Thoughts?
Woah, this is big news. Even bigger than not selling futures is this: “vintages will be released when the chateau believes they are ready to drink”
Good for them. I think it may dampen speculation restore some order to wine buying.
It will be interesting to see whether others will follow. Yquem only started selling futures relatively recently (the past decade), so I imagine it wouldn’t be too much of a cultural shift to move back.
Only rationalization is that they see the escalation of pricing in the secondary market as higher than what their cash flow actualization was providing the business.
This is somewhat irregular given that (correct me if I’m wrong) Latour is owned by a large corp who would relish the predictable cash flow generative powers of the estate, but the financing behind it is something we can only speculate on, let alone things like tax ramifications… I can’t fathom that they would hold the wines for 10-15 years before release, especially given the current release prices (you would have to be pretty damn bold about the expected IRR realized through holding).
Faryan…could be, but also could be the producers drinking their own kool aid. When metals producers reduce/stop their hedging activities they do so because they believe in the long term pricing of their product. Could we be seeing the same here?
Like Keith said, really big news. This has to mean Latour is confident that prices are sustainable or rising long-term. Why else would they take on such huge inventory. Me personally, I’m selling futures at all my Bordeaux first growth chateaux because I think prices now are very high, with considerable downside going forward. (Oh, I just remembered, I don’t own any chateaux, so nevermind.)
Effects on demand for Latour in the secondary market will also be interesting to watch…
The article said that Latour estimated that it would be “difficult financially for anywhere from five to eight years”. So their own estimate of the beginning of the drinking window is evidently on average shorter than WS’s.
I’ll be interested to see if this model sticks. It seems the winery could slip back to the current model very easily by just shortening that window again. That’s how we got to futures in the first place, isn’t it? I don’t know my wine history all that well, but didn’t most chateaux back in the day hold wine until it was ready to drink?
i.e. expected risk premium for ex-chat bottles post-Rudy.
I got out of the Latour business a long, long time ago, but this is still very interesting news.
Many wineries from Emedio Pepe to Lopez de Heredia and other Rioja bodegas have ENORMOUS back inventory. One of our favorite Valtellina cantine releases his BASIC wines at 10 years old and his Sforzato is just now going from '96 to '97. Should be a no brainer for Chateau Latour.
I think this answers the question about how much wine has been held back by the top chateaux in recent years - a lot!
I mentioned the story to a friend who works for a large retailer in LA. He said that when they went to Bordeaux for the 2010 EP campaign, the managing director at Latour said that he wished he could hold the entire vintage back and sell it in ten years.
I mentioned the story to a friend who works for a large retailer in LA. He said that when they went to Bordeaux for the 2010 EP campaign, the managing director at Latour said that he wished he could hold the entire vintage back and sell it in ten years.
Me thinks Tom hit the nail on the head. Can’t “push” too much thru at current futures prices but expect/hope they can when they spread out those sales over time. The secondary market pricing certainly should give them some comfort in this path to maintain (or increase) current pricing.
Faryan’s cost of capital argument I also believe is part of the economic equation. Look at the prices of Chateau cellared first growths, how can they not want to hold a lot back and sell at a later date?
When do we get to the “How well do they store inventory at Chateau Latour” part of the thread? ![[snort.gif]](/uploads/db3686/original/2X/b/bdc3944606213c4dca6c1169cf0a166c8bc4f8c9.gif "snort.gif"){kind=small}
Serious question: would they store them as shiners and then label them on release? Seems like it would be good marketing.
What are we going to do with our cash now???.. Surely, it was safer to buy half a bottle of Latour each year rather than leave your hard earned cash with the banks!
Funny, but I read this as a huge sell signal for Bordeaux. I think they fear the EP market is about to collapse, causing major damage to their “brands”. This way they can sit all that mess out.
Actually, there was a thread on eBob a few years back in which Parker complained that Latour was showing better from his cellar than from Latour’s own chais, which were of course above ground and thus allegedly slowly cooking the wine. But the Suckling article reports that Latour has invested in new, optimal storage space so perhaps that won’t be a concern going forward…
I still can’t decide whether this move is a real service to people who actually want to appreciate the wines or if it’s just a cynical money grab.
On the one hand, new releases have been selling for a more than ready-to-drink back vintages! So it seems that converting your new releases into ready-to-drink back vintages you won’t sell for 10 or more years is not a recipe to add to the bottom line, unless you are expecting a serious premium for the unimpeachable provenance, which is a possibility.
On the other hand, as someone pointed out above, this may merely be a result of how much wine the chateau has already held back over the last few boom years in an effort to manipulate the market with artificial scarcities. With so much inventory on hand - and perhaps so little of the recent releases actually sold - an announcement like this may merely make official a policy that’s been dictated by years of market manipulation. They were going to have to sell this stuff eventually.
There is also the possibility that they didn’t give the slightest consideration to the impact of this on the people who actually buy their wines and the ulterior motive is really about maintaining Latour’s esteem vis-a-vis the other first growths… For a long time Latour was the most highly regarded of the 5 and has of course lost that title to Lafite over the last few years. Now Latour’s happened upon an interesting way to distinguish itself from the rest, placing itself above the sundry mercantalism that afflicts the market for its lesser brethren…
Another possibility: they think all the fraud problems are going to blow the auction market to smithereens and the value for ex-chateau bottles with a guarantee of authenticity will increase dramatically.