines in quality). In 2008, they mistakenly priced their futures at bargain basement rates because of the perception that it was an inferior vintage. The negociants and merchants made a fortune much to the chagrin of the chateaux. Having learnt their lesson, the chateaux raised their prices substantially for 2009 and increased them again for 2010 (by at least 10%). There were howls of anguish from the middlemen and accusations of greed were leveled at the chateaux. This is rather absurd because wine is not a necessity. Top winemakers are in the business of making a luxury product. There is no reason for the chateaux not to price their wine at the highest point that the market can bear. If you cannot afford it, don’t buy it.

Caveat Emptor (buyer beware)

In an advertisement for 2010 futures, a prominent online wine retailer stated that buying futures offers the advantage of being able to “secure a supply of often hard-to-find wines, and buy them at a price that is generally much lower than when the vintage is finally released on the market”. The pricing advantage may be true many years ago, when futures were priced at a reasonable discount by the chateaux. The recent practice of not wanting to leave money on the table means that futures are fully priced to anticipate the market price when the wine is actually released 2 years hence. Having factored in the trophy effect in the pricing for top wines, there is simply not much room left for appreciation. You have one chance of a substantial increase in price when the wine is released, if Parker gives it a perfect score when it is bottled. Therein lays the first caveat. The wine is given a score when it is tasted in barrel. Parker scores it in a range with a deviation of 2 to 4 points. When it is bottled, Parker tastes it again and gives it a final rating. For example, 2010 L’Eglise Clinet (a Pomerol favorite of Parker) was given 96-100, if it is given a perfect score in 2013, the price will substantially increase (the 2005 vintage received a perfect score and is now retailing for above ₤400 per bottle, 2010 futures is being offered at ₤300 each). Since it is not a trophy wine, the price may drop if the final score falls in the lower range.

Buying of futures is speculative in nature and speculation is best left to the experts (who are often wrong anyways) or those with deep pockets. If you like risk and have money to spare, then buying futures may be for you. If there are certain wines that you must have to complete your collection, or you want your wine to come in an unusual format (such as an imperial) and don’t really mind the price, buying futures ensures you will have the desired bottle. If you are a wine collector or investor, you should think twice. The scoring uncertainty has already been highlighted. To buy futures, you would also be paying the full purchase price 2 years in advance (you forego interest for your money). In my personal experience, I bought the 2005 vintage in 2008 for less than the futures price after the sterling had weakened substantially during that period. By buying after it is released, you get to keep money in your own pocket; earn a bit of interest; know exactly what you are buying because the final product has been assessed.

The final caveat is that the wine futures market is rife with fraud. Getting punters to part with their money on a bare promise that you will deliver a product to them after 2 years is far too tempting an opportunity for thieves to pass up. In July of this year, an Englishman by the name of Paul Craven was convicted by the English courts of fraud. He was found guilty of stealing ₤1.2 million from investors who were pressured into buying wine futures with boiler-room tactics. None of the money was used to buy wine but rather to support a cocaine habit and a highflying lifestyle of fast cars and ritzy vacations. Given the rise of Hong Kong as a wine hub, we are not spared. The local press reported in June that the police were investigating a company with the grand sounding name of Premium Liquid Assets which has closed its doors after selling HK$50 million worth of wine futures to 400 investors.

You can protect yourself by buying from reputable merchants with a solid track record but you have to remember that unlike other futures market, there is no government oversight or regulation. Therefore, buyer beware!