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market report

Liv-ex is an electronic exchange for fine wine used by professional merchants and collectors. Market Report is part of a package of services offered to subscribers of Liv-ex, with subscriptions starting at £49.95 per year. Below is just a brief extract from the latest Market Report. For the full report and to access Liv-Ex's services, sign-up with them at www.liv-ex.com

Liv-ex.com, October 2013

Trading

Fine wine sales for the Autumn Chinese festival declined this year; as such, buyers had no reason to replenish stocks in October. Trade was muted and the Liv-ex indices moved lower. Nevertheless, there were some positive signs towards the month end. The bid offer ratio rose to 0.35, and active markets hit a record high of 4,248.

Champagne and Italy dropped back in October, taking trade shares of 1.2% and 3.9% respectively. Burgundy accounted for 6.6% — its highest monthly share for six months — but it was Port that really came to the fore. Seasonal demand, particularly for the iconic 1970 and 1977 vintages, boosted its share to a record high of 3.3%.

Bordeaux’s trade share remains low. Buyers continued to take advantage of purchasing the 2009s and 2010s (the latest physical vintages) at lower prices, and the two accounted for 42% of the monthly Bordeaux trade by value. Once again, the region’s market share was at 80%. So far in 2013, Bordeaux has accounted for 82.6% of all trade by value, compared to 87.2% in 2012 and 93.2% in 2011.


(more analysis in the full report)

Major Movers

(analysed in detail in full report)

Chart of the Month

First Growth trade falls to 2005 levels In June 2010, during the market’s bull run, the five Bordeaux First Growths accounted for nearly 70% of trade by value on Liv-ex. By the time the market peaked a year later this had fallen, but was still at 55% - the share that First Growth trade maintained even after Lehman Brothers collapsed in September 2008. Since then, Bordeaux and the First Growths’ trade share has weakened. In the last couple of months it has settled at around 35%, close to the pre-bull market levels of 2004 and 2005. While this is an indicator of the negative sentiment that pervades the market, it may also suggest that we are nearing the bottom of the bear market.


Final Thought - DRC overstretched?

If there is a producer with brand strength to rival the biggest names in Bordeaux, it is Domaine Romanée Conti. DRC produces some of Burgundy’s most illustrious Grand Crus, and relatively large production levels (around 7,200 cases each year) mean that there is enough liquidity for it to have real market momentum. In 2012 the brand took the number 1 spot in the Liv-ex Power 100 — overtaking Lafite, which had held the position for three years. Bordeaux prices have stuttered over the last couple of years, but those for DRC have held on. While the Liv-ex 50 index fell 24.9% from June to December 2011, the DRC index (composed of DRC’s six brands) rose 10.6%. And kept rising. Over a five year period, the index has climbed 66.4% - compared with an overall gain of 39.5% for the Liv-ex 50. But at what point does this divergence go too far and create unbalanced pricing?

In Chart 1 we have calculated the average price of all wines in the DRC and Fine Wine 50 index and tracked the historical relationship between these averages (dividing one by the other to create a ratio). As shown, the seven year average price ratio of DRC and the First Growths is 4:1. The ratio has been above this for two years and currently stands at 4.9 to 1, close to its record level in June 2012 of 5.1 to 1.

So, which wines have led the charge for DRC’s rise? If we look at price growth for the components of the DRC index it becomes clear that one in particular has outperformed. Over five years DRC’s flagship wine Romanée Conti has risen 92% - an enormous climb when considered against the other wines in the index, three of which have risen by less than 25%. Over the same five year period Lafite, for example, has climbed just 63%, but at one point was showing a 170% rise compared to Romanee Conti’s 105% peak in January 2012. But the prices of the two are wildly different: at its most expensive in February 2011, the average cost of a case of Lafite (based on the last 10 physical vintages) was £10,500. The average cost of a case of Romanee Conti is now £87,000.



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