Researchers at Syracuse University’s Whitman School of Management and Rensselaer Polytechnic Institute’s (RPI) Lally School of Management are out with their yearly assessment of wine futures and have determined the 2019 Bordeaux vintage to be an excellent investment option.
“Futures came out below their real values, meaning chateaus are selling at significantly reduced prices,” said Syracuse University’s Burak Kazaz, who along with RPI’s M. Hakan Hekimoğlu released a report that identifies the “best buys” for the 2019 vintage Bordeaux wine futures known as “en primeur.”
The authors developed a price algorithm that provides the most accurate valuation for Bordeaux’s wine futures contracts both academically and in practice. The model specification relies on big data and is selected from more than 8.5 billion alternative models. It uses local climatic information (e.g., temperatures and precipitation), market fluctuations reflected by the Liv-ex 100 index which tracks the prices for the 100 most sought-after wines, and scores assigned by three influential tastings experts: Neal Martin of Vinous, Lisa Perrotti-Brown of Wine Advocate and erobertparker.com, and James Suckling of JamesSuckling.com.
The report identifies 15 chateaus’ wine futures as a “strong buy,” meaning that they present excellent deals. An additional seven chateaus received “buy” recommendations.
“The 2019 vintage is an excellent vintage to invest in,” says Kazaz. “Haut Brion, Pontet Canet, Mouton Rothschild, La Mission Haut Brion and Figeac are released more than 30 percent below their realistic values and we classify them as ‘fantastic buys’ for the 2019 vintage. Together, these 2019 ‘en primeur’ prices are undoubtedly the best release prices in a long time.”
“We observe that when a wine is released at a price below our realistic price point, its price tends to increase in the following year, thus, it generates a positive gain to its buyer,” says Hekimoğlu.
The report cites three main reasons for the chateau’s decisions to reduce prices substantially. COVID-19 did not allow tasting experts to visit chateaus in the spring and the chateaus had to ship bottle samples to the tasting experts several months after the usual time. Brexit is causing uncertainty at the biggest hub for fine wine trade in London. Potential tariffs can make the bottom-line prices higher for consumers. The 25 percent U.S. tariffs for wines with less than 14 percent alcohol can also create additional expenses for U.S. consumers. In sum, these uncertainties caused chateaus and négociants to establish attractive release prices for the 2019 vintage.
The report provides detailed information on the impact of various factors influencing the valuation of wine futures. On average, the lower temperatures during the summer of 2019 caused a decrease of 1 percent approximately for chateaus located in the Left Bank and 2 percent for those chateaus located in the Right Bank. Higher precipitation in the Left Bank reduces prices by approximately 2.5 percent but a lower precipitation in the Right Bank helps increase prices by 0.2 percent. The decline in the Liv-ex 100 index results in approximately another 2.3 percent decrease in realistic prices. The increase in Neal Martin’s and Lisa Perrotti-Brown’s overall scores leads to an average of 4.32 percent and 0.98 percent increase in prices, respectively. James Suckling’s slightly lower scores leads to a decrease of 0.42 percent on average in realistic prices.