2006 Bordeaux-- Where the rubber hits the road?

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JimHow
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2006 Bordeaux-- Where the rubber hits the road?

Post by JimHow »

It seems impossible to talk about Bordeaux these days without discussing the impacts of the world economy. Several factors seems to have brewed a perfect storm:

1. The futures campaign started in the spring of 2007, after Robert Parker's first barrel sample reviews.

2. The Dow in the summer of 2007 hit 14,000.

3. In the summer of 2007 the Euro cost about $1.40(US).

4. Robert Parker has reported a "good" vintage, with quality wines made by the usual suspects. Graves seems to have fared well. Well-balanced, structured. Following on the heels of 2005, the "vintage of the millenium."

5. Meantime, the world economy has collapsed, the stock market is down to 6,700. Panic has set in. The U.S. Government is shooting blanks, throwing billions of taxpayer dollars at the problem, in vain.

We've predicted collapses in the Bordeaux markets in the past, but they've been very resilient. Maybe sales of $300 Carruades have been sluggish, but the $1,200 bottles of '05 Lafite have all sold out.

Will the wine industry be able to move their 2006 inventory? They sure seem to be in a bit of a Catch 22, at least in the U.S., where the wines were bought during a white hot economy with a very weak dollar, now hitting shelves during an economy in free-fall.
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DavidG
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by DavidG »

'06 may be tough.

'07 will be a lot worse.
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JimHow
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by JimHow »

You're right:

1. April 2008, right in middle of 2007 futures campaign, Euro hits a high of $1.60.

2. Economy still red hot, Dow hovering around 13,000.

3. 2007 produces a mediocre vintage for Bordeaux.

4. World economy collapses.

Ouch!

Is there a two-year mess coming for Bordeaux and wine merchants in the U.S., a trap from which they can't escape because the dye has already been cast?
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DavidG
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by DavidG »

I think so. There is going to be an ocean of wine in the pipeline and on store shelves in another year. '06 will be here, '07 will be on the way, and '08 will be in bottles waiting to be sold. Prices will remain way out of line with what people are willing to pay, so a lot of wine will go unsold whil people look elsewhere.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by JimHow »

2005 was priced high, but in May 2006 the Dow was at 11,500 and rising, and the Euro cost $1.20.
Thus, places like PJs, New Hampshire, and others were able to release futures offerings that were not much more expensive than 2004.
Plus, it was the "vintage of the millenium."

So, there are reasons to believe that this next year or two will be different.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by Nicklasss »

You're right Jim. Everything showing that the 2006 prices should go down. BUT, here in Québec, we're lucky to have liquorstore/winestore that are managed by the governement. That means that the price will still be high, because they're buying the wines with our money. And after, selling high, because we buy the wines (a second time) with our money. What a good system!

I expect the 2006 to be just a bit down from the 2006. And this is for the second growth and lower. The first will be 800 $ a bottle.

Nic

(looking for the deals in these days)
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by JimHow »

Remember that year, Nic, when they were selling '95 Bordeaux in Quebec for ridiculous prices: Petrus at $275, Margaux at $120, Ducru at $50, etc.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by Nicklasss »

Jim, the 1995 were sold in Québec at the cheapest price on the planet. But if a governement that manage well the winestore would do a good job, it would have stay the same for the following vintages (or I mean, relatively cheap, not 1000$ for a 2005 Lafite, when, 10 years earlier, the 1995 was only 149$). After all, when a governement buy wines for 7.5-8 millions consummers, they buy lot of wines, compare to let say 100 independant detailer, so they should have a better price.

And don't forget that 1995 was cheap in Québec, because of our french origins : we know well how to appreciate wine, so when M. Suckling was high on the 1995 vintage, we knew probably something was wrong with that vintage...:-).

Nic
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by Nicklasss »

But, of course, governement is governement. Don't forget that people working in the governemental winestores, put bottles on the shelve, give you some advices on which wine to select, and type on the cash register, deserve 13-15 $ an hour. But the other guy, doing exctly the same kind of job, in a shoe store, unfortunately non governemental, does 7 $ and hour.

Nic
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by alchemeus »

Heck, how has prices done in the past with lowered economies. I mean folk with money still have money, maybe not as many billions or millions or hundreds of thousands, but they ain't hurting anything near average folk are. Went from 20 mil to 5 mil...hell, a couple dozen thousand for wine ain't squat. Let alone those that went from a few billion to just a billion or 900 million.

Not sure prices for top wines gonna come down that much. Might not buy that yacht, but they still like their wine.

Hell, I'll still splurge for Pacific Wild Salmon on occasion. Well, when it was available.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by DavidG »

It is true that wine is a much more affordable luxury than yachts or private jets or fine art. But I bet a whole lot of fine wine, maybe not the tip-top of the top end, but plenty of stuff in the $50-$250 range, is purchased by people who just not don't have that kind of disposable income any more. I doubt that the multimillionaires are going to soak up all that extra wine that isn't being sold. They can already buy all they want, why would they need to buy more now? So for a lot of fine wines, demand is going to (probably has already) decreased significantly.

If the law of supply and demand holds, prices should drop. But the fine wine market, at least for Bordeaux, isn't really a typical free market - not for the stuff that's being released anyway. The Chateaux sell to negociants and importers years before the consumer buys the stuff, and as we're seeing now there can be significant fluctuations in exchange rates and demand in the interim.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by alchemeus »

David,

Where do you see the delineation....Third Growths or Mid Seconds or where.

I am just curious.

And do you think high end Cal wines suffer more.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by DavidG »

I'm not really sure Alch. I threw out $50-$250/btl as a range that mere mortals might have been willing to pay when times were flush, but wont now. Kind of a generality. I think the ones that will be most insulated from the downward pressure on prices will the those with the lowest production and the highest "status" - whether due to quality or perceived quality (i.e. hype). In other words, supply and demand.

In Bordeaux, first growths have high status but they also have high production. Super seconds would be in a similar boat, but a little less status. The cult-y garage wines might be in even better shape. Probably the same for Burgundy. Since most Bordeaux is sold to the negociants and importers, and a fair amount through to the distributors and retailers well ahead of release time, they are the ones who will be sitting on the unsold wines. The need to maintain cash flow will likely force them to drop prices. Some of the most well-off Chateaux could probably afford to sit on unsold production for a year or two, but I doubt the rest of the pipeline could. Some of the 2005 Bordeaux are now selling for well less than their peak, though perhaps not below the initial en primeur prices that the early birds were able to snag.

In California the situation is different. Most cults sell direct to the mailing list, with wines delivered within a few months of payment. Harlan is an exception - they collect the cash about 2 years ahead. I think all of the California cults are burning through their waiting lists as people drop off. I dropped Harlan because it just isn't worth it, even though it is one of my favorite Cali Cabs. For a lot of people, the Harlan release price has taken most of the profit out of flipping them to finance the ones to keep and drink. It will be interesting to see what happens to Screagle - it's now $750/btl. Will the secondary market continue to support $1200-1400 prices, and will people stop buying if they can't flip? At only 300-500 cases, they can still probably sell out. Sine Qua Non is another that has such low production they will probably continue to sell out. But some cults will likely reach the end of their lists and will be faced with the unpleasant prospect (for them) of having unsold wine for the first time in their history. With the huge prices some of them have been raking in, they may be able to sit on wine for a year or two until (if) the economy improves. But will they want to? And will customers come back at those crazy prices once things turn around? Others may not be able or willing to sit on a year or two worth of production, and that may lead to some serious downward price adjustments.

I think there is really big trouble brewing for the non-mailing-list Cali Cabs in the $75 and up category.

The bigger unanswered questions in my mind are:
How long is the downturn going to last? Obviously a big deal for a lot more than our little vinous corner of the world.
Which wineries/negociants/importers/distributors/retailers will be able to weather the storm?
Once the economy turns around, will consumers once again be willing to pay the kind of prices we've been seeing the last 10 years?
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JimHow
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by JimHow »

The bottom line for 2006 for me is that these wines are just too over-priced. The economy is back to levels it was at a dozen years ago. Bordeaux needs to get back to reality. They need to get back to the days of 1997, when Nic and I could buy Ducru Beaucaillou and Pichon Lalande for $50 a pop, and we could splurge for a bottle or two of Margaux and Lafite for $120. I've been getting the emails from Premier Cru, et al, and Mouton is going for $600, and Cos is still in the high $100s, and Pavie is hovering around $300, etc., etc., etc.... These people just don't get it. But they will. The hard way.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by DavidG »

I think I'm done buying Bordeaux. There are some enticing-sounding '06s but I agree Jim that prices are too high.

Plus I've got enough Bordeaux to last, well, a while... My love of Bordeaux is rooted in the complexities that it just starts to develop at 10 years or more down the road. At my age and with my current inventory and consumption levels, there's no strong incentive to buy more anyway. There may be some screaming good deals, or at least some good deals on some screaming good wines coming down the road in the next year or two that might change my mind. But for right now, I'm done buying Bordeaux. But not done loving it and drinking it!
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by rjsussex »

I've bought quite a lot of 06s, most quite recently at prices that in UK are still at or near en primeur level and look like good value (especially compared to 05) for a vintage that sounds like it's very much my style - 04-style with bit more concentration and grip seems to be the consensus. Clerc Milon at £225 in bond, Durfort at £170 in bond - these are examples (also bought 2 or 3 cases each of Dom de Chevalier, Lagrange, Gloria, Cantemerle and Gruaud - the latter got savaged as usual by RP last week but the UK trade is solid behind its qualities).

But that may well be it for me - perhaps the last vintage I'll buy in advance. The cellar's looking rather full (will be c130 cases when the 06s arrive: c95 cs claret and c35 cs burgundy) and at my age (wrong side of 50) that may well have to do.

Richard
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JimHow
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by JimHow »

The U.S. dollar issue is turning out to be a major roadblock to us on this side of the pond, Richard. I'm 50 and I figure I'll be buying new vintages for another five to ten years. Just not as much quantity.
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Re: 2006 Bordeaux-- Where the rubber hits the road?

Post by michael »

Given the state of the world economy, it's hard to imagine less than 2000/2005 quality vintages selling very well today. I've got to think that both 06 and 07 will be slow sellers and are likely to be offered at substantial discounts down the road. Other than buying a rare wine early to ensure storage conditions early, I've got to think there's little reason to be buying these wines now in the US. Auction prices on older vintages seem to be starting to soften. If prices on 00/05s start to come down, expect prices for lesser years like 01/02/04/06/07 to sink faster than the Titanic.
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