Is enough port being laid down?

[Tom Archer]

The subject of this thread poses an impossible question, partly because no-one knows how much port will be consumed in the future, and partly because there is no data source to reveal how much of the wine sold from previous vintages has already been drunk.

However, I have a couple of questions that I would like answers to, in order to get a better take on the subject.

Firstly, any accountant working for the shippers would be aghast at the prices obtained for old ex cellars VP when compared to that obtained for new wine. The producers are in business, and business investment demands real capital growth from assets. Any comparison of prices for 2003 stock with those obtainable for 1983 wine would suggest that long term storage of vintage port in VNG is a waste of resources.

Q1 - Are the shippers listening to their accountants? Will the future supply of mature wine be largely dependant on stocks from private cellars?

Secondly, the US is an important market for VP, but how much wine is being stored there for the long haul? Most stateside participants on this site talk of buying bottles rather than cases, and while the Americans are notorious for drinking VP young, there is clearly a strong demand for mature wine.

Q2 - How much of the mature vintage port drunk in the US was shipped soon after release and matured there? Is the US market dependant on ex cellars shipment of mature wine from VNG, and to a lesser extent, exports from the UK?

The UK market appears to be slightly over-stocked with mature wine, notably from the '70 and '77 vintages, while the price of wine at release has not been supported by the secondary market for a generation now.

It is also noticeable that major investment wine merchants such as Berry Bros now give very little catalogue space to vintage port.

The amount laid down from recent vintages may therefore be insufficient.

Tom

[Bill Crann]

I would say that in the US most VP is bought by a relatively small number of passionate port drinkers & most of 'em won't hesitate to knock 'em down early. I plead guilty myself. There are many reasons for this which I won't go into but in general we're an impulsive, impatient, thrill seeking lot that enjoys popping open a VP of any recent vintage for any reason at all. Or for no reason but curiosity. It appears that the English port houses are embracing our behaviour since they are trying to dual market to us: Try Delaforce VP for immediate consumption; Taylor VP if you have the patience to wait a few years. There is secondary VP in the US, but it's risky since nearly every bottle more than 5 years old has already been previously sold.
I'm starting to see the new price roll-outs by the big boys for the last 2 general declarations that have yet to be sold. 2000 & '03 Taylor's at about $120 / 750 ml bottle. I don't think the accountants will lose any sleep if these sell. Compared to other world class wine, VP is still a very good to great deal but upcomig major vintages will be a lot more expensive upon release than anything seen before.

BC

[Roy Hersh]

Tom asks some brilliant questions and I will wait before responding, to give others a chance to pontificate.

One thing that should be realized and I have never seen this on any wine Forums, so it might be useful for people to understand some of the dynamics that go into Port pricing. For the record, this has nothing to do with what Tom had to say above, just something to make folks think a bit more deeply before responding to his excellent thread.

About 25% of the basis cost of VPs (for the producer) is to pay for the foot trading of the grapes in lagar by the Duriense. We overlook and over-simplify... with our views of the selling prices of VP.

Not everything to do with pricing is driven by supply and demand.

More anon.

[Moses Botbol]

I have a feeling that vintages from 2000+ will sit on the shelves for a while until the 80’s vintages are out of site like the 70’s vintages are now. Currency differences are not helping matters either. What seems like a lot to pay for a 2003 vintage may not be in 10-15 years. Outside of this forum and restaurants, I do not know many who buy port by the case. I’m a little concerned that distributors may not order as much VP if there’s a history or product sitting in warehouses for years. The value of port does not go up on their end by holding the products for 5 years, so why should they invest so big amount into port? They could easily buy more vintage champagne that faster appreciation.

More cellars in the US will turn up over time as people have been building their cellars over the last 25 years. Our wine collecting history is not as long as it is in Europe, but it is vibrant now and just like Europe, these wines will come to market. I see in US auctions already a good amount of port is from domestic estates.

[Al B.]

I'm pretty sure that enough vintage port is being laid down to mature. There may be less being laid down now than, say, 20 years ago but then this could well be because less vintage port is being drunk with 20-40 years of bottle age than 20 years ago - more port is being consumed in its fruity youth and therefore:

(a) less is left to be aged; and
(b) less is required in the future for drinking with bottle age (as those who like their ports young will move on to the current vintage)

In fact, consider the way behaviour around vintage port consumption is changing and we could now be in a situation where too much vintage port is being laid down! Think how many of us have commented that we are unlikely to be able to consume all of the contents of our cellars.

From a personal point of view, I do hope the shippers are listening to their accountants. Not to do so means that they will not be independant shippers in the future. If it does not make financial sense for a shipper to hold back and mature his own stocks for release in the future at a higher price, then he should not do it. Either he has to force the price up by charging (and getting) an appropriate price on release of old stocks or he should simply sell as much as he intends to make available to the public as part of the initial release at whatever price he can get. Look at the prices that Taylor's got for the stocks of old Morgan wines. After taking into account sellers premium, each bottle of 1945 will have yielded about £75 after being held in their cellars for 62 years - not a return that was worth generating. I have no idea what these would have sold for on release, but I know that Taylor's 1950 was offered on a UK merchant's list in 1953 for £0.95 per bottle so let's assume that the Morgan would have been sold on release to the merchants for about half of that price - £0.50. A price of £75 after 62 years corresponds to a return of about 8.4% per year, every year. That's not a bad return, but not brilliant either and is probably significantly higher than the average port vintage. It's also not really enough to sustain a large and growing business.

Where this port is being laid down to mature, I really don't know. The producers seem to be either able to sell their stocks or are happy to store it for future release. Consumers seem to be happy to buy a few bottles at a time, with the intention of laying down a fair proportion of what they buy. Perhaps what we are seeing is a change in the dynamics of wine consumption from the old model of a small number of large organisations buying large quantities and maturing them in their own cellars to a new model where large numbers of people buy small quantities and mature them in their own wine storage areas. If everyone who posts on this forum has 200+ bottles of mixed vintages that they are maturing, that's 400-500 cases which are being matured.

I also hear stories and read articles in the wine press that talk about independant storage facilities filling up. Octavian, for example, are already planning for the time when they have no more space. Berry's warehouse in Basingstoke was a new facility 10 years ago and is now operating quite close to capacity. That's a lot of wine being stored and matured - and some of it is my port for drinking when mature in the future - the only challenge will be knowing when it's ready and not leaving it until it's over the hill.

Alex

[Adam F]

It is a fascinating topic and somewhat clouded (at least to my eyes) by the lack of transparency about what is being stored.

Personally I love port 20-30 years old and am fortunate that I can buy current vintages ad expect to be around to drink them in 30 years. So I am storing up some fine vintages for my retirement but (sadly) none of my pier group are (that I know of). I say sadly because I would love to be around 3 or 4 friends collecting some fine VP's to share in 30 years.

Interestingly through tastings I have found my wife (and immediate family) really enjoy the full on fruit of some of the younger SQVP (i.e. vesuvio). So I am burning the candle at both ends. Would I rather have something from 77 yes but do I enjoy trying the new vintage of SQVP with family and friend yes. I cannot see SQ port as the next beaujolais though (its a bit pricey for that!)

In the UK at least I get the impression (from the secondary market) that too much is being stored. Which presents some good opportunities :)

Hopefully more people will comment

[simon Lisle]

It's interesting to read all the replies as to port houses only one thing matters in modern buisness and it would be foolish to think otherwise and thats profit.The more profit the better balanced with the consumer targeted.Somewhere along the line the 2000's for example have dropped in price has someone made a loss I don't think so not from corporate buyers.Remember port houses are there to make money not for nostalgiac reasons.

[Tom Archer]

Some interesting comments:

Roy said:

About 25% of the basis cost of VPs (for the producer) is to pay for the foot trading of the grapes in lagar by the Duriense

This is a bit of a giveaway, as there are plenty of accounts of how many treaders trod how many pipes of wine, and it is not difficult to hazard a guess as to how much they are paid..

..so, how much does it actually cost to produce a bottle of VP?

A quick scratch calculation suggests about 4 euros per bottle!

Alex said:

I do hope the shippers are listening to their accountants

Remind me, what do you do for a living?

There are two ways to look at the returns from wine stored - one is to look back at the release price of old wine, and compare it to the price realisable today - which generally looks good for wines up to the '70 vintage, but not so clever subsequently.

The other is to look forward, to anticipate what new wine might be sold for in the future. The best way to do this is to compare current prices of old and new wine, and then make a judgement as to whether future release prices can exceed the general rate of inflation.

On that last point, I am not bullish, as there is some evidence that the 2003 prices were set too high.

With wine, there is a correlation between quantity sold and price demanded, that can render it counter-productive to set prices too high.

The maths of this correlation is hard to compute, but it seems to roughly equate to the formula:

'Increase prices by half - sales fall by half' and the converse - 'Decrease prices by one third - sales double'

Some very crude attempts to test this formula seem to suggest that it holds good for everything from white wine to whisky, but I need to find a way of testing it properly.

It follows that if the cost of production is 4 euros per bottle, it is more profitable to sell 2000 cases at 16 euros per bottle than 1000 cases at 24 euros per bottle.

Alex also said:

I also hear stories and read articles in the wine press that talk about independant storage facilities filling up.

Have heard this also - and of a new store being opened in Hertfordshire.

The French wine market looks to be at the peak of a speculative bubble, with some wines being advertised as 'Investment grade'

This has happened before - Broadbent recalls selling first growths in 100 case lots (without reserve) when the last bubble burst in the mid 70's.

Not sure how the next bust will affect the Port trade though..

Tom

[Al B.]

Alex said:

I do hope the shippers are listening to their accountants

Remind me, what do you do for a living?

I drink port for a living! (Although I work as an accountant...)