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Study: Realistic En Primeur Prices Based on Lisa Perrotti-Brown and James Suckling Scores

  • Anthony Maxwell, Liv-ex Director

  • 23 May 2019 | News & Views

Last year, professors M. Hakan Hekimoğlu and Burak Kazaz developed a pricing algorithm to predict the release prices for the 2017 vintage. This year, they have updated their algorithm to combine the weather patterns during the growing season, market fluctuations reflected through the Liv-ex the 100 index and barrel tasting scores of two leading critics to predict the release prices of the 2018 vintage. Their report, and findings, can be found below.

Realistic Prices with Barrel Tasting Scores of Lisa Perrotti-Brown and James Suckling by M. Hakan Hekimoğlu, Ph.D. and Burak Kazaz, Ph.D.

The wine industry is excited about the en primeur campaign for the 2018 vintage. Tasting experts and industry analysts are finding 2018 to be a significantly better vintage than 2017.

In recent years, we developed a “realistic pricing” algorithm in order to assist buyers and sellers of en primeur. The algorithm combines temperatures and precipitation during the growing season, market fluctuations reflected through the Liv-ex 100 index and the barrel tasting scores of leading tasting experts. It differs from earlier approaches as it integrates weather information, barrel scores and the Liv-ex 100 index into a single model. Our realistic pricing approach is highly accurate as it shows only an average error of 9.19% for the 2017 vintage, leading to an impressive accuracy performance.

Lisa Perrotti-Brown and James Suckling recently published their barrel tasting scores praising the 2018 vintage. Using their past and new scores, we replicated our realistic pricing algorithm for the châteaus listed in the Bordeaux 500 index. Table 1 presents the impact of temperatures, precipitation and market conditions as described by the Liv-ex 100 index and the overall time trend on the release prices of Bordeaux’s leading châteaus using the Lisa Perrotti-Brown and James Suckling barrel tasting scores.

The 2018 vintage experienced better weather conditions than the previous vintage with higher temperatures and reduced precipitation. In comparison to the release prices of the 2017 vintage, the realistic pricing algorithm projects that higher temperatures increase the release prices approximately by 0.3% in the Left Bank and by 1.0% in the Right Bank. Our realistic pricing algorithm also shows that the reduced precipitation increases the release prices by 2.1% to 2.4% in the Left Bank and by 0.7% to 0.8% in the Right Bank.

The positive impact of temperature and rain are muted by two factors. First, the slight reduction in market conditions described by the Liv-ex 100 index reduces prices by 1.1%. Second, the overall time trend describing how the wine market is flooded with high-quality wines each year causes an expected reduction by 8.2% to 8.7%.

The realistic pricing algorithm shows that higher barrel tasting scores of the critics for the 2018 vintage leads to an approximate 3% price improvement per each additional point compared to the barrel scores of 2017.

Table 1: Impact of temperature, precipitation, the Liv-ex 100 index, time trend on the release prices of the Bordeaux 2018 vintage compared to the 2017 vintage under the barrel scores of Lisa Perrotti-Brown and James Suckling.

https://robert-parker-content-prod.s3.amazonaws.com/media/image/2019/05/22/72a36ef9c07445a28477a0f44bf5a44a_table-1-1.png

When all factors are combined (temperature, precipitation, barrel scores, market conditions and trends), the realistic prices are reduced by an average of 0.45% under the Lisa Perrotti-Brown barrel scores and by an average of 1.01% under the James Suckling barrel scores in comparison to the 2017 vintage prices. As can be seen from Table 2, however, due to the differences in the barrel scores of these two critics, the realistic pricing algorithm does not always predict a change in the same direction. Out of the 40 wineries, the barrel scores of Lisa Perrotti-Brown and James Suckling predict opposite behaviors for 16 châteaus.

We conclude that, for consumers, the 2018 vintage is an excellent buy at reasonable prices. Our realistic price estimates in Table 2 provides guidance for their purchase decisions using the barrel tasting scores of Lisa Perrotti-Brown and James Suckling incorporated into the growing weather conditions and the evolving market dynamics.

Table 2: Realistic prices for the wineries listed in the Bordeaux 500 index based on temperature, precipitation, the Liv-ex 100 index with the barrel tasting scores of Lisa Perrotti-Brown and James Suckling.

https://robert-parker-content-prod.s3.amazonaws.com/media/image/2019/05/22/ab6175169a32478b8079ede970d39c0e_table-2.png

About the Authors

Dr. Hakan Hekimoğlu is an assistant professor at the Lally School of Management, Rensselaer Polytechnic Institute. His 2017 publication on wine analytics was a runner-up for the best paper award in Manufacturing and Service Operations Management Society’s interface of Finance, Operations and Risk Management (iFORM) community.

Dr. Burak Kazaz is the Steven Becker Professor and the Laura J. and L. Douglas Meredith Professor at the Whitman School of Management, Syracuse University and a Visiting Professor at the Haas School of Business, University of California Berkeley. Dr. Kazaz has established the field of wine analytics. He is the recipient of the Wickham Skinner Prize from the Production and Operations Management Society and his publications received five best paper awards from various academic societies in the last five years.

Readers should take note that the views of this author represent those of a company with an interest in the wine trade. Liv-ex operates the global marketplace for fine wine. It offers trading, data and settlement services to professional buyers and sellers of fine wine. Private collectors can view Liv-ex prices and value their portfolios using Cellar Watch and find regular market analysis on the blog. The opinions of Liv-ex are their own and do not represent those of Robert Parker Wine Advocate or Wine Journal. Liv-ex contributes articles to Wine Journal that we feel are of market relevance to readers, but we do not specifically endorse this company.

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