Auction Outlook 2012: The Recovery Continues

As the 2012 Thoroughbred auction season opens, the talk
has turned from stabilization to recovery. Last year, the business trends at North
American sales turned upward overall after four consecutive years of declines.
Then the first major auction of the New Year, the Keeneland January horses of all
ages sale, posted big gains.

"This is a continuation of what happened in 2011; we are digging our way out," said Keeneland's
director of sales, Geoffrey Russell, on the final day of the January auction. "The shock of 2008 (when an American recession turned into a global financial crisis) has passed. People now realize that this is the new economy and it's time to go back to work. If they are going to be in the horse breeding business, they have to own mares, which are the factories. Everybody at this sale, both buyers and sellers, seems to be happy. It is a unique situation, but a great situation."

Even though the overall figures indicate that the rally began in 2011, Russell said the situation was improving before then, especially at Keeneland's auctions.

"Stablility happened in 2010 after the freefall of 2009, and that stability was built on in 2011, so that's two good years in a row," he said. "We've had two positive years in a row, so let's go for a third one (in 2012)."

Two big dispersals involving the late W.T. Young's
Overbrook Farm and the late Edward P. Evans' Spring Hill Farm in recent
Keeneland November breeding stock sales, in Russell's opinion, boosted market confidence.

"They helped people establish the value of what a
horse is," he explained. "Because those dispersals had no reserves, they told
you where the market was. Nothing against reserves, but because of these
dispersals, we know what the market will bear and people are able to compare and
establish benchmarks. It put confidence back into the market when people were
able to value horses again."

Going forward, Russell believes the "big key" in the
recovery process will be the supply and demand issue. Because the size of foal
crops is falling, there will be fewer horses to be sold, meaning the number
available will be more in line with demand. Perhaps, one day, demand in general
will exceed supply. Already, many sellers are reporting a lack of supply
compared to demand for young New York-bred horses, whose popularity is growing
because of money pumping into that state's breeding and racing industries from
a video-lottery-terminal that opened at Aqueduct.

"Breeders have done an exceptionally good job of
reducing the number of their mares that are non-commercial and reducing their
non-commercial sale offerings," Russell said.

The Keeneland official also offered some thoughts
about the future.

"My outlook in 2012 is a continuation of what we've
been going through recently, which is good," Russell said. "We're hearing very
good comments from stallion managers that their books are filling up faster
because breeders are making their breeding earlier.

"I think the difference between this recovery and
any other previous recovery is that there is less credit available," he added. "People
will be doing this (with money) out of their own pockets and they will be more
careful than they have in the past. When you're spending your own money, you're
more careful."

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