How to play the Bordeaux futures market
For Todd Goergen, it‚Äôs feeling a little bit like Christmas in May.
It‚Äôs Bordeaux futures season, after all, when wine lovers can stake an early claim to cases of the 2010 vintage from the world‚Äôs top chateaux. For Goergen, managing partner of a private-equity firm in Greenwich, Connecticut, that means it‚Äôs time to add to his growing collection of Lafite, Margaux and Haut-Brion.
Bordeaux might not be your typical futures market, in the fashion of corn or soybeans. But not only does it pair well with a filet mignon, it can also prove to be a stellar investment. ‚ÄúLast year I bought 2009 futures, and the retailer has already offered to buy them back at double what I paid,‚ÄĚ says Goergen.
Tread carefully, though. Like a stockpicker examining P/E ratios or free cash flow, there are multiple factors layered into any oenophile‚Äôs buying decisions. The vintage, the chateau, the price and the retailer all come into play. But with 2010‚Äôs quality seen as outstanding, vineyard production down by roughly 20 percent and Chinese buyers swarming high-end bottles like bridezillas at a Filene‚Äôs Basement dress sale, this year looks to be another bull market for Bordeaux.
‚ÄúI was just in Bordeaux and tasted 300 wines,‚ÄĚ says Jamie Ritchie, head of wine in the U.S. for Sotheby‚Äôs, which this year is offering Bordeaux futures for the first time. ‚ÄúI think it‚Äôs comparable in quality to the 2009s. It‚Äôs a great vintage, and going to be around a long time.‚ÄĚ
So how to play the Bordeaux futures market? Here are six tips from the experts:
Deal with someone you trust
Buying futures means you‚Äôll be paying someone upfront for cases that might not be delivered for a couple of years. A new and unfamiliar retailer who‚Äôs offering rates that seem too good to be true? Think twice, because a 30 percent discount doesn‚Äôt mean much if they close their doors in the interim.
Look beyond the most famous names
If you‚Äôve got your heart set on 2010 Margaux or Lafite, be ready to pay for the privilege. The Chinese have acquired a taste for high-end Bordeaux, and they‚Äôve helped drive prices for cases from the top wineries through the roof. But wine from under appreciated chateau is often equally fantastic, and might cost you only $100 a bottle instead of $2,000.
Earlybirds get the discount
Bordeaux futures are released in a series of “tranches”. Think of it like buying into a new condo development during the housing boom. ‚ÄúWith any successful release there‚Äôs the first price, and it only goes up from there,‚ÄĚ says Sotheby‚Äôs Ritchie. ‚ÄúYou want to be in at the beginning, and buy at that very first stage.‚ÄĚ
Be prepared to drink the stuff
‚ÄúIt‚Äôs not a true futures market, like commodities on the Chicago Mercantile Exchange,‚ÄĚ says Lars Neubohn, owner of premier New York storage facility The Wine Cellarage. ‚ÄúFor instance, you don‚Äôt actually need to take delivery of 100,000 pork bellies.‚ÄĚ But if you order Bordeaux futures, the wine is going to be delivered to your door, and not have its contract traded multiple times. There‚Äôs some under-the-table swapping that goes on, of course, but nothing organized.
Use the futures frenzy to your advantage
If the price spike in recent years is just too much to deal with, flip the futures trend on its head. For instance, there used to be a sizable premium for old Bordeaux that has already reached its full maturity; that premium has now disappeared. ‚ÄúAll the new billionaires only want the 100-point wines that are on the front page of the Wine Spectator,‚ÄĚ says Goergen. ‚ÄúThey‚Äôre not buying older stuff like 1983 Haut-Brion.‚ÄĚ
Vintage is key
Winemaking is a delicate business, of course, and if 2010 turns out to be a stinker of a year, then your futures might not be worth a whole lot. But early indications are that 2010 is ‚Äď if not quite on the blowout level of 2009, which is acknowledged as one of the best vintages of all time ‚Äď another outstanding year. Indeed, famed critic Robert Parker recently wrote that it‚Äôs one of the ‚Äúgreatest Bordeaux vintages I have tasted in my career.‚ÄĚ Bottoms up.