Analysis, en-Primeur, Market Tools, Tools
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Value & Risk in Fine Wine, Post 5: Age Curves

The fourth and final tool in this series is the Age Curve plot. 

Age Curves show the development of market prices relative to initial release prices as wines age.

Is a vintage an ageless benchmark or is it a duffer, over-priced at en-Primeur, waiting for a “second release”? That’s the sort of question Age Curves help us to answer.

Lafite Rothschild

It has been our habit to start with Lafite. And here we go again: the plot below displays the evolving price of the oldest vintage for which Liv-ex has a detailed price history (1982) compared against five other vintages that are often seen as benchmark years.

lafite

(Note on graph: +/- 2 months because the first traded price after
release can vary from one year to the next.)

Compared to the 1982 vintage, the price levels of the more recent vintages initially developed at an accelerated pace. But what goes up (too quickly), must come down! The gains were in a vulnerable spot; a downturn promptly followed. The 2009-2010 peak led on to a sharp correction. We know this already, and we saw it here and here. No surprises, but a different perspective.

We use Age Curves to assess the tension between the two main factors driving a fine wine’s price: its investment grade and the market cycle.

Investment grade is determined by i.) a wine’s release price (too high and there is no room for gain for the en-Primeur buyer) and ii.) a wine’s perceived inherent quality. Trust your favourite critic(s) or your own instincts for the latter. (Either way, keep your eyes peeled for upcoming posts on what makes good critics.)

What the curves show is that prices for the vintages up to 2003 have stabilized as the market cooled: they have reverted to positions along the 1982 curve. Reversion to a stable, common level (relative to release prices) suggests shared “investment grade” across vintages up until 2003.

So what about the more recent vintages, 2005 and 2010? Both have declined substantially from their peak, out of step with the others. 2005 has dropped more than usual and 2010 has fallen through a trap door. Both years are regarded as great vintages. What is going on?

2005 was released into what the Channel Spread suggests was a relatively quiet market. Its price then appreciated substantially during the boom, before declining to a level just above its release price. In contrast, 2010 was released into a frothy secondary market at a price substantially above the Château release. It has not been able to sustain this level, dropping quickly below its Château release. Early investors in both the secondary and en-Primeur markets have lost money on 2010.

Investors holding on to the 2005 vintage have suffered from the market downturn. From its release into the market’s cradle, it has trailed behind the development of its older siblings. Nevertheless the shape of its life trajectory does fit the general Lafite schema. If you believe in the future of Lafite, don’t worry about buying 2005 now. This is not a “broken vintage”.

There was a break in 2010, however. Early stage investors lost money from the start. Its investment grade is below par. It was released into a bubble (it looks like a technology stock floated at the height of the Dot-com boom). 2010 prices will have to fall further from their unrealistic release levels before the wine will represent value to investors.

There may be opportunity for investors who can time their investment to co-incide with the adjustment from inflated release prices. (We call the time-window for investment after the initial fall from inflated en-Primeur levels the second release.)

Margaux

Compared to Lafite, the shape of the Margaux Age Curves for the vintages from 1990 are a more consistent shape (though there is a noticeable downward trend). A tentative conclusion is that Margaux release prices are better calibrated to market conditions than Lafite’s. An exception is the 2010 vintage which saw an alarming drop from release, though it has been recovering lately.

margaux

Clerc Milon

Compared to the previous two wines, Clerc Milon looks less sensitive to the market cycle, a point we also took away from our analysis of the Channel Spread. How can we explain this stability? A common-sense hypothesis is that supply is decreasing steadily as the wine is consumed, propping up prices.

clercmilon

Even here, however, 2010 stands out as poor performer in relative value terms, breaking the linear pattern.

My considered opinion is that the animal spirits of 2010 led to a paradigm shift in the market. Will we ever get back to pre-2010 market dynamics? It will depend on the stickiness of en-Primeur price levels!

La Conseillante

The Conseillante Age Curves show lacklustre performance in the middle vintages: 2000, 2003 and 2005. It is tempting to conjecture that these wines are simply under-appreciated and undervalued. As we saw previously, La Conseillante has not graduated into the major league of blue chips.

conseillante

Summary: Age Curves
Age Curves are a useful tool to weigh the part played by wine market cycles against the part played by wine investment grade in wine price development.

I think there is enough evidence to suggest that after the boom years of 2009-2011, release prices must adjust significantly to match bear market conditions. If they don’t, then it is unlikely we will see a new bull run in blue-chip wines and 2010 will stand out as the year when the secondary market for wines was swallowed up by the powers of the en-Primeur price setters.

Should en-Primeur develop into a transparent IPO auction system? Bordeaux might consider going “Dutch” or similar.

Suggestions for en-Primeur 2.0 may be the subject of future posts. Let us know if you have a particular interest in the state of en-Primeur. A good proportion of conversations on the current state of the Bordeaux wine market end up here.

Thanks for following this series on tools for wine market analysis. Contact us! We welcome suggestions, questions, comments.

MK @ WineQuant

Credits: Data from Liv-ex.

Creative Commons License
Value & Risk in Fine Wine by WineQuant is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Based on a work athttps://winequantblog.wordpress.com/.

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This entry was posted in: Analysis, en-Primeur, Market Tools, Tools

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WineQuant is an independent research-led forum for wine enthusiasts, traders and investors. Our mission is to see the present more clearly and peer into the glass a bit more imaginatively.

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