Thoroughbred Yearling Sales Profits Depend on Further Stud Fee Cuts

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(By Scot T. Gillies)

The past couple of years have not been pleasant for many commercial breeders. Rachel Pagones points out in her 2010 yearling sales review (October issue of The Blood-Horse MarketWatch) that "the North American commercial breeding industry ... [has] suffered a 50% loss in value, in terms of yearling prices and sales receipts, over the previous two years."

Pagones' analysis of 2010 sales laments the low profitability--in many cases, a negative rate of return--for breeders, whose offerings this year were conceived at high 2008 stud fees. "However," she continues, "we find reason for cautious optimism when we calculate the ROR using 2010 fees, rather than 2008 fees. Although it’s strictly a hypothetical exercise, it shows that the ROR would improve ... if this year’s auction prices were figured against this year’s stud fees."

In other words, stud fee cuts in 2009 and 2010 have brought season prices down to a more realistic level.

"So we can project," Pagones concludes, "that if stud fees are reduced further next year, and prices begin climbing back up, that more breeders will begin to move out of the red and into the black."

We're approaching the traditional season of stud fee announcements. From early November through mid-December we should find out whether stallion farms will try to hold steady their current fees (or even raise them by removing "temporary" cuts in place this year), or whether they'll recognize the fact that most foals are selling for losses and make further fee cuts to help out breeders.

What do you think? Will we see 2011 stud fees rise, fall, or remain unchanged? Are fee cuts necessary for commercial breeders to show a profit in future years' sales?  Is it the responsibility of stallion farms to price their stallions according to ROR?

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