Market Analysis - Other - 18. September 2021

Analysis: Wine Investors Are Looking Forward To Some Really Exciting Years

With nice double-digit price increases, 2021 has so far been a lucrative year for the wine investor, and there are many indications that we are also facing positive future pro

When The Epidemic Came, The Wine World Held Its Breath - For No Reason At All

When, in the first half of 2020, we became seriously aware of the scale of the corona pandemic and the impending potential consequences, both we and the rest of the wine world held our breath. Wine has historically been a crisis-resistant asset that has performed extremely well in bad times. But the extent of, and not least the unknown expiration date of the corona crisis naturally gave cause for concern - even among wine investors. 

As a result of the fact that most of the world was closed, which also applied to the world wine merchants, liquidity briefly disappeared from the market in the spring of 2020. The result of this was a fall in prices, but only on wines from the wine merchants who were forced to sell. For wine investors, who basically always have the long perspective, it was just a matter of waiting for the trading activity to return. So it did after a few months, and during the summer of 2020, trade was more or less back to normal, once again emphasizing wine’s resistance in a time of crisis.

There are many indications that since then neither so much nor so good wine has ever been drunk and both trading activity and prices have generally been rising. In fact, it must be concluded that the corona crisis has contributed to the fact that among all wines, managed by RareWine Invest, in 2021 so far, we have seen strong price increases where the prices of both Burgundy and Champagne have risen above 20% on average. The Italian wines and wines from the Rest of World are also approaching double-digit increases.

Although we cannot deny the fact that the corona crises might not be over, it still seems declining and the world as we knew it is gradually returning. But will an absence of corona crisis then slow down the development in the world of wine? It is impossible to answer, but in fact the wine investor is facing several other things that in the coming years may further boost wine investments, just as the pandemic seems to have aroused interest in the better consumer goods, including wine, among many consumers.


Rising Prices In Champagne Could Become The Champagne Investor's Best Friend

We have previously reported that there are price increases pending in Champagne. The cost of production of Champagne has been rising to an extent that for many years producers have not included in the prices of the finished product, which has created an economically unsustainable situation for them.

In addition, most producers in Champagne are facing large investments to meet climate change and not least the currents in society that generally place higher demands on ecology and sustainability. In particular, the need to prepare for climate change was felt by producers in 2016 and 2017, where the harvests, by several producers, are described as the worst ever due to weather challenges.

As a result of this, i.a. Decanter predicts that the price of Champagne will rise more in the next ten years than previously seen - something that is backed by the cellar masters from both Dom Pérignon and Veuve Clicquot.

If the prices of Champagne are raised even more from the producers in the future, this will also affect the prices of the Champagne that is already in the market. If you have mature versions of the right wines, this draws even better prospects than ever before.

Further Broadening Of The Market Suggests Even More Buyers

The British wine exchange, Liv-ex, is constantly reporting on a broadening of the wine market, understood in the sense that the trade in "fine wine" is expanding and is no longer only centered on the old regions, such as Bordeaux and Burgundy. This is manifested through a sharp increase in the number of unique brands traded through Liv-ex. The number increased from 996 different in 2019 to 1,420 in 2020. In March 2021 alone, this number was 1,250.

This is partly due to increased interest in the best Italian and American wines. In fact, Liv-ex's sub-index, Rest of the World 60, is the best-performing sub-index year-to-date, driven primarily by major American labels.

But despite this influx of new wines into the fine wine market, there is no indication that the market is saturating. Liv-ex's broadest index, Liv-ex 1000, has reached a record high level on top of a full year of constant growth. This suggests that never has neither so much nor as expensive wine been traded as now.

In addition, one must not forget that the major political lines have also stabilized after a tumultuous period. When President Trump was replaced by President Biden, it was not long before punitive tariffs on French wines were lifted, and thus the road was reopened to the huge North American market. 

The wine market thus opened even more in more than one sense.


The View In Burgundy: Historically Good And Historically Bad - For The Benefit Of The Wine Investor

During this time, the 2019 vintage from Burgundy has gradually begun to be released. A vintage that both producers, wine connoisseurs and retailers have extremely high expectations of - to such an extent that it is even referred to as the "best vintage since 1865".

The conditions were simply ideal, and the vintage will certainly be a benchmark vintage in the future. We have only seen the tip of the iceberg of 2019 releases and the very large wines we still must have a little patience with, as it will take time - up to a couple of years - before these are released. Still, the trend is clear: the quality among the wines already released is towering and so are the prices.

On top of this, the 2021 vintage in Burgundy is set to become historically bad. Weather and wind have affected this year's harvest so negatively that several media outlets report a definite disaster, while others "only" report "smallest harvest in decades".

If a historically good vintage is combined with towering prices, with an undersupply of wine because of a bad harvest year, the result will in all probability be sharply rising prices. 

When we try to look into the future, there are many variables that come into play and the future in particular is extremely difficult to predict. Still, we can say with certainty that some of the things that have happened in the wine world in recent years will also affect the wine world in the future.

Corona crisis or not, rising costs in Champagne and both a historically good and historically bad vintage right after each other in Burgundy: All indications are that the wine investors are facing some extremely exciting years.

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