Liv-ex Fine Wine Market Blog

Burgundy prices creep north

The Liv-ex DRC Index continues to hit new highs. The index, which tracks the performance of DRC's leading Crus, consistently outperformed the Liv-ex Fine Wine 100 during the second half of 2011. Burgundy prices remained buoyant in January and the benchmark closed at 371.55 on the 31st - up 0.92 per cent month on month and 37.61 per cent year on year. 

The Burgundy 2010 campaign has no doubt played a role in the region's success. To a greater extent, however, top brands, such as DRC and Comte Vogue, have benefited from the general broadening of the market.

Lafite has seemingly lost its sparkle in Asia and buyers are turning instead to rare wines from Burgundy. In response to this, a Christie's auction in Hong Kong last weekend offered wines from the private cellar of producer Henri Jayer. The auction sold 100 per cent of its lots for £5.4 million, more than three times its pre-sale estimate. Several lots achieved spectacular results, including a case of Vosne Romanee Cros Parantoux 1985, which sold for more than £167,000. As with the Sotheby's Lafite sale in 2010, this demonstrates that - for the auction market - provenance is all-important. 

Fine wine market shows signs of improvement

As highlighted in the last Cellar Watch Market Report, bid-offer spreads tend to widen during periods of market stress or uncertainty. Encouragingly, however, the value of bids on the exchange rose in January and spreads tightened. Spreads have narrowed further since the start of the month and are currently the tightest that they have been seen the end of July. Is market sentiment turning positive?

Please note that the latest version of the L-WIN database is now available for download (free of charge) from Liv-ex.com. 

Suckling proclaims '09 "the best modern vintage ever"

James Suckling has published his revised Bordeaux 2009 tasting notes. His generous in-bottle scores reflect his enthusiasm for the vintage, which he calls "the best modern vintage ever".

Having initially judged 14 wines to be potentially perfect, Suckling has awarded nine wines 100 points. The First Growths are among his 100-pointers, with the exception of Mouton Rothschild. Although Mouton was seemingly en route to perfection in 2010, it has not quite kept pace with its siblings and comes in a touch lower at 98 points. Ausone, Lafleur and Vieux Chateau Certan, however, make the vintage's perfect inner circle, as do Super Seconds Montrose and Cos d'Estournel (which is widely believed to be a Parker favourite). 

In all, 22 wines receive 98 points and above. Among his top scorers is Malescot St Exupery, which the critic singles out as "one of the best values in high-scoring wines in my tasting". You can view Suckling's tasting notes in full on Jamessuckling.com. 

Parker is expected to publish his in-bottle scores for 2009 in the next issue of The Wine Advocate. If he too ranks the vintage more highly than its predecessors (which is not unlikely given his ebullience at WineFuture), will we see stronger interest in 2009, and in Bordeaux in general?

Where the heart is

With the western world cosying up for Valentine's Day, we thought it would be interesting to take a closer look at the estate that stole the heart of the "Prince des Vignes" in the 18th century. The Marquis Nicolas de Segur, who owned several of Bordeaux's most revered chateaux, famously proclaimed, "I make my wine at Lafite and Latour, but my heart is in Calon." 

The most northerly of the Medoc Grands Crus, Calon Segur is a Third Growth that enjoys a strong consumer following. Though the wines have received high scores from the critics, many younger vintages remain within reach of both drinkers and investors at around £400 per case. With traders increasingly turning to more affordable, lower-ranking Crus Classes, it is, perhaps, no surprise that vintages from 2000 onwards have outpaced the market and risen by an average of 13 per cent year on year.

Despite their recent run, the wines continue to offer value for money. On a pounds-per-point basis (see explanation below), the 2004 is the most compelling buy. The vintage has gained 14 per cent in the last year and - at just £380 per case - boasts 17.5 points from Jancis Robinson.

The table below shows the current price, annual change, score and POP (price-over-points) ratio of vintages 2000 to 2010. Trading members of Liv-ex can view live markets here. 

*All prices are for 12x75cl cases stored in bond. Scores are from Jancisrobinson.com.

POP

A wine’s POP score is its price-over-points ratio - our loose measure of value. It is calculated by dividing the price of a nine-litre case of wine by a 20-point score. In theory, the lower the POP score, the better value the wine is.

Decanter on Liv-ex and the fine wine supply chain

The March 2012 edition of Decanter magazine features an article on the fine wine supply chain intiative we announced at the WineFuture conference in November. We are reproducing the article below, with the kind permission of its author, John Stimpfig.

Liv-ex to shake up fine wine supply chain

Liv-ex, the global online trading platform, has proposed a radical shake-up of the fine wine supply chain, designed to remove the need for the constant physical movement of younger fine wines from one storage account to another.

‘Most fine wines traded on Liv-ex are not being purchased for immediate consumption’, says its director James Miles. ‘Nevertheless, they end up constantly moving from place to place simply to transfer the title of ownership. This process is unbelievably expensive, risky and detrimental to the provenance and condition of the wine.’

Liv-ex’s high-tech solution is to create a central electronic depository to store and manage ownership records of wines lying in multiple locations. ‘This would allow for the title to be transferred electronically, thus eliminating the need to move wine between countries or bonded warehouses,’ Miles points out.

As an example, he quotes the 2008 Bordeaux vintage which went up dramatically in price after its en primeur release and consequently saw considerable trading. ‘As a result, a case of wine could easily have gone from the chateau to negociant, then making short stays in Germany, London and New York before ending up in Asia. Under the new system it could simply remain in a certified warehouse in Bordeaux. It would effectively become ex-chateau stock.’

Liv-ex believes the change would not only benefit consumers but also producers, merchants and warehouse operators. Cost would be reduced and not moving young wines would eliminate problems of damage, loss and theft. A move towards electronic records would also improve traceability, provenance and condition.

Alun Griffiths MW, wine director at London merchant Berry Bros & Rudd, says the move ‘would give greater assurances to consumers about the provenance and storage history of the wine.’

Johnny Goedhuis, chairman of London merchant Goedhuis, adds: ‘This is a mammoth task that Liv-ex is taking on and it will be a long-term project. But if they can pull it off, it would make a dramatic difference by speeding up transactions times and cutting costs. My only concerns would be over quality of storage and stock control. Assuming these could be overcome, I am extremely supportive.’

Liv-ex’s Miles acknowledges that the project will require time, financial resources and technical development, as well as the support of colleagues in the distribution chain. ‘I am sure there will be plenty of problems,’ he admits, ‘but that’s inevitable when you try to launch something on this scale.

‘However, we believe we are uniquely placed to do this and are 100% behind it. Already we are putting infrastructure components into our own systems which Liv-ex members will be able to use next year. We don’t expect people to adopt it from day one and others may well take some time to opt in. But we are confident that this is the right way forward because it’s a win-win situation for everyone.’

Is fine wine still in a bull run?

In early December, we posted a technical analysis of the Liv-ex Fine Wine 100's movement between July 2001 and November 2011. Based on the support and resistance trend lines that emerged from our analysis, we suggested that the index's recent decline did not necessarily represent a departure from its long-term bullish trend. The index was, however, edging closer to the line that had provided support during the previous market downturn in 2008 and 2009. 

Since posting our findings two months ago, the Liv-ex Fine Wine 100 has moved both higher and lower. It succumbed to First Growth price falls in late December and was knocked back 11.63 points (3.90 per cent) to 286.33. In January, however, it rose 3.97 points (1.39 per cent) to 290.30 - its first gain since June 2011.

So has the index breached the support trend line? As you can see from the chart below, it bounced off the line last month. Although a single month's data does not confirm that the market has turned a corner, the year is certainly off to a positive start.

Volume of transactions surges 23% YOY

Diversity has been a constant theme this month. Demand has spread to all corners of the market, lifting the volume of transactions on Liv-ex from a seven-month low in December to its second-highest level to date. Only October 2010 - when Lafite revealed that its 2008 vintage would feature a Chinese figure eight - overshadowed January in volume terms. Year on year, the number of transactions on the exchange is up 23 per cent.

The number of active markets on Liv-ex (i.e. wines that have both bids and offers placed against them) has also risen dramatically, while bid-offer spreads have tightened. These recent trends all underscore the secondary market's rapid development.   

The Liv-ex Fine Wine 100 and the Liv-ex Fine Wine 50 will be updated tomorrow afternoon. Will the benchmarks turn? Check back to find out. 

Burgundy sets the pace

Trade on the exchange has encompassed a broad array of wines this month. As well as the usual bevy of Bordeaux, top labels from Burgundy have made buyers' wish lists and the region has accounted for seven per cent of monthly turnover. Of course, the Burgundy 2010 campaign has been partly behind the region's performance. To a larger extent, however, Burgundy continues to benefit from the general broadening of the market.

With demand now spanning a more varied group of wines, Bordeaux has accounted for just 87 per cent of turnover in January. The table below shows the month's most traded non-Bordeaux brands. As you can see, Comte Vogue has outpaced DRC this month - a signal, perhaps, that more of the region's leading labels are gaining traction in new markets.   

The road ahead

Fine wine was not immune to the global economic gloom in 2011. Prices fell rapidly in the second half of the year and the Liv-ex 100 Fine Wine Index declined 21.5 per cent. We noted in late 2010 that a price correction and a return to a more sustainable level of growth would be beneficial in the medium to long term. The severity and swiftness of the correction, however, took many by surprise. 

Lessons learned

Many of these falls were concentrated in the First Growths, which did not relinquish their dominance over the market. This is demonstrated in the chart below, which shows the performance and production value (i.e. average price x production) of the top ten labels by value traded on the exchange in 2011. It wasn’t universally bad news as many of the second-line wines and Petrus managed to end the year slightly up.  

With a weighting of 68 per cent in the Liv-ex Fine Wine 100 Index, the First Growths’ recent falls have clearly cast a long shadow on the market. And although the Super Seconds increased in value in the 12 months to December, their weighting is dwarfed by their higher-ranking cousins. 

A stabilisation in the price of the Premiers Crus is a prerequisite to recovery in 2012. For this to happen, of course, they must reach a level where they regain buyer confidence and are once again seen to represent value. Encouragingly, we are seeing nascent signs that some wines are re-entering the ‘buy zone’. The Liv-ex Fine Wine 50 has edged upwards since the start of the year, while the Liv-ex Claret Chip inched higher in the first and second weeks of January for the first time since late July. More importantly, the value of bids on the exchange has started to rise again after falling for six consecutive months. 

Positive triggers

Though the prevailing economic concerns continue to cast a heavy shadow, several scenarios could see the market find a floor in 2012.

An affordable 2011 campaign: The eurozone crisis and economic weakness could persuade the Bordelais to lower prices. If so, a well-priced en primeur campaign might reignite interest in Bordeaux, as it did in 2009 when the 2008 vintage was priced very fairly. 

A return to value: The sharp price falls that were recorded in the second half of 2011 equate to those seen in 2008 after the collapse of Lehman Brothers. For this reason, one has to assume that a heavy dose of bad news is already in the price. Even a modest turnaround in sentiment towards the First Growths could have a profound impact on confidence.   

High 2009 in-bottle scores: Robert Parker is expected to publish his in-bottle scores for the 2009 vintage in the next issue of the Wine Advocate. If his effusive Magic 20 tasting is anything to go by, the vintage’s scores may eclipse those of its forerunners, making it a ‘must have’ for collectors and strengthening interest in Bordeaux.

Easing of Chinese monetary policy: Over the last few years, China has been the driving force behind the market’s growth. As such, any moves to stimulate growth in China will certainly be cause for optimism.  

As we sit here today, the fog of negativity that has shrouded the market since the summer is showing tentative signs of lifting. Indeed, as we discovered in 2009 and 2011, sentiment can turn remarkably quickly.

Market breadth boosts trading activity on Liv-ex

Although the market has yet to commit to a direction, there are several reasons to be cheerful this year. Demand has broadened in recent months and is no longer heavily concentrated in the First Growths. Perhaps as a result of this, a more diverse range of wines is now in play, including top labels from outside Bordeaux. The total value of stock bid and offered on the Liv-ex exchange is up 20 per cent year on year. The number of wines that have both bids and offers placed against them has risen 68 per cent in the last 12 months and the bid-offer spreads have tightened. Unsurprisingly, then, the volume of weekly transactions is up 20 per cent year on year. With First Growth trade reduced, however, trade by value is down 15 per cent. 

The rise in the number of active spreads on Liv-ex is shown in the chart below.

Is the improved breadth and depth of the market encouraging more merchants to trade? Despite Chinese New Year celebrations, merchant engagement is at its highest level since September.