Corona Daily 397: En Primeur or Wine Futures

Every spring, around 5000 journalists travel to Bordeaux in France, visit wineries, interview vintners and taste hundreds of barrel samples, a sweet perquisite of the writing profession. Negociants (wine merchants) gather, taste, and reach a consensus on the quality of the new vintage. Winemakers throw lavish parties and dinners for the guests.

En Primeur, essentially a Bordeaux term, is the concept of buying future wine today. (Like finding a young gymnast who can bring an Olympic gold, and investing in her years in advance). Wine reporters and traders taste fresh wine from barrels. They need to speculate on its taste two years later, after it has matured in the barrels. During the ageing time, flavours in the newly blended wines knit and settle together, tannins in red wines soften and white wines become richer and more full-bodied. Ageing in new oak barrels can add aromas and flavours of vanilla, spice and smoke. The winemakers sell at a lower price today than two years later, because it helps their cash flow and secures sales.

If you are lucky, wine can be as worthy an investment as stocks, houses or gold. The 1982 Chateau Latour was presold at $40 a bottle in the 1983 futures. Today the same bottle is priced at $1500. Between 2003 and 2018, red Burgundy gave returns of 497% vs 279 % for S&P 500 (US stock market).

Normally the En Primeur campaigns begin in May and continue through June. Bordelais assess the mood and issue the price lists. Having done the job for the future, they head for their summer vacation.

None of that happened this year. Autumn 2019 autumn was harvest time, when wine was made. But before a single guest could arrive for wine futures, France went into lockdown. Meetings were arranged on Zoom, but wine cannot be tasted online. Wine-makers couriered samples around the world, but after travelling a few thousand miles at 40,000 feet, wine may not taste like it tastes from a fresh barrel. At least one prominent wine author refused the samples, citing peril for the health of the wine and health of the recipients.

Based on the journalists’ who tasted the couriered samples, the 2019 vintage has been described as elegant, delicate, charming, precise, pure, rich with fine ageing.

*****

Based on the virtual campaign, Bordeaux winemakers have gone ahead and declared the futures price list for the 2019 vintage. They have offered on average an attractive 30% discount.

Even before Covid-19 uncertainty, the European wine industry was facing a variety of issues. USA, China and UK are its main markets. US has imposed 25% tariffs since October 2019, and threatens to raise it to 100%. (Believe it or not, this is in retaliation to Europe offering subsidies to Airbus, Boeing’s competitor). China has its own problems. And UK will be out of the EU by the time the wine matures. In normal times, 30% discount in wine futures is unheard of. It upsets those who bought expensive stocks last year. The pandemic is a legitimate excuse for such a gesture.

*****

Rich people have their own problems in the pandemic. How to preserve and grow their wealth if the equity or real estate bubbles burst? Other than gold, wine may be an option for them. Wine has an added advantage. If your bet doesn’t work, and the prices actually fall in 2022, you can always drown your disappointment by drinking your purchase.

Ravi