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Days of Futures Past?

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TIMES WINE WRITER

The futures market in fine Bordeaux wines--a symbol of frenzied wine collecting for the last decade--has all but collapsed.

Buying wine futures is a tactic of wine collectors who pay a discounted price for wines well in advance of delivery to assure themselves of getting wines that will be difficult to find at a reasonable price later on, if at all.

But the combination of two poor vintages in a row (1991 and 1992); too many great vintages of the recent past (1985, 1986, 1988, 1989 and 1990); a weak U.S. economy, and the collapse of the complicated system of handshake agreements that supports futures deals have left consumers too wary to plunk down a dime even for wines with a stellar reputation.

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One Los Angeles wine merchant summed it up this way: “Everybody is loaded with ‘88s, ‘89s and ‘90s, so there’s no need to buy the vintage. And you’re dealing in a weak vintage. Plus there is a lot of skepticism with the whole idea of futures because of what happened last year.”

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What happened last year is best exemplified by the experience of Los Angeles wine collector Tom Pirko, who in 1991 sent off a check for $3,000 to buy a number of top Bordeaux wines from 1990, a vintage that was rumored to be one of the best of the century. He didn’t expect to get the wines until 1993, but he didn’t mind paying up front because he was getting a lower price than he’d pay when the wines were released.

This time, though, the system didn’t work. When Pirko asked Calvert Woodley Discount Wines and Liquors in Washington about his order, they told him they couldn’t get the wine as expected from a Detroit-area supplier, and efforts to find it elsewhere at a fair price fizzled.

Pirko wasn’t alone. Oakland-based fine-wine merchant Premier Cru said they lost $250,000 when wine ordered from Cloverleaf Market of Southfield, Mich., never arrived. And hundreds of others were stung by 1993 collapses in the wine futures business. One Los Angeles wine collector said he lost thousands of dollars in the bankruptcy of a London wine merchant. Another London futures dealer closed after failing to deliver wines.

Many retailers who wound up with shortfalls absorbed losses as they tried to compensate consumers. Pirko, for example, was offered other wines by Calvert Woodley. But some buyers simply lost money.

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The failure of the futures system, though not front-page news, nevertheless caused reverberations among U.S. wine lovers. It showed the futures system to be little more than a “chain of faith” that fails if a single link breaks.

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Barney Rhodes, a Napa Valley wine collector and one of the first U.S. futures dealers, says futures began in the mid-1950s, when winemakers in Europe needed cash and wine buyers wanted rare wines at a discount and were willing to pay in advance.

“Back then, a lot of French vineyardists had no cash, and their pickers had to be paid in cash each day,” says Rhodes, who in the early 1960s imported Chateau Lafite-Rothschild. “So some of the negociants (middlemen who buy bulk wine from growers to sell lots to other wine merchants) would get them to sell tonneaux (96-case lots) before the wine was bottled.”

As futures sales became more prevalent, consumers grew accustomed to buying before delivery. The negociants ‘ price led to a price for each wine offered to wholesalers in the United States. These would be passed along to retailers, who could post prices for top Bordeaux.

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All buyers put down a full- or part-payment based on faith that the merchant would deliver their wine. Merchants had faith the wholesalers would deliver, and wholesalers had faith the import companies had the right to buy the amount of wine they took orders for.

“If you pay two years prior to delivery, you always get an excellent price,” noted Los Angeles wine collector Bippin Desai. “The 1990 Bordeaux were paid up in 1991 and today the price for every 1990 is 30% to 50% higher, plus some of them are not available. The 1990 (Chateau) Lynch-Bages was about $275 (per case) then and it’s at least $350 today. The 1990 Margaux was $600 to $650; now it’s about $1,000.”

But Desai is critical of speculators who tried to sell their wines at a profit soon after they bought them. And, he noted that some speculators lost money when the demand flagged for once high-flying wines.

Those who speculated on 1986 Bordeaux are losing money on them, says Desai. And he says today’s prices for 1988 Bordeaux are now even lower than the futures prices. “Too many people have too much wine, and this weakens the trade,” he says.

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Futures deals are not covered by state or federal laws, says Manny Espinoza of the state Alcohol Beverage Control department, who admits that regulations on futures were considered in the early 1980s.

“We were concerned about the potential for fraud,” says Espinoza. “What happens when the person doesn’t deliver on the goods or goes south with the money? Basically it’s people operating on the honor system, on faith. But there were no major problems then,” he said, so no laws were enacted.

Despite the bad rap the 1991 vintage has gotten (including the fact that weather was so bad in Pomerol that there was no Chateau Petrus produced during that vintage), the wines aren’t that bad.

I tasted the five 1991 First Growth Bordeaux two weeks ago and can say that they are quite good. The wines are lean but classically made, with nice structure. They are quite tart, however, and need time to develop. But they are certainly better than the last poor Bordeaux vintage, 1987, and considering recent prices for these wines, the $50 retail price you’ll pay for a bottle of Chateau Margaux or a bottle of Chateau Latour seems a fair price.

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Reports out of Bordeaux say the rainy weather that hurt the vines in 1991 did far less damage in the Saint-Estephe commune, and that these wines fared better than those of other areas.

Incidentally, 1992 was also a poor vintage in Bordeaux--so poor that Alexander de Lur-Saluces says he scrapped his entire production of the classic dessert wine Chateau d’Yquem, the top-rated Sauternes. There is also no futures market for any 1992 Bordeaux, according to merchants.

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There are early indications that futures trading isn’t quite dead, though, despite the turmoil of ’93. Sources say the first offering of 1993 red Bordeaux, which is still in the barrel, sold out quickly and at prices well below those of 1990, with great interest shown by Belgian and Swiss buyers.

However, one of the top U.S. wine retailers, Peter Morrell of Morrell & Co., is advising customers not to order 1993 Bordeaux futures. Morrell calls ’93 another poor vintage. “We predict there will neither be great demand nor capital appreciation to be realized from early purchase of the 93s as futures,” he said.

Morrell said most 1993 red Bordeaux are better than 1991s and 1992s, but that they are still astringent and bitter.

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