11/29/2008 12:00AM

Farms feeling pressure to adjust fees

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LEXINGTON, Ky. - Following up on a general trend to reduce stud fees that began with Claiborne Farm after the decline in yearling prices at the September sales, a number of farms have instigated a second wave of reductions for some or all of their stallions, including the most elite sires, such as A.P. Indy and Distorted Humor.

The rationale for continuing reductions includes the depressing effect of the general economy on overall sales figures and the anxiety over expenditures for long-term investments like stud fees.

Gainesway Farm's Michael Hernon said that "in light of the world financial crisis, and the significant drop of the overall November market, breeders are looking for value. And in order to operate with good business sense, the production cost of stallion fees are under pressure to come down."

The pressure to adjust fees has had an effect on the stallion farms, although some indicated that the need was already there.

"Basically, I think stallion fees needed to come down anyway," said Frank Taylor of Taylor Made Farm. "We were in a declining stud-fee market last year [for 2008], and now with the economy going down, we're just trying to find out what the level of the market really is."

In addition to the downward pressure on prices from the retraction of the general economy, Taylor said that the "overproduction of horses in the marketplace is a big factor. The oversupply is hurting the market for horses and also breeding so many to these stallions is causing the drop in fees."

Taylor also said that farms, competing for the best young stallion prospects, have pushed prices higher and higher for them, which requires larger and larger books of mares to pay off the purchase price. At the same time, a new crop of stallions becomes available for breeding each spring, which transfers the peak demand to the new horses.

Taylor said that "sets up a bad scenario because first-year horses get a bunch of mares and the second- and third-year horses are hurting for mares."

Added to factors directly related to the horse business, the recessionary behavior of the national economy has had a deflating effect on sales prices, as logic and general economic principles indicate that it should. As the stock market has declined by more than 40 percent in the last year, likewise the average prices at the recently concluded Keeneland November sale showed decreases of 39 percent.

Decreases of that level, happening in a very short span of time, have left breeders and stallion managers conflicted and cautious about prospects for the next 18 months and 28 months, which are the time spans required to breed a mare and get either a weanling or a yearling for the sales.

"Unbridled's Song was booking up really good this year, but we wanted to make sure we got our share of the best mares and gave our clients a great shot at making money when they bring the foals to the sales," Taylor said. "The higher the stud fee, the tougher it is for the breeders to make money."

The market uncertainty has had an effect on both the stallion farms and the mare owners. To the greatest degree in recent memory, mare owners have been slow to book their mares, and some are apparently reducing their broodmare bands in anticipation of breeding only more successful or more commercial mares. This too is adding to the reduced level of booking as mares migrate out of the Kentucky area.

Farms are responding to the reduced booking activity, partly by lowering fees, and Taylor said, "You don't know what level you need to be to get the stallion books full. It's been tough on the stallion managers because they aren't seeing the bookings coming in, but they [breeders] have to book to something."

And there are farms that do seem to be getting a satisfactory response from breeders. Regarding the Claiborne horses, Bernie Sams, who handles the sales of seasons, said that "Arch and Pulpit are pretty well on their way to being full. So, I'm not going to change the fees there. And I've had a good response on the

others."

As the mid-February beginning of the breeding season approaches, there also is the large Keeneland January sale to consider. A stable market there would have the effect of reassuring breeders that the market is not in freefall, and surely a number of breeders are waiting on that market assessment before finalizing their plans, especially for mares foaling later than March.