Trading in Bordeaux futures for fun and profit
by Bob ValchuisWith each passing year, demand for wine continues to grow. The boom began about 17 years ago after a report correlating red wine consumption among the French and Italians with better health – despite their diets rich in sauces and cheeses.
Today, demand – especially for fine wines – often exceeds the supply; thus, the growth in wine futures: investors willing to speculate on the quality and price of wines not yet produced.
To be a trader, you need to be either a passionate wine lover or an astute investor – preferably both at the same time.
I fall into both categories. It is very exciting to go into your wine collection and select a special bottle from a great vintage and share it with friends – especially if you purchased it as a future some years ago and it has appreciated 100 percent. What a fun and profitable hobby.
What wines to buy as futures
Although many of the world’s fine wine regions offer – or try to offer – futures, only the wines of Bordeaux, France, are significant players in this market.
It is undeniable that Bordeaux is the greatest and largest fine-wine region in the world, especially as it relates to individual properties and estates that produce great wine with the ability to stand the test of time.
The Bordeaux Official Classification of 1855 started the ball rolling by establishing 61 red-producing châteaux from the Médoc (only Haut-Brion was included from outside the Médoc) and 24 sweet-white producing châteaux from Sauternes as the benchmarks of the world’s greatest quality wines.
These 85 properties, out of roughly 9,000 vineyards in Bordeaux, were followed many years later with other regions having their own official classifications – Graves in 1959, St.-Emilion in 1995 and the Médoc Cru Bourgeois in 1978 (recently revised in 2003). Today, there are about 200 well-known properties that are located throughout the best appellations of Bordeaux.
It is amazing that the 1855 Classification, for the most part, is still intact today and has formed a strong, consistent following and demand – especially among the top 20 percent on the list.
If you want the top names of Bordeaux in your cellar today, you must buy them as futures – otherwise you may not be able to afford them when you eventually see them on retailer’s shelves.
Fortunately, the 2005 vintage is considered outstanding across the board – red, dry white, and sweet white appellations. The weather was perfect for ripening the grapes. The vintage may be better than the last great across-the-board Bordeaux vintage 2000.
The Wine Spectator was at the first tastings of the new wines and raved about the quality of the 2005s. We also were there – and agree.
But the final word must come from the most influential critic in the wine world, especially for Bordeaux, Robert Parker who publishes The Wine Advocate. His reviews have a profound bearing on how the wine world views a vintage.
A rating of 96 to 100 points for a particular vineyard or wine can give that property instant star status and create tremendous demand that can result in substantial profits for that estate. Parker provides a great service to futures buyers and wine consumers by providing in-depth reporting of the overall vintage and harvest, from start to finish. He also provides direction about which wines have succeeded or not performed as well.
A great source of information is a good retailer who specializes in Bordeaux futures. They usually travel to Bordeaux for the En Primeur tastings in April of each year to assess last year’s vintage. They could taste 1,000 wines or more for a week or two before gaining a clear, intimate understanding of vintages, regions and individual wines.
Whether your main goal is to build a cellar and drink the wines or sell them on the futures market, the right retailer can direct you properly. During a Futures Campaign, they have direct, daily communication with Bordeaux. As prices are released from the properties, they are transmitted from the retailer to their futures buyers. This way you get the information as soon as possible.
The retailer can help determine how to proceed with your purchases, how much to buy, what properties are best and what wines to avoid. The retailer also can recommend a variety of bottle sizes that are only available when bought as futures – such as half-bottles, celebration sizes and auction specialties, magnums (two bottles), double magnums (four bottles), Impériales (eight bottles), Melchoirs (24 bottles).
If you do plan to sell your wines when they actually arrive – about two years after a futures purchase – the projected profit could be as much as 50 percent to 100 percent above what you paid for the future.
Blue-chip châteaux
Here is Bob Valchuis’ short list of blue-chip châteaux, which also includes a few of his favorite lesser-known properties:
Angelus (St.-Emilion)
D’Armailhac (Pauillac)
Bellevue-Mondotte (St.-Emilion)
Branaire Ducru (St.-Julien)
Calon-Ségur (St.-Estèphe)
Cheval Blanc (St.-Emilion)
Clerc Milon (Pauillac)
Ducru-Beaucaillou (St.-Julien)
Duhart-Milon (Pauillac)
Figeac (St.-Emilion)
Forts de Latour (Pauillac)
Fombrauge (St.-Emilion)
Gloria (St.-Julien)
Haut-Brion (Pessac-Léognan)
Kirwan (Margaux)
Lafite Rothschild (Pauillac)
Lanessan (Haut-Médoc)
Latour (Pauillac)
Les Grands Chênes (Médoc Cru Bourgeois Supérieur)
Léoville-Las Cases (St.-Julien)
Léoville Barton (St.-Julien)
Léoville Poyferre (St.-Julien)
Margaux (Margaux)
Mission Haut-Brion (Pessac-Léognan)
Montrose (St.-Estèphe)
Mouton Rothschild (Pauillac)
Palmer (Margaux)
Pavie (St.-Emilion)
Pape Clément (Pessac-Léognan)
Pavie Macquin (St.-Emilion)
Pavillon Rouge de Château Margaux (Margaux)
Pichon Baron (Pauillac)
Pichon Lalande (Pauillac)
Pontet-Canet (Pauillac)
Troplong Mondot (St.-Emilion)
Vieux-Château-Certan (Pomerol)
Bob Valchuis is a partner in Orleans Wine & Spirits and Cape Cod Wholesale Wine & Spirits in Orleans. He regularly travels to Bordeaux and Italy to buy wines. He can be reached at bob@robertfvalchuis.com.
Published in Cape Business November/December 2007
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