Chinese rail lines and Lafite

[JonoB]

Don't worry... There is always Nebbiolo to keep me going until the prices crash!

[DavidG]

Tom has it right. It's major news if a negoc passes on an offer from the chateau. This happened with ... umm... can't recall which ... negoc and chateau... earlier this month. Had all the commentators clucking about how rare/unheard of this was and if it meant they would be shut out in the future.

What happens to the wine if the market does collapsing and a negoc, importer, or distributor goes under? It gets dumped at distress prices. It's been almost 40 years since anything of that magnitude happened. Though prices dropped almost 40-50% a few years ago during the economic meltdown, I don't think and Diageo voluntarily exited the futures game, I don't think it was anywhere near as brutal as what happened in the 70s.

[JonB]

Just returning from a week in Hawaii....my son bought a $20 uke.

from reading the book "bordeaux, power, pricing and politics" it sounds like the pricing is partly a game of one-upping the neighbor (who released prices before you, but you have the better wine, terroir, customer base, or whatever), as well as a producer/negociant game that is played on a individual relationship as well as collectively. Of course, there's what I would call collusive activity (I'm sure they have lawyers and are well advised) by meetings and communication among producers, about the market, etc. But largely the producer/negociant relationship is one where they both need each other, however the pendulum swings on the degree of that need. If there are good vintages where prices go up post-release (where the negociant profits on the subsequent price rise), the producer then feels that they didn't get the best end of the stick, they arrange so that the next vintage or so the negociant gets the short end of the stick (slow selling wines, wines sold at a loss, etc) until the negoc. have their back against the wall, and all demand more favorable pricing for the ensuing vintage. And the process repeats......

[JonoB]

The Rausan-Segla thing was a bit of pot calling kettle black and part of the game...

The negoc, something Freres has a large stake in Chateau Beychevelle (not exactly lowering their prices) and perhaps to deflect away from the fact that a much better wine is the same as their own which isn't as good.

Gamesmanship to make Beychevelle still seem like a good buy!

[DavidG]

Ahh, the tangled web they weave... thanks for the insider's view Jono.

[JCNorthway]

Interesting discussion to follow. And it has been equally interesting to watch Bordeaux release pricing over the past several years. I've had a hypothesis that the producers got tired of watching folks buy futures and then flip them for a substantial profit before the wines were even released. So the producers figured why not take that profit off the table and put it in their own pockets. And I can't really fault them for that. But here's the question I have. When you saw futures being flipped for significant profits, what was the actual volume of wine changing hands at those prices. And if a producer prices the entire production at that "market price" as set by auction, is there really enough demand at that price point to sell out the entire volume? Seems like there must be some useful microeconomics theory to apply here, but I'm too many years away from it to remember.

Jon

[Tom In DC]

Good point, Jon - the percentage of any rare wine that changes hands at auction has always seemed to be small. I've always wondered if there would be enough buyers for all of say, the Screaming Eagle for example, to change hands at their astronomical auction results.

First Growth Bordeaux, on the other hand, always seem to be available at retail, so the auction prices usually top out below the retail price.

[JonoB]

The wine market gets nice prices, because... The Market is supply driven. Anyone who owns a case and is willin to sell is a supplier... Those in storage or held else where are not suppliers but owners.

The chateau are effectively trying to control the supply by not allowing the old futures buyers to become suppliers. However those people (excluding investment funds who I would consider the devil or it's advocate ) were never in it to make a profit but tended to have more of a particular vintage (perhaps through simply taking an allocation) than they wanted and sold it and covered some of what they drank. With the advent of Investment funds it has gone from good vintage = slightly higher prices (like 05 when trads complained but bought), back to 08 when prices were good, to then the ridiculous of 09 (when investment funds started making news) and perhaps the Chateau want to price them out of the Market which until people realise that it is a global Market and not a china Market won't stop... However, perhaps what we haven't realised is maybe once the prices in the Market collapse for the "Market" maybe the Chateau will turn around and say we did you a favour and you were short sighted... We made money from idiots so we can give you great wine at a good price??

Pipe dream perhaps... I'm not holding my breathe...

[Tom In DC]

Put down the lighter and back away from the crack pipe, JonoB.

I think 08 EP prices were good because the chateaux and the negociants both realized that 2007 wines were absurdly overpriced. At this juncture, I think this scenario will be the only chance going forward for civilians to get Bdx at reasonable prices.