Fine wine is a luxury item with, it turns out, some quite good indicator series for the past couple of decades. In this article, we look at one of the fine wine indicator series in comparison to merino wool and cashmere prices.
The London International Vintners Exchange (LIV-Ex) apart
from facilitating trade in fine wool also publishes a range of fine wine price
indicators (read more).
As wine is a luxury item, it seemed an interesting idea to compare a fine wine
price series to apparel fibres, in this case, merino wool and cashmere.
Figure 1 compares the average merino fleece price
(Australian auction) in US dollar terms from 2001 onwards with the LIV-EX
LIVX100 index (an index based on the price of a selected range of 100 fine
wines). The data runs to March 2024. More often than not the two series have a
strong positive correlation, with the occasional bouts of negative correlation
when the two series follow different paths for a while, such as in 2002-2004. The
wine price did not plunge during the advent of COVID in 2020, most likely due to
a reluctance or need for sellers to sell at markedly lower prices. From
mid-2020 onwards wine followed a similar path, albeit from a higher base, with
price accelerating out of COVID, holding up into 2023 and then falling away.
In Figure 2 the year-on-year change in the Merino price and
the LIVX100 series are compared. Fine wine and Merino prices follow similar
cycles and trends, presumably responding to similar macroeconomic signals.
Again key exceptions are during 2002-2003 and the avoidance of a plunge in
price during 2020 by the wine series.
From 2007 through to 2022 a rolling two-year correlation
ranges from 0.4 to 0.95 for the two price series. The correlation jumps around
more for the year-on-year change in the price of the two series but spends most
of its time positively correlated.
Figures 3 and 4 repeat the exercise for cashmere. The
correlation between the cashmere and wine price series is not as strong as for
wine and merino wool. Figure 4 shows the differences more clearly with the cashmere
price not lifting in 2006-2008 and lagging in 2017. The cashmere market is a
smaller market (less liquidity) and is “over the counter”, so much less
transparent, which reduces confidence in the accuracy of the price data. Still,
there is enough in Figure 4 to show fine wool and cashmere, both luxury items,
more often than not responding to similar demand cycles.
What does it mean?
While the comparison is something of a novelty item, the LIV-Ex fine wine indicators do provide some objective measure of luxury demand (through the price). Therefore it is interesting, not surprising, to see the strong positive correlation between merino and fine wine prices. So merino wool is part of the greater apparel fibre complex and is also part of the wider luxury goods complex.
Key Points
- The merino market and fine wool respond to similar ebbs and flows in price, presumably flowing from the macroeconomic environment.
- Correlations are not perfect between wine and merino wool, as there are periods when the two series go their own ways, but correlations in the main are strongly positive.
- The relationship between cashmere and fine wine prices is a little weaker than between merino and fine wine.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: LIV-Ex, AWEX, WTiN, RBA, ICS,Mecardo
