Dollar doldrums

Faced with a weak dollar US merchants are switching from buying to selling, which is increasing the supply of top wines in Europe

ACTIVITY on Liv-ex surged in November as buyers snapped up top Bordeaux and merchants cleared stock for year-end.  Trade through the Exchange was up 25% on October and up 70% year on year.

The Liv-ex 100 composite was up 1.35% for the month while stock held by the UK’s leading stockholders declined 14%! The biggest mover on the month was Rieussec 2001, up 23%, which was voted Wine of the Year in Wine Spectator’s annual review.

The big story in the wine market, like all markets these days, has been the slide in the US dollar.  Although precise numbers are difficult to find, it is widely accepted that the US market makes up about 30% of the global fine wine trade, and perhaps as much as two-thirds of final demand for the top wines.

The chart, right, takes the Liv-ex 100 in sterling terms since Jan 2002 and compares it to a dollarbased index.  The comparison is stark.  We can see that in dollar terms, an investment in the Liv-ex 100 three years ago shows a tidy return of 50% against a rather more modest 10% in sterling terms.

This is having two effects, which are making life difficult for European traders. Firstly, it is making sourcing stocks out of Europe prohibitively expensive for US buyers, dampening demand.

Secondly, it is making US stocks of fine wine increasingly attractive in euros and sterling. Indeed, we are beginning to see US fine wine merchants switching from the buy to the sell side, which is increasing supply of top wines in Europe.

Traditionally, wines reimported from the US have commanded a discount for provenance reasons, but modern refrigerated transportation is making this argument rather anachronistic. In fact, in theory, international movements these days should be no more perilous than those within Europe.

This will no doubt present opportunities for buyers of the finest wines to benefit from the dollar’s woes by picking up stock on the cheap.