China Turning Up The Heat On Bordeaux FuturesStock-Markets / Investing 2010 Sep 16, 2010 - 03:56 AM GMT
Booming demand from emerging economies--especially China-- in addition to near-perfect weather in western France, is sending prices of Bordeaux soaring 28% within a one-month time.
WSJ reported that Château Lafite Rothschild's 2009 Bordeaux began its advance sales in early July at $18,000 a case. They were sold out in four days and the same case now is going for $23,000 (see graph from WSJ).
WSJ indicated some Hong Kong investors, betting on China’s wine thirst, are speculating in wine futures thus driving up huge price increases. Here is the tip bit from WSJ on the Bordeaux futures:
"Bordeaux's top 200 or 300 wineries use a system called sale en primeur, or presale, for part of their product. Early each summer, they exchange futures contracts with middlemen known as negotiants, who then sell the wine contracts to collectors, investors and fine-wine retailers."
That means, for the elite 5% of Bordeaux wineries, futures contracts are exchanged while a vintage is still in barrels. So, this 2009 Bordeaux won't be bottled until next year, at the earliest. And prices are expected to climb even further, 440% in one example cited by WSJ, after a wine is bottled.
WSJ quoted Council of Bordeaux Wine that volume of Bordeaux exported to China had grown 39 fold from 2000 to 2009, and was up 97% and 40% year over year, by volume and value respectively, in 2009 alone. Last year, China also passed the U.S. to become Bordeaux's biggest export market by volume outside Europe, and is considered the most important market, even before France, by some wineries.
According to the International Organization of Vine and Wine (OIV), China’s wine producing capacity is also growing alongside its love for spirits, China now is the world's sixth biggest wine producer, edging out Australia. Its potential is drawing elite vintners like Spain's Torres and France's Lafite.
In China, wine has become a status symbol of the hip urban lifestyle. Newly affluent and brand-conscious Chinese consumers flock to Bordeaux as red wine is associated with good health, and the color red traditionally signifies luck and fortune in Chinese culture.
Another factor of Bordeaux’s popularity--the combination of the massive population and finite food sources (food-for-wine) has prompted Chinese government to announce a policy of reducing the production of rice-based alcohol, a long-standing tradition in China.
Feeling tempted to dabble in wine investment? Bacchus Partners, LLC is the first and only wine investment fund in the U.S. However, wine may seem like an attractive investment at times, as an asset class, it remains speculative, complicated and not as well-developed as an investment option. So, it is most likely best for someone with a sizable net worth looking for diversity into the exotics. Average investors probably should put money into other more conventional investments, or you might find yourself drinking down losing investment more often than not.
By Static Chaos
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