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Portfolio > ETFs > Broad Market

Will Bad Weather Mean Sour Grapes for Wine Collectors?

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Sometimes when it rains, it really pours.

Mother Nature unloaded on numerous French vineyards this year. But for wine-collecting clients, it might not be a washout.

The problem with this year’s harvest is that it started early, due to a very long, late winter, says Justin Gibbs, sales and marketing director at Liv-ex, an exchange for investment-grade wine in London.

That put vines about three weeks behind their usual stage of development during the summer. Excessive rain in July was followed by August hailstorms in Burgundy that “literally tore vines to pieces,” says Gibbs. There was no relief from the bad weather during the fall harvest season, either.

“Growers had waited until October in order to ripen their fruit, which increases the risks,” he adds. “And, lo and behold, come October, it was raining, as it often does and, so, they were picking (but) they have diluted, spoiled yields. … We don’t really have firm statistics yet but they believe that Bordeaux’s production will be the lowest since I think 1991-92, which is a very dire yield indeed.”

The French agriculture ministry estimates that this year’s Bordeaux harvest will be down 19% from 2012, according to some news reports. That’s a double whammy for two reasons.

First, it means two consecutive years of smaller crops.

Chris Adams, chief executive office of Sherry Lehmann Wine & Spirits in New York, points out that 2012 also saw a short vintage in several key production areas.

Second, it’s not just a question of quantity.

Gibbs notes that if the available wines were sufficiently high quality, producers could raise their prices in the face of reduced supply.

“The business aspect is that what they would do—if they could—would (be to offer) low yields, (with) high prices on release,” he says. “But they will struggle to do so if the quality isn’t there to support those prices. And, as far as we can tell, the quality will not be there. So, they won’t be able to raise their prices and they will have some very low yield.”

But there are upsides to the crop problems, according to Adams.

The Good News

If the vintage’s viable wines are priced fairly relative to their quality, that could lead to much less expensive wines coming to market. In turn, those lower prices could bring in buyers who otherwise are priced out of the market’s top end.

“If the price is fair, then you have something on your shelf that you can say, ‘Look, it’s a lot less expensive than what you’ve seen from previous vintages, and it can drink pretty young,’ ” he says.

“And, so, that fills in while people are waiting for some other wines [to mature]. It gives consumers points of access to participate in certain wines and other vintages that might be priced out of their realm…it gives them a chance to consume some wines that, as I said, can be consumed young and are probably more affordable than they’ve seen in previous vintages,” Adams concludes.

Collectors who own earlier vintages could also benefit from increased demand for their wines.

The Liv-ex Fine Wines Investables Index peaked in late June 2011 at a level of 370; as of Oct. 30, it had dropped to 283.

Both Adams and Gibbs agree that these lower market prices on many earlier vintages, several of which are highly rated, combined with recent short supplies, should spur renewed interest in previous high-quality vintages among merchants and collectors.

“Over the last couple of years, the market has actually pulled back 25 to 30%, depending on which wines you follow,” says Gibbs. “It’s not a bad time to be picking up those wines … Still, I suspect, in conclusion, there will be an impact but it’s not yet impacted. It’s not impacted the market, despite the fact that we know what’s coming. It will be the reality of the moment when I think we might see some sort of price impact.”


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