1994 Bordeaux First Growths - a Time to Sell

If you're still waiting for these to come around, they won't.  The 1994 Bordeaux first growths peaked from 2000-2004.  Look at the 2011 auction prices and cash in.

1994 Mouton ......$350-$400
1994 Lafite..........$1008-1321
1994 Haut Brion..$300-$400
1994 Latour.........$350-$600
1994 Margaux......$300-$500

Price ranges are for the first half of 2011.  Recent prices (April, May, and June auctions) show all these wines are at or above $400/bottle.  The 5-year price charts on wine-prices.com show all of the 1994 Bordeaux first growths going vertical now, after spending the last decade at or under $200/bottle.

In 2004, I sampled all the 1994 Bordeaux first growths, and I was impressed.  Many tasted quite good, and all could be had for $125/bottle or less.  I bought about 10, from different chateaux, and waited.  As the years went by, I pulled them out proudly for guests and family.  One was austere, another was bitter, a third was closed, and a fourth was past its peak.  Seven years later, I get it; these wines are not closed.  They are amber, austere, and fruitless.  They peaked, and another decade in the cellar is not worth the wait.  At these prices, they're not worth keeping.

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.

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.

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.

The Importance of Dumb Money

Bring me the best wine! Only the very best!

It is vital for the wine speculator to understand this attitude. The very best of any collectible, including wine, is likely to be overpriced relative to the second best example of that collectible. Not just priced higher, but overpriced.

Let's look at an examples of where pricing makes sense and another where it does not make sense:
DRC Romanee Conti vs La Tache. Romanee Conti has an average annual production of 450 cases/year, whereas La Tache produces about four times as much - 1870 cases, on average. For the 2002 vintage, the Romanee Conti gets around $6500 at auction, compared with $1700 for the La Tache. To me, this price ratio looks about right.

Now let's look at 2003 Bordeaux, Latour vs Montrose. Both Chateaux make about 20,000 cases a year, and both made less than usual in 2003. Both wines score 100 pts (RP). Yet Latour costs $1000/bottle, and Montrose is $250. Maybe Latour is better, but is it 4 times better? This ratio defies common sense. I do expect Latour to cost more, because it is a first growth, and there is a certain prestige associated with that, but not 4 times more.

Compare this to the 1990 vintage, where again, both wines earned top marks from RP. The 1990 Latour now trades for $900, and the 1990 Montrose costs $500. This approximate 2:1 price ratio is what I foresee for the 2003 Latour and Montrose. 2003 Montrose is on my short buy list for Bordeaux.

Party Over in Wine Market (for now...)

The big news in wine this week is not wine. It's the Sotheby's fine art auction of Wednesday, November 7th. The total pre-auction estimates were $350-$500MM, but the actual total was $269MM. Sotheby's stock dropped 28% on the news. What does fine art have to do with wine? Everything. If you can afford $150,000 for a Miro to hang on your wall, then you can afford $1800 for a 1982 Latour to have as you cellar trophy. And you probably buy them for the same reasons: to feel sophisticated for your fine taste, and to feel the status that comes with playing in a game with very few "winners".

But when the winners start to feel like suckers, it's game over. Art and wine are highly speculative investments. They produce nothing. They do not pay a dividend. They require climate control, insurance, and security (translation: expensive to own). And of course, they are not necessary for anything.

Those wines which have been the targets of trophy-hunters (1945, 1982, 2000, and 2003 first growths for instance) will show the most dramatic price declines (perhaps 20% by the end of Q1 2008? - just a guess). Some particularly striking examples, such as $12,000 for a 1990 DRC Romanee-Conti, (up from $4000 in 2003) could probably stand to fall a little farther.

The last four years have been a great time to be selling fine wine. Perhaps the next 4 will be a good time to buy.