11/02/2012 01:01 pm ET Updated Jan 23, 2014

The 2012 Vintage: Approach With Caution

The news this week that we can expect a world wine drought on the back of 2012's inclement weather would have obviously brought an initial feeling of dismay to many who like a glass or two of good plonk. According to the International Organisation of Vine and Wine, output is predicted to fall from 264.2 million hectoliters in 2011 to 248.2 million this year with France particularly affected by both winter drought and an arid summer.

However some quarters have been quick to highlight the opportunity that this could provide for investors. Should the harvest be small but of great quality then there is a chance for savvy investors to capitalize. The wine investment market is dominated by the Bordeaux Chateaus and France has been most severely affected by the conditions. It is expected that their output could fall 19 percent this year to 40.5 million hectoliters which is particularly dramatic in the context of Italy who are expected to post a drop of just 3.4 percent.

So why is this potentially a good thing from an investment point of view?

Wine is a finite investment, which in simple terms means: The more that is drunk, the rarer it becomes and the more valuable it is as a result. It is basic supply and demand economics.

The key however is quality. If the quality is good and the stocks low then you are onto a winner as it is sure to be in high demand. The difficulty is predicting the quality.

Many large estates in Bordeaux are reporting cautiously optimistic results on the output that has managed to survive the turbulent weather of the last year, with chateaus claiming that grapes appeared on sorting tables in particularly good shape: thick-skinned, healthy and ripe, and with minimal rot. Other rumors are that alcohol levels are spot on and for the wine enthusiast, this year's vintage is looking to have good fruit flavors with low, soft and ripe tannins emerging.

It has been far from easy though and among the Châteaus that have suffered in the difficult season is Hourtin-Ducasse in the Northern Medoc, which has announced it will not be making a 2012 wine. Minimum quality requirements were not met, but it has been stressed that this has in no way affected nearby vineyards.

Chateaus have indeed had an expensive season; the need for faster picking has necessitated hiring more workers among other things. Mildew problems meant that spraying increased dramatically, particularly among organic and bio-dynamic producers.

Having said this, toward the end of the season there were fears that supply levels could be even worse for France than that being experienced. A heat wave during the summer caused water stress, particularly in the younger vines, however a month's worth of rain in the last week of September reversed much of the original damage.

With news of Châteaus such as Hourtin-Ducasse and indicators from earlier in the year that the harvest will struggle, there is still a cloud of uncertainty about the 2012 harvest and one should exercise caution, as despite the smaller yield, should it turn out to be poor then you could end up stuck with a wine that is difficult to shift.

Though equally if when the first tastings are carried out around April next year, it does turn out to be a great year, with a more limited harvest, it could expect to be a much sought after en primeur investment.

It has been well documented that 2012 has thus far provided some excellent opportunities for wine investment; the 2009 vintage was bottled and proved to be the greatest vintage in modern history as an unprecedented 19 wines received the ultimate accolade of a rating of 100 from wine critic Robert Parker.

The 2012 vintage, however, appears to be more of an enigma and should be approached with a touch more caution.