Shedding the Old - by Dan Liebman

“It was the best of times; it was the worst of times…”

So goes the oft-quoted line penned by Charles Dickens in A Tale of Two Cities, his 1859 novel that describes the days of the French Revolution and the proletariat’s fight against the aristocracy.

The Thoroughbred breeding industry finds itself facing both the best and worst of times, and it has nothing to do with the proletariat and aristocracy. It has to do with the world economy.

“The problem is not the horse industry,” a breeder said emphatically one recent morning at the Keeneland track kitchen. “The problem is the overall economy.”

While the global economy is a mess, there are problems in the Thoroughbred industry, many of which are magnified due to the current economic climate. It is how breeders react that will set the course for the future.

Adverse economic conditions are forcing new ways of thinking about old ways of doing things. Those who re-create, innovate, accommodate, differentiate, and recalibrate not only will survive, but are poised to succeed when the economy turns around. Those that do not may not be in business much longer.

For years Thoroughbred breeders have been enjoying the best of times; now they must navigate through the worst of times. Tough times force tough decisions, but they also force creative thinking.

It was easy when sales were strong, but recent auctions suggest those days are over for the time being. Important decisions made today affect sales for years to come.

As breeding sheds throughout the Northern Hemisphere open this week, stallion managers are offering various incentives to induce mare owners to breed to a particular horse. Besides the monetary discounts, more farms are offering the opportunity to pay stud fees from sale proceeds, allowing commercial breeders a longer period of time to pay off an obligation.

One farm this year, Walmac, is offering a new twist, extending the opportunity for a mare owner at any time within 30 days of foaling to convert the contract to a foal share arrangement. By agreeing to let a breeder decide later about a foal share, the farm is showing faith in its stallions’ foals while allowing the mare owner a chance to assess his cash flow up to 10 months down the road. It is this type of creative thinking that may help keep the seesaw level during the best of times and worst of times.

With foaling season in full swing, breeders everywhere must reassess their broodmare bands, deciding which mares to breed back and which mares to cull or simply give a year off. If every breeder decided not to send 20% of his broodmares to the breeding shed this year, the size of the foal crop and the pendulum of supply and demand would swing back in the right direction come 2010 and 2011.

When an auto manufacturer wants to slow production, it is easy. Turn off the assembly lines, send workers home, and produce 20% fewer cars. For a breeder it is not so easy. Mares bred in 2008 are producing foals in 2009; there was no way to shut down the assembly line. But there certainly is a way to shut it down for 2010.

Breeders will also be looking to sale companies for help, and on Feb. 6 in Australia, Magic Millions announced a new commission structure for its weanling and broodmare sale: prices up to and including $100,000 pay 6%; hammer prices between $100,001 and $150,000 are charged 4%; and sales of $150,001 and up pay 2%.

From this perspective, the structure is creative but seems upside down. Why should the seller of a $100,000 weanling pay $6,000 in commission while the seller of a $200,000 weanling pays $4,000? Wouldn’t it benefit small breeders more to give them a commission cut on lower-priced foals and mares?

Any savings a small breeder can bank today will help him navigate through the worst of times. 

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