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What are Bordeaux futures?
Flashback: January 1998
"Paul, There has been a lot of talk lately about Bordeaux futures. Could you explain what they are?"
– R.F., Pasadena, CA
Futures buying involves the purchase of the wine before it is actually bottled in order to secure it at a better price than it will sell for on release. In Bordeaux, it is normally done with particularly good vintages like the two most talked-about ones coming up, 1995 and '96, so that people have a chance to buy them before they're all sold out. Back in the old days, like the 1950s and '60s, the local French press would extol the virtues of a particular vintage and the chateaux would then offer the wines on a pre-release basis for a better price than they would plan on releasing it for later. This would bring cash into the winery sooner and the consumer would get a price break.
Today the futures market has taken on a personality that is somewhere between commodities trading and a Ringing Bros. circus. First we have an international press writing about the vintage before the grapes are even harvested! This gets the hype rolling and with every thunderous adjective, the price goes up another notch. Next, we have a new market that is just jumping on the Bordeaux bandwagon. That market is the new¬found wealth in Asia, particularly China, Taiwan and Korea. The chateaux keep raising prices and the Asians keep buying them. So they keep raising the price and they keep selling. It's an amazing spiral which has seen prices rise 300% in less than a year!
The biggest factor here is that the Asian market did not exist just five years ago. It's not that they bought a lot less then, they bought nothing. Now they're trying to catch up to the rest of the world and are buying everything in sight. And with two incredible vintages in a row, they have lots to buy. A similar frenzy was treated by the 1989 and '90 vintages, but the '95-'96 frenzy is much greater. The market for the '89s and '90s was basically the US and Europe. Consumers rushed to these wines, but they still had a backlog of '82s, '83s, '85s and '86s to covet. The Asian market exploded with 1995 and 1996 with no backlog to slow them down. This is why we've seen futures prices for Margaux go from $90 in 1994 (a very good vintage) to $150 in 1995 and $300 in 1996. Imagine paying $300 for a bottle of wine today that you won't get to see for over a year!.
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