If you were a commercial breeder, finding the silver lining in the cloud at the Keeneland September yearling sale was difficult. High stud fees for this crop of yearlings, a huge supply of horses at a time when demand was falling, and the effects of months of economic woes here and abroad created at perfect storm of misery for sellers and for Keeneland, which lost nearly half the sale's gross from the previous year.
There were some pleasant surprises for a handful of horses that stood out because of their conformation and/or timely updates in their pedigrees. But for the rest of the cast of thousands, it was a mostly losing battle to earn back their stud fees. Based on The Blood-Horse's calculations only 13% of the yearlings offered were profitable. Or to put in another way, only about one in 10 horses that went the sale ring made money.
Commercial breeders must struggle through yet another year selling yearlings with high stud fees in them and would need a major improvement from the economy to rescue them from their financial misery. The challenge will be to survive until 2011 when yearlings with lower stud fees will go to market. And that won't be easy with credit being tight.
According to at least two sources, National City, which has been purchased by PNC, is getting out of the equine lending business at the end of this year so some Central Kentucky farms will lose their credit lines with that bank. As for breeders who have credit lines at the remaining banks, they are worried that their amounts will be cut and their fees will be raised, making the struggle to outlast the negative effects of a recession even more difficult.
As for buyers, if you had the money and wanted horses, the September sale was a time to buy. If you passed it up, you may have missed your best opportunity to get discounts on Thoroughbreds that would not have been in your price range in the past because some people are predicting the turnaround in the horse market will begin sometime in 2010.
A number of financial experts believe the national economy has bottomed out and could be turning upward. However, the Thoroughbred marketplace appears to be still searching for its bottom as 2009 nears its end.
Last fall's breeding stock sales were the first to suffer severe effects from the global financial crisis, and everyone will be watching this time around to see if the downturns will be less or the auction' statistics will stabilize. Word around Kentucky is the gargantuan Keeneland November sale will be smaller, and with the reduced supply, hopefully the setbacks will not be as steep as they were in 2008.
If the results of the later sessions of the Keeneland September sale are any indication, with the declines in their buy-back rates, breeders have reached a point where they are ready to clean out their inventory and let go of stock that is not commercially viable and that process should continue during the November auction with mares.
As painful as the process is, it will help set the stage for some sort of recovery, allowing the breeders who are able to work their way through the economic uncertainty a better chance to cope with the new financial reality with leaner and meaner operations.