Opinion: A 3rd Straight Excellent Vintage For Bordeaux Wines - What Does This Mean For Prices?

Posted: Jul 11, 2021

After a nightmare year for French vineyards in which the pandemic saw revenues plunge and winemakers forced to send their unsold wine to distilleries, sometimes to be turned into hand sanitizer, the sector is trying to bounce back.

In Bordeaux, the epicenter of the global fine wine market, the wine harvested during that difficult time has just been through its en primeur campaign, often known as “wine futures” in English.

The en-primeur system dates back to the 18th century, and was modernised in the 1970s to resemble what we know today. Similarly to futures on financial markets, it allows producers to sell their wine while it is still in the barrel. The wine is then finished, bottled and delivered to customers around two years later.

This campaign is run as a finely organized system. Every year, over a week in spring, wine experts will come to Bordeaux to taste the wines and publish their notes and scores. This is followed by a two-month period during which each chateau sells its wine to consumers via an intricate system of brokers, traders and merchants.

This well-oiled machine is nevertheless subject to much uncertainty, which goes beyond the current pandemic. That’s because en-primeur sale involves an unfinished vintage of uncertain quality released into an unknown future economy.

How do wine sellers put a value on this unfinished wine? And what is a fair price for a vintage like 2020? We built an economic model to simulate reasonable release prices for the current campaign.

Previous campaigns

In Bordeaux, demand and, therefore, prices depend mainly on quality and less on quantity. Following a price decline between 2011 and 2016, the Bordeaux market rebounded in 2016 due to a great 2015 vintage. This was followed by an even better 2016, for which prices increased substantially but not excessively.

In 2017, vineyards were hit by a severe frost which caused a 40% drop in the wine harvest. Lower quantities encouraged châteaux to maintain prices close to 2016 despite the quality. Poor sales thus unsurprisingly characterised the 2017 en-primeur campaign.

The 2018 vintage, sold as exceptional, saw significant increases, even though price levels were already very high. While the quality should have generated solid demand, this was not the case – the fault of the châteaux for being too greedy.

Last year, the pandemic and associated lockdowns almost led to the cancellation of the en-primeur campaign for the 2019 vintage. In the end, a postponed, shortened version took place. Perhaps surprisingly, and thanks to exceptional quality and reasonable prices, it was a success.

The pandemic forced the châteaux to make an effort on prices. Here lies the difficulty of this market: sellers had to lower prices to ensure a successful campaign while also being careful not to send too strong a signal to the market at the risk of making the many wines of 2017 and 2018 that were still available unsellable.

Source and complete article by: marketwatch.com

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