Buying Wine Futures: When the best is yet to come

It’s not gold or silver, but when it comes to investing, wine futures have a lot in common with commodities. Both investments involve risk and uncertainty, and require due diligence before investing.

Wine futures (sometimes called “en primeur” or “pre-releases”) is the process of selling wine before it is bottled. Like stocks that are rated by a board of experts, pre-bottled wine is rated by experts who taste the wine aging in the barrel, creating a barrel score that predicts its potential quality. Based on that score, the producer determines how much of that wine will be sold as futures, as well as the pre-release price. After another year of aging, the wine is bottled and is once again reviewed. This time around the experts assign a bottle score that influences the wine’s market price.

This practice of selling wine still aging in the barrel harkens back to the 17th century when British wine merchants started buying barrel wines from producers in France’s Bordeaux region. Buying rare wine can be tempting, especially when the pre-release generates a lot of buzz that more than justifies its futures price. But the downside can be hard on the risk-adverse. The quality-rating system carries a lot of uncertainty, and buyers assume the risk. They can lose money if the wine doesn’t live up to its potential once it’s bottled.

Today wine futures investors, like their stock-investor contemporaries, conduct much of their business via electronic exchanges. Liv-ex (The London International Vintners Exchange) is the go-to global marketplace for trading fine wine. Other pre-release investors “phone in” their requests to a middleperson, usually a merchant, who will handle their transactions. But those who want a more personal experience look forward to barrel tasting events where, in the company of other wine lovers, they can taste the aging wine prior to making their investment.

Barrel tastings, compared to other tasting events wineries hold throughout the year, are stripped-down versions where the wine holds center stage. Customers can buy “futures” from a select group of barrel samples, typically discounted from the expected bottle price. Some investors are motivated to buy because they might miss out on a buying frenzy later, while others are attracted to the discounts. For example, at Madison-based Maple Ridge Winery, the markups for bottled wines can be 40-70 percent higher than their futures price, says Maple Ridge principal Jim Iubelt.

Wine futures are a fun way to invest – especially the tasting part – but like other types of investing, a modicum of due diligence can make a big difference. Beth Costa, executive director of Wine Road, a Sonoma County winery association, shares these tips:

  • Buy from established wineries. Selling wine futures can be complicated, and they’ll know how the process works.
  • Take notes as you make purchases. With at least a year from barrel-to-bottle, it may be hard to remember details.
  • Taste current vintages from that winery; they’ll give hints of what to expect. To this advice, winemaker David Coffaro, owner of Geyserville-based David Coffaro Vineyard & Winery, adds: “When tasting wine from the barrel, make sure you like it at that time. Don’t expect it to change, especially if you detect a flaw.”
  • Notify the winery if you move. They won’t hunt for you, they’ll just keep the wine in their cellar.

When it comes to wine in a barrel, investors are betting that the best is yet to come. Handled with patience and discipline, buying wine futures can turn out to be well worth the wait.

Photo courtesy Jordan Vineyard and Winery

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