Tough Times - by Dan Liebman

Disaster. Brutal. Blood bath. Just a few of the many descriptive words being used by breeders to describe the Keeneland November breeding stock sale, which at this writing still had a week to run.

In light of the recessive global economy, everyone thought the sale, the largest of its kind in the world, would be down. But a drop of 10-20% was expected, not 46% in gross, 37% in average, and 31% in median through seven of 15 days. No one saw this coming.

Generally, the spring juvenile selling season sets the tone for the yearling sales that are held during the summer and early fall. The yearling auctions provide a read for what will happen at the fall and winter mixed sales.

The biggest barometer of all is the Keeneland September yearling sale, which saw a significant drop in gross of $57,019,500. Still, the 3,605 yearlings sold for $327,999,100, the fourth-highest total in the auction’s history. While the gross was down 14.8%, the average ($90,984) decreased 10.2% and the median ($37,000) dropped 11.9%.

Despite those numbers, most agreed the September sale held up as well as could be expected considering the change in the value of the dollar, struggles on Wall Street, and a myriad of negative headlines describing the current state of the Thoroughbred industry.

A downturn in November mirroring September looked inevitable. Instead, the bottom seems to have dropped out of the Thoroughbred market.

Much has happened in the weeks between the end of the September sale and start of the November auction: The Dow Jones Industrial Average lost more than 20% in the first seven trading days of October; Congress approved a $700-billion bailout to add liquidity to credit markets; 19 banks have failed in the United States so far this year; and the jobless rate is at a 14-year high.

Closer to home, wagering on horse racing declined again in the third quarter of the year; disputes between racetrack management and horsemen over advance deposit wagering have caused purses to be cut and horse players to become disillusioned; and now, the value of bloodstock is dropping.

At the November sale, much like at the final Keeneland July yearling sale in 2002, many breeders decided to withdraw their horses once the sale had started when they realized the state of the market. This was deemed a better result than sending a horse through the ring and buying it back, a fact buyers would see if the same horse was put back through the ring a year from now.

In those cases, breeders don’t have to sell, an enviable position to be in. So, hoping the global economy will begin to show improvement in 2009, they are willing to wait another year before selling a mare, or will sell a yearling rather than a weanling.

Those, however, who need to take some cash off the table are taking less than they thought, leaving them in the same predicament as many businessmen in other professions: facing tough times.

One breeder at the Keeneland November sale said one of the reasons the sale is down more than anticipated is that the equine lending departments of financial institutions are not as willing to help those in the Thoroughbred business.

Current market conditions have caught many farm owners and breeders in a squeeze play. In a time where the value of bloodstock is coming down—rather drastically at the present moment—the cost of farm management is continuing to rise.

Watching the prices fall at the sale, breeders are at least heartened to see that most stud fees are being adjusted downward. However, many of these same fees should have been lowered earlier, and some of those that have come down need to come down even more. Still, it will be more affordable to breed a mare to most stallions in 2009, and one would think a breeder’s imagination can be put to good use when negotiating deals and terms on stud fees.

Thoroughbred breeders are a resilient group. In light of the results of the November sale, that’s a good thing. 

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