2005 Bordeaux First Growths

Wine investors speculating in the 2005 Bordeaux first growths should consider the 2005 Mouton Rothschild.

First, the range of scores for these wines is not big. Parker scored them all in the range of 96-98+, so the price differences are not representative of relative quality.

The following chart shows today's pricing of the 2005 First Growths compared to their prices as futures in the summer of '06:

Wine..............Futures Price/Current Price ..... % Change

Mouton.................... $575/$570....................... -0.08%

Latour...................... $765/$980....................... +28%

Haut Brion............... $626/$660........................ +5%

Margaux.................. $712/$830........................ +16%

Lafite........................ $604/$1200..................... +99%

Over a long enough time span, inflation, diminishing supply, and a long window of maturity should be expected to drive all the 2005 first growth Bordeaux to higher prices. However, buyers of Latour, Lafite, and Margaux appear to be premature, and I would expect these wines to be at risk for a correction.

While Haut Brion may also appear to be poised for growth, anyone willing to pay $660 for a Haut Brion should have a close look at the 1990, or the 2000, both of which trade for around $600 at auction, and have a much lower supply, because we've been drinking them up.

The 2005 Mouton, in contrast, has not budged in price in the last three years. Older vintages (like the 2000 - $840) actually cost more, which is what a speculator would expect. It may be the first of the 2005 first growths to move higher from present levels.

M Etain Price Revealed

The Scarecrow winery has priced M. Etain at $125/bottle. The un-rated wine is from the 2008 vintage, and is available in 2-bottle cases (maximum 2 cases).

From a collector's perspective, anything Scarecrow puts out is highly desirable. But does M. Etain make sense for a wine investor?

Consider that the Grand Cuvee, Scarecrow, received a (92-94) score from Robert Parker, which is his lowest score for any Scarecrow wine. What would we predict the second wine to score? It's anyone's guess, but further consider that the year 2008 had big problems for the Napa Valley, including a devastating spring frost, and a summer drought. The bottom line is that it was very difficult for anyone to make a great wine, and M. Etain is unlikely to offer wine investors a significant profit.

Scarecrow Introduces M. Ètain

In an email to allocation members, Scarecrow announced a new wine called M. Ètain for 2008. Is this a luxury cuvee, or a second wine? Probably the latter. The email describes:

“The portion of juice that wasn’t included in the final Scarecrow blend was so undeniably superb that we were inspired to bottle it...M. Étain 2008, a stunning Cabernet Sauvignon which charmingly displays a perfect balance between power and elegance.”

The email goes on to say that M. Ètain won’t necessarily be offered every year. To me, it sounds like a second wine, with limited availability.

Should you buy it?

Scarecrow is coming from a big success with its 2007 offering, but consider that 2008 was a difficult year for Napa. The 2008 Scarecrow has a Parker score of (92-94), the lowest of any Scarecrow, and the 2008 M. Ètain is still unrated -and unpriced. This year’s 2008 M. Ètain offering might be fun for collectors and consumers, but it is unlikely to be worthwhile for speculators. I expect the best juice went into the 2008 Scarecrow.

Wine Market Forecast and 2009 Bordeaux Futures

Top vintage Bordeaux futures are often recognized as having delivered handsome returns, and investors may be particularly tempted by the 2009 futures when they consider the other great vintages released into recessions: 1990 (futures offered during the recession of 1991), 1996 (futures offered during the currency crises of 1997), and 2000 (futures offered during the recession of 2001).

Buyers of 1990, 1996, and 2000 Bordeaux futures did very well (around 300-400% for the first growths), but their outsized returns were powered by the internet bubble of the late ‘90s and then credit bubble of the early 2000s. Other great Bordeaux vintages, such as the 2005 have not done as well, with the ’05 first growth futures collectively delivering 5% average annual returns to date. Should 2009 Bordeaux futures follow the historical precedent of the other recession offerings, such as the 2000? Or will it be more in line with the bubble prices of the 2005s?

Investing in 2009 Bordeaux futures is not without substantial downside risk; bubble money is still chasing these wines. See the full story of how the un-popped Asian real estate bubble is inflating Bordeaux prices here.

At $1000-$1500/bottle, the 2009 first growths cannot be justified, when there is mature wine selling for less. Wine investors would be better off buying OWCs of 1982 Mouton, or 1989 Haut Brion, which trade at similar levels to the ’09 futures. Today’s situation is very different from July 2001. At that time, 2000 first growth futures were offered at $250/bottle, while the 1982 first growths traded between $400 and $500. The 60% premium for the ‘82s made sense; older vintages should cost more. Today, they don’t. Wine investors should expect either a price drop in the 2009s, or a big price jump in the mature vintages.

I wouldn’t rule out both.

2008 Harlan Allocation

The 2008 Harlan Allocation is out: $500 for the 2008 Harlan, and $150 for the 2007 Harlan the Maiden. Wine investors should probably skip this one.

Higher release prices among the cult California Cabs have forced wine speculators to make difficult choices in recent years. The 2008 Harlan hasn't been rated by Parker yet, but we still have enough information to make an informed decision. 2008 was a difficult year for Napa Valley; the worst spring frost in 35 years was followed by drought and summer heat spikes. Odds are that even the top Napa estates will have a hard time reaching 100 points. And at $500/bottle, you're going to need 100 points to make money on the 2008 Harlan.

Parker has given four Harlan vintages perfect scores: 1994, 1997, 2001, and 2002. These wines all trade for over $750 at auction. The problem is that typical vintages do not sell for these prices. In 2003, 2004, and 2005, Harlan made great wine. Scores from Parker ranged from 95 to 98, but the auction prices for the 2003-2005 Harlans range from $350 to $475.

Bear in mind that after the auction house charges you 20% commission, your 2008 Harlan needs to sell for $600 - just to break even. There's also local sales tax and shipping to consider. Without 100 points from a top critic, it will be very difficult for a speculator to make money flipping the 2008 Harlan.

The 2007 Harlan the Maiden looks like a safer bet. Its Parker score is in line with other vintages of the Maiden, and it is priced fairly -if personal consumption is your goal. As with the 2008, the auction house fees, shipping and local sales tax will destroy any chance of profit.

Bottom line: If you want to sell these wines right away, it's going to be tough to make money. But if you just want to buy something to stay on the allocation list, choose the Maiden.

2003 Bordeaux Revisited

Have you ever wished you could go back in time and buy first growth Bordeaux at the release price? You may just get your wish with the 2003 Haut Brion.

At auction, the 2003 Haut Brion will cost you around $280/bottle including buyer's premium. Of course, at any given auction, prices may be higher. Patience may be required to buy at the average price, especially if you are buying a lot of 12 in an original wooden case. Retail prices can be highly variable, but a wine-searcher check shows three California retail sources with prices at $280 or under.

The fall 2006 release price for the 2003 Haut Brion (not the summer 2004 futures price) was around $325/bottle, according to both eRobertParker.com and Vinfolio's WinePrices.com. While the 2003 Mouton and 2003 Margaux are also showing price weakness, only the Haut Brion is actually trading below its release price.

Release and current prices of all 2003 first growth Bordeaux follow:

Wine..........Release/Current

Lafite.........$400/ $1100
Mouton.... $275/$312
Margaux... $375/$538
Latour.......$400/$766

Haut Brion $325/$280

While all investment grade wines may in the middle of a price correction, the 2003 Haut Brion may already be near its bottom.

Next of Kyn - a Wine for Collectors, not Speculators

The newest cult offering from Manfred Kankl, NEXT of KYN, was recently offered at $1100 for 3 bottles plus a magnum. The debut vintage was reviewed at 94-96 by Robert Parker, while the wine was still in the barrel. Here’s why I passed.

The cost is $220/bottle and $440/magnum before tax, shipping, and the inevitable auction house fees when you re-sell. Tax varies by state, but I’ll guess 7%, or $77 for our purposes. Shipping to your house and then to the auction house will cost $30, if you wait until it is cool enough for ground transportation to be safe. So the cost to get the wine to the auction house for sale is $241. Auction house fees run 12% to 21%, plus 1% insurance. So, the minimum reasonable break-even price for flipping NEXT of KYN is 13% higher than $241, or $272/bottle.

Now let’s look at the competition:

2006 Sine Qua Non Raven Series Syrah (RP 96) retails for $200
2007 Sine Qua Non Labels Syrah (RP 95-98) retails for $225
(prices on wine-searcher as of August 4, 2010)

The same winemaker has higher scoring wines for much cheaper. If you really want NEXT of KYN, just wait a year and buy it at retail. At least you won’t get stuck with the magnum.

Sine Qua Non The Pontiff

Getting an allocation from an exclusive winery, such as Sine Qua Non (SQN), can be worth the wait, but do you have to buy everything they offer?

As a wine speculator, what you do want from SQN is Syrah and Grenache from the Eleven Confessions vineyard. If you are offered something else, do you take it? In the case of the 2008 The Pontiff (rose), my suggestion is to skip it, or sell it. Unlike their Syrah and Grenache, the SQN white and rose wines are just not buy-and-hold material.

The question remains, are allocations of the more desirable wines larger for the customers that buy all the other stuff? Fortunately, with Sine Qua Non at least, speculators don't need to worry too much about it. Even in this economy, Manfred Krankl's latest rose can be flipped without too much of a loss (current price $100, release price, $79). You'll lose money on shipping, but you'll break even on the bottle.

William Fevre Chablis

William Fevre Chablis is a good value for drinking at current prices. If you are tempted to speculate, go for Les Clos.

The 2004-2005 Fevre Chablis tend to be available for around $40/bottle for a premier cru, and $60/bottle for a Grand Cru, and $80/bottle for Les Clos. Patient speculators can find these wines at auction for $10-$20 lower than these prices.

I like Fevre Chablis for three reasons:
1. It tastes like a wine that costs 50% more.
2. The wines are well made. I have never had a Fevre tainted by premature oxidation.
3. Prices of the 2002, 2004, and 2005 Fevre Les Clos actually rose by about $25/bottle during the 2007-2010 time period, a time when most non-blue chip wines fell or barely maintained their value.

Is Chablis worthy of investment? Mostly not, although owners of Raveneau did well with the '02 vintage Grands Crus. Fevre's Les Clos could similarly beat the odds and make the jump to $120+ over the next few years.

Expect Discounts on Blue Chip Wines

Yesterday's massive US stock market drop has been attributed to a trader error, in which "billion" was substituted for "million". That may make us feel better in the short term, but look to the Asian markets to predict the next move in the wine market.

Investment grade wines, especially first growth Bordeaux, have experienced a dramatic turnaraound since the crash of 2008-2009. A closer look at the Bordeaux market reveals that this recovery comes from Asian demand.

http://www.decanter.com/news/293682.html

http://www.lovethatwine.co.uk/blog/bordeaux-gets-boost-asian-demand

http://www.winespectator.com/webfeature/show/id/42409

But Asia is now undergoing a massive stock market correction, with the Hong Kong stock market down 11% over the last three weeks. Couple this bad news with the well-known fact that the Chinese real estate bubble has yet to burst ....

http://www.nytimes.com/2010/03/05/business/global/05yuan.html

http://www.cnbc.com/id/35056774/Jim_Chanos_China_s_Real_Estate_Bubble_Is_Unprecedented

http://money.cnn.com/2010/04/15/news/economy/china_bubble/

... and we have the perfect storm brewing for investment grade wines.

For wine speculators, I recommend waiting for the correction before establishing any new positions in the following: Lafite, Latour, Margaux, Mouton, Ausone, Haut Brion, La Mission Haut Brion, Cheval Blanc, Petrus, or anything DRC. Look for these prices to fall as the Asian markets correct.

2007 Scarecrow

The 2007 Scarecrow (100 RP) is offered at $225, a hefty 28% increase over the 2006 release price of $175. If you get an allocation, buy it, but do the math first.

If you don't drive to the winery and pick it up yourself, you probably need to get your wine shipped to 55 Degrees (a California based wine storage facility), where your wine will be held until safe wine shipping temperatures prevail in both California and your home state. 55 Degrees makes its money by renting you a wine storage locker, so you can expect to wait the better part of a year before your wine gets to you. For your 3-bottle allocation, plan on $112 in wine storage fees, $37 in CA sales tax (which you must pay, since delivery to 55 Degrees is in CA), and $60 in shipping and shipping tax to 55 Degrees by FedEx 2nd day service. You'll pay more to have it shipped to you.

Your $225 bottle is now over $300. If you sell at auction, the auction house will clip you 15-20%, plus you'll have to pay again to ship your wine to the auction house. To break even, the hammer price plus premium must be over $350. Will your 100 point 2007 Scarecrow be profitable? Probably (pre-sales on Winecommune.com are around $500), but you'll want to think hard about future allocations at these prices. Here's a list of past vintages by score and market price:

2003 RP98, $700
2004 RP95, $445
2005 RP96, $395
2006 RP94+, $379

Scarecrow is no longer the no-brainer it was a few years ago, when a $100 bottle could be flipped at auction for $800. Unless Scarecrow drops their prices (or begins direct shipping to the consumer), it appears that future vintages with Advocate scores under 95 will be too expensive for speculators.