Get Risky with Wine Futures: Buying En Primeur

For those of my readers who dabble in the markets, or at the very least have taken finance 101, you’ve probably heard of futures. This is the high risk – high reward practice of purchasing an asset at a particular price today, for future delivery.  While the risk averse may cringe at the thought of the price falling dramatically, resulting in a loss, trading in the futures markets provide you with the opportunity to hedge your investment when there is a dramatic market upswing.

Purchasing wine futures is similar in that you are able to invest in a particular wine vintage while it is still in the barrel, for delivery at a future date.  Typically the future is purchased 12 to 18 months prior to bottling.   The possible advantage of buying wines en primeur is that the wine may be less expensive than it will be once bottled and released and you’re able to secure the hard to come by wines of some of the most established wineries.

The Economics: Wine prices don’t fall, so why buy the wine?    There is no guarantee that the wine won’t lose value, however, this has more to do with the actual wine producer than the overall economic conditions.  If the wine happens to be a Premier Grand Grand Cru Classé “A”, as produced by Château Cheval Blanc, you are much more likely to receive an amazing wine, and given the low fluctuation in wine prices and steady sales – even during a recession – the wine will most likely increase in value.  That said, purchasing wine futures gives you the opportunity to 1) purchase an amazing vintage from a prestigious vineyard 2) at a lower cost, while 3) mitigating sell out risk.

Risk averse? Here’s what to do… Taste the wine.  if you are able to visit the winery, you may be able to taste the wine directly from the barrel before it’s bottled.  While a red wine may seem tight and shallow,  it will evolve in the barrel and should gain complexity and depth, so keep an open mind.

Do your research.  If it’s a Premier Cru or a prestigious winery which produces lesser quantities, search for articles which describe the vintage.  Depending on the winery, the grapes are selected and harvested months if not years prior to bottling and delivery.  Based on researching the results of a growing season, the consistency of the winemaker and quality of the wine, you will be able to make an educated decision when purchasing wine futures.

Why aren’t more people buying buying futures? In order to play in the wine futures market, you need the monetary and logistical resources to make it happen.  As in the stock and commodities market, a broker who’s able to find, evaluate and facilitate the trade can sometimes be a necessity. See these articles:

Billionaires’ Wine Thirst Quelled by Record Futures

Liv-ex: The European Fine Wine Exchange

There can also be much speculation about whether you really should buy the bottle or not.  Cheval Blanc is an extreme edge case, as it’s ranked among the highest prestige and not all wines live up to the hype.  Should You Buy Wine Futures?

What next?  I’d suggest starting small, like I did.  Go to a winery which offers futures and taste the wine.  If you like it, buy it.  You can purchase as little as a bottle.   As you start to understand the wines and vintages you can begin to grow as futures traders.

Have you purchased En Primeur? Share your experience.  Here’s a 2009 Estate Petite Sirah I just received from Zichichi Family Vineyards, which has completely sold out!

Wine Future purchased in Spring 2011

Châteauneuf-du-Pape

Lot18 provides access to high-quality, hard-to-find wines at attractive prices. Essentially, the Gilt of wine.  Today’s featured wine, a 2006 Domaine du Pegau Cuvée Réservée Châteauneuf, is a blend from France’s Rhône valley. Châteauneuf-du-Pape became popularized by Robert Parker, the renowned critic and author, and has been the subject of tasters, critics, and wine drinkers all over the world.

K&L wine merchants carries this wine, and at $10 more than the advertised $59.99, you can purchase locally, the same bottle and vintage. However, is this really the bottle you want?

Let’s think abou Gilt for a second. The goods that are being promoted are easy to evaluate, as there is immediate esthetic value created by looking at a beautifully shot blouse, rug, or even packaged pâté. Through being able to visualize clothing and foods, you can make an informed decision on what you purchase. With wine, however, there is always the cognitive inclination to chose the bottle with the pretty labels, and as we all know so well, that mistake often leaves you in dissatisfying dismay.

So, how do you select a wine? It takes hours of research to make one selection. For instance – what is the terroir like where the grapes are grown, which can differ from where the winery is located. What vintage is the wine and how did the grapes fare that year in that particular region? The more you read, the more questions you uncover, making the experience challenging and exhausting for most.

In addition to patience, it takes a genuine passion for the art of winemaking, and the love of wine to get down to the most granular level of a wine. Even then, there’s still much left up to chance. And after all of that, there is a chance that the wine may just not be to your liking.

So, back to this wine. There are a few points that lead me to my decision on whether this is a good buy. After a bit of research, coupled with my experiences drinking Châteauneuf, I would purchase this bottle. The winery is distinguished and the reviews are quite good. While many think this can build complexity over the next several years, it is drinking quite well.