Fine wine comment: Pricing en primeur

Competition for the much-lauded 2009s will be fierce, and one may well find better value further back. Jack Hibberd, research manager at Liv-ex, considers pricing en primeur and the potential return on investment for punters.

With Parker having pronounced, the chorus of voices lauding the 2009 vintage has reached its crescendo. At the time of writing we have yet to see the greatest names of Bordeaux emerge, and until that time one issue will dominate discussion: price.

The “risk free” rate of return (as determined by the 10-year gilt yield) is currently at 4% per annum. As such, theoretically, the London release price for each château will need to be around 17% lower than the current price for the equivalent 2005 and 43% lower than the 2000 (two broadly equivalent vintages in quality terms) to be worth buying on a like-for-like basis.

The Liv-ex 2009 En Primeur Survey (which was collated before the release of Parker’s scores) predicted that release prices would be up 6% on 2005 in euro terms.

Depending on currency movements, this would translate as an increase in GBP terms of 25-30%. So, considering both these calculations, are the 2009s likely to be worth buying?

To find out, we analysed key data for 69 top red wines and compared current market prices to the predicted release price (ie the UK 2005 release price plus 25%). We were then able to determine which of the 2009 releases will still provide value when the cost of money is factored in, or whether the back vintages are a better bet.  

Of the wines analysed, only eight are certain en primeur buys (Carruades de Lafite, Lafite Rothschild, Duhart Milon, Mission Haut Brion, Beychevelle, Chapelle Mission, Monbousquet and Fleur Pétrus), while for more than 70% of the wines studied, both the 2000 and 2005 vintages look better value.

In all probability, many of these wines will be released in London at well above our predicted prices – making the back vintages appear even more attractive (for drinkers and investors alike).

Nevertheless, with merchants reporting bulging order books, competition for the top 2009s is going to be fierce – whatever the eventual price.

Rather than overpaying, it seems sensible to take a look back at what else is on offer. The last vintage to release at a large premium to the rest of the market was 2005, which turned out to be the worst performing vintage in the following three years.

As well as the 2000s and 2005s there are also great wines from a host of other vintages which should not be overlooked. Indeed, it was actually the less good vintages like 2001, 2002 and 2004 that did best in the wake of 2005.

With a 2009-driven market uplift in the offing, these wines may not stay cheap for long.

Jack Hibberd, research manager, Liv-ex, taken from the June 2010 edition of the drinks business