Has Bordeaux overestimated demand?

As May moved into June the pace of the 2009 en primeur campaign picked up, with the first major names of the campaign released. The majority, however, have yet to show their hand and the final few weeks of June are likely to prove frenetic, reports Jack Hibberd, research manager at Liv-ex.

With the 200 plus-or-so releases we have had so far accounting for only 15-20% of the campaign’s probable total value, it is still too early for a firm judgment on its success. Nevertheless, a number of key trends are already apparent.

First, the actual release prices are higher than expectations, with most of the big names having come out on a par with the current prices of their respective 2000s (and well above the 2005s).

In early May we estimated that the 2009s would need to be priced 43% below the current prices for their 2000s and 17% below their 2005s to be worth buying on a like-for-like basis. Either the 2009s are overpriced, or the 2000s and 2005s are too cheap.

Second, it seems apparent that the volume of stock offered from Bordeaux has been low, with many merchants struggling for the allocations they would usually receive without issue (Duhart-Milon and Gruaud Larose are but two of the most extreme examples).

Whether this is due to stock having been diverted to develop Asian markets, or whether the chåteaux are simply holding back some for later release, is unclear.

Last, and perhaps most importantly, a relatively small number of the releases we have had so far (perhaps only 15-20) have been real successes and completely sold through.

Moreover, only three wines – Pontet-Canet, Pavie-Macquin and Calon-Ségur – are trading on the secondary market at more than 10% above their initial release price in London. The number of wines that will join them in the months and years to come (and prove their worth as en primeur purchases) remains uncertain.

So what does this mean for the rest of the campaign? There is a very real danger that Bordeaux has overestimated demand in what remains an exceptionally challenging economic environment.

US demand for 2009 Bordeaux has been weak and hopes that Asian markets will pick up the slack remain, so far, unfulfilled.

As a market, Asia is brand driven and price sensitive. It seems unlikely that Asian consumers will accept higher prices for en primeur stocks than for wines physically available. Buying is also likely to be focused on relatively few wines.

It remains early days, but the success of the campaign currently looks balanced on a knife-edge.

At the extremes we have two possible scenarios. If the as yet unreleased 2009s find ready buyers, then awash with cash, merchants will want to restock – with an obvious effect on the price of back vintages.

Conversely, if a large amount of stock fails to sell through, merchants may well need to raise capital to pay for their unsold 2009s. With the banks remaining risk-averse, this could lead to lower prices – cooling the current bull market.

Jack Hibberd, research manager, Liv-ex, 17.06.2010