In the 1970s & 1980s my oldest brother bought French wine futures. Buying by the case (12 bottles), he paid what was a fair price for each wine in a good season (average quality). I asked him about this today. He thinks he did this for 15 years & that 2 years he was very lucky to get vintage wines, & that other years the wine was good. He never had the bad luck to receive wine of below-average quality.
I asked my brother about this because recently I have seen some vendors sell tea that the vendors do not have yet. I have also noticed that sometimes this tea costs considerably more than it did in previous seasons. I assume because this season's yield is expected to be much smaller than usual. So, if one is worrying that he might not be able to buy such a tea in a usual fashion, he will pay more $ for it before the tea is ready for retail.
My thinking:
1. Buying wine futures is done in the hope of getting a vintage wine at the price of an ordinary season. The companies offering the futures would not put bad wine into a bottle with their label on it; so, buyers of the futures did not risk getting bad wine, just putting out their $ in advance to buy a specific wine that they could buy later at the same price as the futures' price in the years of ordinary quality.
2. Buying tea in advance, one commits $ in advance to be sure to get a specific tea. I feel teas may be specific in a technical way (the same cultivar from the same plot of land) while quality is not the same season to season. So, I would not do it. Obviously, other people are different than I am.
Am I missing or misinterpreting something?
Wine futures vs. pre-ordering tea
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Ethan Kurland
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I think that buying wine futures (aka “en primeur”) is a complicated topic… There are discussions out there on the internet about it, from various perspectives (for, against, historically, buyers’ guides, investors’ guides, etc).
As I understand it, it has been common for a while in places like Bordeaux (where estates are large and owned by high-value groups and individuals, and wine is sold by reference to the “chateau” and in very large quantities by each chateau within any given quality point rather than by reference to specific sites), whereas historically it has been uncommon in places like Burgundy (where wine is sold by reference to very specific patches of very specific vineyards, and plots are more likely to be owned by the person who is actually tilling the soil and making the wine than some holding company). It seems to be becoming more common rather than less common across the board, with the qualification that Bordeaux en primeur prices suffered a plunge (or price adjustment) during the 2010s after increasingly higher and higher prices during the 2000s following several well-reviewed vintages, after which there were some more ordinary vintages and, in addition, investors appears to have moved into other areas (such as Burgundy, unfortunately for my personal tastes…).
The advantage to the customer is securing the wine in advance of retail customers for a price which won’t fluctuate much or at all once the (positive or negative, or mixed) reviews start to come in, and the disadvantage is not knowing how the wine will turn out after it has spent time in barrel, spent time calming down after bottling, and matured to a drinkable state. The advantage to the wine maker is certainty of income and receiving that income earlier than they otherwise would, and the disadvantage is being unable to take advantage of higher prices in a good vintage and, hypothetically at least, having to give a discount to take account of the increased risk to the customer of receiving bad wine or wine not to their taste (since reviews of the wine either won’t be available yet, or they’ll be given in completely useless ranges like “88-93+” since the wine will still be ageing in barrel or settling down having just been bottled and still being in a state of shock).
The problem is that, if everyone offers wines in advance like this, and if the good ones sell out before reaching shelves, then buying in this fashion becomes normal, and the futures price starts to become the expected normal price for the wine, especially when the people buying up the futures wines end up collectively controlling the supply to retail or on the secondary market.
And an odd thing with wine is that low yields often result in better quality as well as lower availability, and therefore significantly higher prices, with certain exceptions (such as hail, which destroys vineyards and causes quality to drop since the vines are busy keeping themselves alive instead of making delicious concentrated grapes). In contrast, I am not sure (but I would like to learn from others) if tea prices increase in times of drought or cold weather due to any increase in quality, as opposed to a decrease in availability.
The more that concepts of speculation, ‘investment’ and a fear of missing out enter into the equation, the less that such futures prices reflect what might be considered the ‘intrinsic’ value of the product adjusted for factors such as upside and downside risk for the customer, the value of certainty for the customer, and the value of certainty and timing for the wine maker.
Another difference is that, unlike in the world of wine, there are no tea reviewers whose opinions are considered to be close to the word of gospel in determining prices. For my part, I am very glad that that remains the case with tea, despite the efforts of certain websites to try to aggregate reviews to come to allegedly objective scores for tea.
And I think that that is important, because my own feeling is that the world of wine has lost something special when scores started to become the primary way of choosing a wine. The whole point of vintages is to taste something special and different each year, rather than to chase ‘perfection’ (whatever that means) in each year. If consistency and perfection were really the objectives, then we’d all be drinking non-vintage wine, blended scotch, and blended tea.
For my part, I’d rather taste the difference between two different vintages of wine or tea, than try to aim constantly for what other people consider to be the ‘best’.
I do wonder whether futures tea prices accommodate for the increased risk to the customer and the increased benefit to the vendor / grower, or whether they are simply an attempt to pick a higher price to draw out those who are willing to pay that higher price in order to secure a tea that they like or a tea which they're interested in comparing to previous vintages (in which case, it is somewhat akin to an auction).
Apologies for the rant... But I look forward to reading what others have to say.
Andrew
As I understand it, it has been common for a while in places like Bordeaux (where estates are large and owned by high-value groups and individuals, and wine is sold by reference to the “chateau” and in very large quantities by each chateau within any given quality point rather than by reference to specific sites), whereas historically it has been uncommon in places like Burgundy (where wine is sold by reference to very specific patches of very specific vineyards, and plots are more likely to be owned by the person who is actually tilling the soil and making the wine than some holding company). It seems to be becoming more common rather than less common across the board, with the qualification that Bordeaux en primeur prices suffered a plunge (or price adjustment) during the 2010s after increasingly higher and higher prices during the 2000s following several well-reviewed vintages, after which there were some more ordinary vintages and, in addition, investors appears to have moved into other areas (such as Burgundy, unfortunately for my personal tastes…).
The advantage to the customer is securing the wine in advance of retail customers for a price which won’t fluctuate much or at all once the (positive or negative, or mixed) reviews start to come in, and the disadvantage is not knowing how the wine will turn out after it has spent time in barrel, spent time calming down after bottling, and matured to a drinkable state. The advantage to the wine maker is certainty of income and receiving that income earlier than they otherwise would, and the disadvantage is being unable to take advantage of higher prices in a good vintage and, hypothetically at least, having to give a discount to take account of the increased risk to the customer of receiving bad wine or wine not to their taste (since reviews of the wine either won’t be available yet, or they’ll be given in completely useless ranges like “88-93+” since the wine will still be ageing in barrel or settling down having just been bottled and still being in a state of shock).
The problem is that, if everyone offers wines in advance like this, and if the good ones sell out before reaching shelves, then buying in this fashion becomes normal, and the futures price starts to become the expected normal price for the wine, especially when the people buying up the futures wines end up collectively controlling the supply to retail or on the secondary market.
And an odd thing with wine is that low yields often result in better quality as well as lower availability, and therefore significantly higher prices, with certain exceptions (such as hail, which destroys vineyards and causes quality to drop since the vines are busy keeping themselves alive instead of making delicious concentrated grapes). In contrast, I am not sure (but I would like to learn from others) if tea prices increase in times of drought or cold weather due to any increase in quality, as opposed to a decrease in availability.
The more that concepts of speculation, ‘investment’ and a fear of missing out enter into the equation, the less that such futures prices reflect what might be considered the ‘intrinsic’ value of the product adjusted for factors such as upside and downside risk for the customer, the value of certainty for the customer, and the value of certainty and timing for the wine maker.
Another difference is that, unlike in the world of wine, there are no tea reviewers whose opinions are considered to be close to the word of gospel in determining prices. For my part, I am very glad that that remains the case with tea, despite the efforts of certain websites to try to aggregate reviews to come to allegedly objective scores for tea.
And I think that that is important, because my own feeling is that the world of wine has lost something special when scores started to become the primary way of choosing a wine. The whole point of vintages is to taste something special and different each year, rather than to chase ‘perfection’ (whatever that means) in each year. If consistency and perfection were really the objectives, then we’d all be drinking non-vintage wine, blended scotch, and blended tea.
For my part, I’d rather taste the difference between two different vintages of wine or tea, than try to aim constantly for what other people consider to be the ‘best’.
I do wonder whether futures tea prices accommodate for the increased risk to the customer and the increased benefit to the vendor / grower, or whether they are simply an attempt to pick a higher price to draw out those who are willing to pay that higher price in order to secure a tea that they like or a tea which they're interested in comparing to previous vintages (in which case, it is somewhat akin to an auction).
Apologies for the rant... But I look forward to reading what others have to say.
Andrew
I think the reasons can be multiple.
In these trying times, some smaller vendors might need to do that, simply in order to be able to acquire enough to get a good enough wholesale price. Some sort of traditional crowdfunding.
Some might abuse the Fomo, fear of missing out phenomenon.
Some might just copy the whole preorder hype they see from other vendors.
Some might do it as chances of getting some teas are really slim, but I think that is the minority.
In these trying times, some smaller vendors might need to do that, simply in order to be able to acquire enough to get a good enough wholesale price. Some sort of traditional crowdfunding.
Some might abuse the Fomo, fear of missing out phenomenon.
Some might just copy the whole preorder hype they see from other vendors.
Some might do it as chances of getting some teas are really slim, but I think that is the minority.
This was historically quite common. The Canton tea trade was built on futures (although I'm not sure if the overseas importers knew it), as the average farmer did not have the funds to hire seasonal laborers, nor did any but the most successful of the compradors. If the tea had not been earmarked for purchase by the various East India Companies, it would probably not have been made. Despite this (or maybe because of this?), some of the tea was of really awful quality. Frustrations over quality was one of the reasons why the Brits largely abandoned the Chinese tea industry after World War 1.
On a wholesale level this is common in India with desirable tea-estates, where an entire harvest will be bought before it is grown. This is done by the estate as a hedge against the weather, as if the weather is bad and the tea in turn is also bad, the future price will be more than it would get at auction. The buyer on the other hand does this because it allows them to be an exclusive supplier of a particular tea, rather than it being available from multiple sellers who each purchased a portion at auction. If the crop is exceptionally good, they will also get a discount. Part of why this can work is due to the strong supply-chain controls in India that prevent people from doing something like stepping on the tea to increase the margins since the sale price has already been established.
The new thing I think is retailers passing along these futures type arrangements to end consumers.
On a wholesale level this is common in India with desirable tea-estates, where an entire harvest will be bought before it is grown. This is done by the estate as a hedge against the weather, as if the weather is bad and the tea in turn is also bad, the future price will be more than it would get at auction. The buyer on the other hand does this because it allows them to be an exclusive supplier of a particular tea, rather than it being available from multiple sellers who each purchased a portion at auction. If the crop is exceptionally good, they will also get a discount. Part of why this can work is due to the strong supply-chain controls in India that prevent people from doing something like stepping on the tea to increase the margins since the sale price has already been established.
The new thing I think is retailers passing along these futures type arrangements to end consumers.
I don't know which exactly tea you are referring to but it's normal in Yunnan that old tea trees are pre-paid. In fact, it's hard these days to get anything from 300 yo above without paying upfront to farmer for the tree ( which obviously you don't know how many kg you are going to get ) , that's why , in past few years , it has been privilege only of the rich.
Like this year, for example , in Nan Nuo Shan from something around 300y woods was 700 CNY / kg of fresh leaves ( 4-5kg of fresh to make 1kg of dry ) . These kind of expenses not many people can afford to have in matter of storage.
500$/kg ..price from farmer , is quite a lot if you don't have certain customer who is going to take it off your hands after you get it in the shop.
Many tea vendors in KM tea market who use to do Nannuo Shan , Yiwu ..etc. old trees , will tell you now that don't have any of that in stock and do only on special orders...means u pay and in spring they will get it for you.
To be honest, this year "everybody " plays safe .There was not much tea ( coz dry as last year ) but not many tea vendors either on mountains , only tourists. Farmers posting wechats of full barn of mao cha which they can not sell ( of course not old trees though ) , so I'm expecting serious drop down in puer biz.
2007 is back !
Like this year, for example , in Nan Nuo Shan from something around 300y woods was 700 CNY / kg of fresh leaves ( 4-5kg of fresh to make 1kg of dry ) . These kind of expenses not many people can afford to have in matter of storage.
500$/kg ..price from farmer , is quite a lot if you don't have certain customer who is going to take it off your hands after you get it in the shop.
Many tea vendors in KM tea market who use to do Nannuo Shan , Yiwu ..etc. old trees , will tell you now that don't have any of that in stock and do only on special orders...means u pay and in spring they will get it for you.
To be honest, this year "everybody " plays safe .There was not much tea ( coz dry as last year ) but not many tea vendors either on mountains , only tourists. Farmers posting wechats of full barn of mao cha which they can not sell ( of course not old trees though ) , so I'm expecting serious drop down in puer biz.
2007 is back !