market report

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Liv-Ex Market Report

by Liv-ex.com, May 2011

Trading

The first 2010s came to market in May, though the campaign was slow to gather steam. With Bordeaux’s biggest names still biding their time, merchants turned their attention to back vintages and turnover rose four per cent year on year. Despite the increase in activity, prices moved up and down in equal measure and the Liv-ex indices failed to find direction. The 2008 vintage was the favourite last month and accounted for 28 per cent of Bordeaux turnover. Once again, Mouton ‘08 was the impetus behind the increase (having found a new price level following its recent Parker downgrade). Elsewhere, 2006 and 2004 were strongly bid, with activity concentrated in the First Growths and Forts de Latour. And though a handful of notable brands hit the market, the new vintage drove just two per cent of trade. Bordeaux’s dominance went unchallenged in May and the region accounted for 97 per cent of turnover. Sauternes saw a slight kick-up in demand, bolstered by trade in Yquem 2002 and a thirst for low-priced (and abundant) Rieussec 2010. And though demand for Burgundy softened slightly, the ’08s finally made an appearance on trading screens.

(more analysis in the full report)

Major Movers

What’s in a name? After a period of stasis, Petrus has been making great strides in recent months, with the 2004 vintage leading the Bordeaux pack in May. With Cheval Blanc also starting to see price increases, is the Right Bank back in favour? Leoville Poyferre, which looks increasingly cheap when compared to some of its Second Growth peers, also makes this month’s Major Movers board.

(analysed in detail in full report)

Critical Corner

Ian D'Agata of Stephen Tanzer's International Wine Cellar raised eyebrows last month when he published his contentious take on Bordeaux 2010. The critic was relatively uninspired by this year’s primeurs and said "claims that 2010 is another vintage of the century are overstating the case". The vintage as a whole does not match up to his opinion of Bordeaux 2009 (which achieved four potentially perfect scores). As such, even his most highly rated wines received top scores of 96-99 points. Though Margaux has been hailed as one of the stars of the vintage by the Wine Spectator and James Suckling, D’Agata awarded it a modest 91-94 points.

Final thought — Expansion

One of the key fundamentals behind the rapid increase in wine prices is that demand is continuing to rise, while the supply of new wine released to the market (ignoring the vagaries of vintage size) is static. On a basic level, this is enshrined in AOC rules. As hard as the Haut-Medoc producers positioned just outside the fence may plead, the boundaries that define AOC Pauillac are not going to expand. Nevertheless, the intricacies of Bordeaux’s rules – which state that any grapes grown in an AOC may be included in any wine from the same AOC – means that the top chateaux can expand their production. And at quite a rate.

This trend is made clear by the declarations that every Bordeaux chateau is duty bound to make to its local town hall each year regarding the area of vines that has provided grapes for that year’s production. Looking at just 20 of the major brands in the neighbouring Medoc AOCs of Pauillac, St Estephe and St Julien (which are also three of the smallest) we find that more than half of them have increased their vineyard area by 10 per cent or more over the last decade – with Montrose leading the field with a 60 per cent rise. If we go back to 1982 we can find even larger increases, with Pichon Baron effectively tripling its area under vine (from 28 to 91 hectares) by 2010.

The financial rewards for the lesser chateaux to sell vineyards to their more high-profile peers are massive. Just last year Montrose (a St Estephe Super Second) bought 22 hectares from Phelan Segur (a cru Bourgeois) at the price of €900,000 p/h. This is far more than this land was worth to Phelan Segur and – with Montrose selling at a price of €2M p/h four years previously – a great deal less than it was worth to Montrose. So, what impact has this had on the level of production? Interestingly, it seems that the drive for ever-increasing quality means that the amount of wine produced by the top chateaux has not risen in line with the expansion in vineyard area. If we look at the same chateaux included in chart 1 (again using official declarations as our source) we find that they produced five per cent less wine in 2010 than in 2000, despite an average rise in vineyard area of more than 15 per cent. Indeed, after reaching a peak in 2004, average yield has been on a steady downward trajectory.

Nevertheless, the financial inducement for the major chateaux to expand their production rises hand-in-hand with the price of their wines. And as you can see in chart 2, the expansion of their vineyards is accelerating. Anecdotally, it also seems that the drive for ever lower yields is being questioned. Over the coming years, it seems increasingly likely that the amount of wine produced by the top Medoc chateaux will start to rise. Perhaps, rapidly. The key question, then, is will demand keep pace?

(more charts in full report)

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