30 Jun As fine wine prices take a tumble, there are opportunities for canny investors

W. Blake Gray· Friday, 16-Jun-2023

Fine wine prices are falling, but the sky is not falling with them – and, in fact, the savvy wine drinker might find a few opportunities to drink some older wines at a good price.

The Liv-ex Fine Wine 1000 index, which measures the secondary-market prices of 1000 most-traded wines, has been dropping for seven months and dropped by 2.4 percent in May, its largest single-month decline of the downturn. The index is down 4.8 percent for the year so far.

This downturn is unusual because the index rose consistently for seven years, even during the early stages of the pandemic, before hitting a speedbump last November.

Justin Gibbs, deputy chairman of Liv-Ex, told Wine-Searcher that the drop is likely more reflective of economic conditions outside the wine world than of a diminishing appetite for fine wine. Gibbs said that, in addition to economic uncertainty putting a slight damper on enthusiastic spending, inflation has increased the interest rates for cash investments, which makes buyers a bit less interested in other types of investment.

Gibbs said the ongoing Bordeaux en primeur futures campaign is also attracting attention away from the already-on-the-market wines that make up the Liv-Ex index.

“Bordeaux 2022, which is regarded by many as one of the great vintages, has been priced at unpalatable levels,” Gibbs said. “You have the secondary market turning down while the Bordelais are pushing prices up. We have an average increase in price over last year [for Bordeaux futures] of 19 percent.”

In economic theory, that should lead people to buy already bottled wines from prior vintages; they are ready to drink, they are cheaper and Bordeaux has had several other acclaimed vintages in the past decade. Currently the wine market is defying that theory.

“The normal price curve would show the older wines being more expensive,” Gibbs said. “They spend more time in storage, which costs money, and people drink some so there are fewer bottles. But if you look at this [en primeur] release, it’s an inverted yield curve. It’s saying that the younger the wine, the higher the price. That shouldn’t be the case. The en primeur campaign is somewhat baffling, and makes people a little bit nervous about the price of wine today.”

Bordeaux makes up about 35 percent of the fine wine market, so it has an outsize impact on the index. But the actual biggest downturn is in Rhône wines. Liv-ex’s Rhône 100 index was down 6.3 percent in May and 12.3 percent for the year so far.

Gibbs said the drop in Rhône prices is almost all due to a surprising drop in prices of Château Rayas. The 2008 vintage of Rayas was down 27.6 percent in May alone. That said, that vintage of Rayas still sells for more than $1600 a bottle on Wine-Searcher, so, I don’t know about you, but it hasn’t yet dropped low enough for me to swoop it up.

“Rayas was in a sweet spot. Everyone wanted Rayas,” Gibbs said. “It’s a unique wine. You taste it blind and people think it’s a grand cru Burgundy, but it’s not. In this case, you had speculators and they may have decided to get out of the market.”

Where the opportunities are

 

A falling market always means buying opportunities. I asked Gibbs what he thinks are some of the best opportunities currently in the fine wine market.

“The word is older,” Gibbs said. “I would be looking at known entities. I know this wine is 10, 15, 20 years old. I know it’s been tasted many times. I know this is the real deal and I can buy it for 10 percent less than it was a year ago.

“You buy Bordeaux from the ’90s and 2000s. They’re entering their drinking window. Supply is going to diminish. At some point prices are going to rise again. You can apply the same thinking to Champagne. It gets drunk. It gets really widely distributed. Most people who drink Champagne aren’t even aware they’re in the fine wine market. Champagne from the early 2000s are opportunities. Bordeaux from 2010 backwards, certainly ’05 backwards.”

But Burgundy is still, to quote a recent ad for a failed crypto company, where fortune favors the brave.

“Burgundy has gone up so relentlessly and so far, at the very top end, it’s an extremely expensive wine to enjoy,” Gibbs said.

“You’re talking about thousands of pounds or dollars to drink a bottle. That is quite a rarified atmosphere. I would think that is not where you want to go. But the quantities are not that much. It doesn’t take much for the market to turn. The risks are greater because of the price.”

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