Pricing uncertainty and fluctuating currency markets has led to the first fall in the fine wine market in 17 months.
This was signalled by the release of the Liv-ex Fine Wine index (the index that covers the 100 most wanted fine wines) falling 0.5 per cent in April 2017. Most of the sought-after wines are Bordeaux, and the uncertainty surrounding the pricing of the Bordeaux 2016 vintage is a key factor in the fall. Ideal Wine Company investigates.
Rise of the pound affects demand
Most overseas buyers purchase the bulk of their fine wine in the UK. As the pound rose in April 2017, this affected this market. According to Chris Smith from The Wine Investment Fund, Asian buyers in particular are showing sensitivity to fluctuating currencies, indicating that they are willing to wait and see what happens before making commitments.
It’s also likely that prices have stalled ahead of the release of the new vintage. Grapes harvested in 2016 led to a large vintage of high quality and it’s likely that winemakers were waiting until after the American Presidential election to release their new vintage, leaving buyers in a state of flux.
Market still up on 2016
Regardless of April’s drop in fine wine prices, the market as a whole is up 20 per cent when compared to this time last year. This positive news follows a five-year hiatus by Chinese buyers, who, although previously keen buyers of Bordeaux wines, suddenly dropped out from buying due to the austerity movement in Beijing. However, the Brexit vote last June and the ensuing drop in the pound led to UK merchants being cheaper and more popular for overseas buyers, giving the market a boost.
2016 Bordeaux harvest high quality
As the 2016 Bordeaux vintage is considered so good due to the large harvest – some say the best for seven years – buyers are waiting with bated breath to see how prices will fall, when decided by the leading chateaux.
These prices will decide how the Bordeaux market trades in the medium to long term. If prices are too high, buyers could drop out, leading to an overall drop. It’s just not clear at the moment what will happen and experts feel the market could simply go either way.
A good example of pre-market crash prices is shown by prices set by Haut-Brion in 2011. This leading Bordeaux winemaker released its new vintage at an eye watering £7,500 per case. Soon after these prices were released, the market crashed and the 2015 price was £4,250 a case.
Due to this uncertainty, the large chateaux are delaying the announcement of their prices. However, smaller ones have upped their prices around 20 per cent on last year, which suggests the major players will go for similar increases
Frost damage to vast regions in France this year will also affect pricing. Some vineyards have been damaged up to 100 per cent, meaning some winemakers will have nothing to sell next year at all. It’s possible that the high-end chateaux might up their prices this year because of this, or keep some of their 2016 vintage, in order to have some for next year. At the moment there’s little to do but wait and see.