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Will strong auctions mean more foals?
There was no shortage of positive takeaways from November’s Kentucky mixed sales season, but the active market’s long-term effects likely will not be known for many years.
The competitive bidding and improved returns throughout the Fasig-Tipton Kentucky select fall mixed sale and Keeneland November breeding stock sale suggest that money and intrigue are returning to the broodmare market after a half-decade of uncertainty.
With an apparent rekindling of interest in broodmare ownership, a question going forward is whether this increase will translate into a significant change in the size of future foal crops. This is a critical issue for racetrack operators, who need racehorses to fill cards, and the number of races and racing days have been in decline due to the lack of supply. The number of runners in North America in 2012 was 61,863, down 14.5 percent from 72,323 runners in 2008, and the number of races in 2012 was 49,380, down 10 percent since 2008.
The North American Thoroughbred foal crop has been in decline every year since 2005, shrinking about 40 percent in that period, from 38,361 foals in 2005 to an estimated 23,000 in 2013.
However, the projected decline slowed dramatically over the past two years, posting a 7.8 percent decrease from 2011 to 2012, followed by a 2.1 percent drop from 2012 to The Jockey Club’s estimated figure for 2013. At the same time, the Thoroughbred auction market continued its upward momentum from the rock-bottom year of 2010 and set in motion a year that saw most sales return to pre-crash levels.
It is obviously too late for the outcome of the 2013 November sales to have any bearing on the foal crop of 2014, much of which went through one of the Kentucky sales rings in utero. The real measuring stick will come during the upcoming breeding season, when mares are added to or subtracted from the North American breeding pool.
“I don’t think you’ll see anything dramatic, but I think you’ll start to see an increase,” said Elliott Walden, president and chief executive of WinStar Farm in Versailles, Ky. “It’s very cyclical, and when supply and demand get in line, it’s like any market. When you have an economy that tanks like it did in 2009, and you start to see people lose money and have to make choices and withdraw from what they’re doing, then you see supply get down to a level when it becomes attractive again. Then you see people jump back in, and the cycle starts all over again.”
Terence Collier, Fasig-Tipton’s director of marketing, said that the balancing of supply and demand was indeed a major factor in the revival of the auction market in 2013. But he had a different theory as to how it would affect foal production, envisioning quality reigning over quantity in an industry that has adapted to changing conditions.
“Is [the auction market rebound] going to expand the foal crop? Probably not, because most of the bad experiences that the market had were always at the very bottom end, and [the boom market of the early 2000s] was encouraging a lot of people that shouldn’t be in the business to put mares into production that should have never been in production to support stallions that probably had proven themselves to be a failure to the breed,” Collier said. “You’ve had a couple of different things happen. You’ve had a lot of non-productive mares go out of production, and I don’t suddenly see them coming back in. Maybe there will be a few more mares in Indiana or Ohio, which we hope will be the case... [but] if we have modest growth in the statebred programs, it’s not going to make a huge difference in the foal crop.
“To add a thousand foals nationally is big news, so I don’t see there being a sudden explosion of foals,” he added. “I don’t see a lot of poor mares being brought back into production, and [as for] the good stallions these days, with very clever management and very aggressive pricing, you’re not getting a lot of very inexpensive horses going to stud and producing a lot of non-commercial foals. The better stallions are covering more mares.”
While the strong November sales season may or may not have an effect on the number of mares sent to the breeding shed in coming years, Geoffrey Russell, Keeneland’s director of sales, said the overall market uptick has already had an effect on how many mares were offered at auction.
“Some mares were scratched late before the sale started because people said, ‘I need the factory. If we’re going to have good yearling sales, I need to have the factory to produce them,’ ” Russell said. “If the expenses can be kept on a par with what they are at the moment and this growth keeps on going, we’ll get these breeders back to Point One again.”
Russell’s mention of expenses was a common refrain among buyers and sellers at the November sales when discussing the direction of the bloodstock market. In particular, they stressed how crucial it is for stallion owners to avoid overreacting to the influx of buying dollars by raising their stud fees too high.
Keeping prices at a reasonable level would allow breeders to maintain a healthy profit margin from stud fee to weanling or yearling sale price and then afford to reinvest, or even grow their broodmare band.
Walden said WinStar Farm, which stands 23 stallions, is but one part in the circular ecosystem of the Thoroughbred trade. In order to stand the horses capable of siring the best foals for breeders to sell, he said, the farms must set their fees at a rate that makes them able to purchase stallion prospects from the racehorse owners, who largely buy their horses from the sales. Walden acknowledged that it is a delicate balance.
“Markets take care of themselves, and each horse is its own individual market,” Walden said. “So, if you overprice a stallion, you’re going to be impacted by that. You’re not going to have the demand that you desire, so you always have to stay price-sensitive.
“We’re all in this together, and we have to stay true to the markets and give them value, but at the same time, we’ve got to be able to go buy the stallion prospects from the racehorse owners or it’s all going to shut down,” he added. “I think most people get it. What the breeders ultimately want is to be able to sell their horses at a rate of return, and if the incentive isn’t there for racehorse owners to go get them, they’re not going to be in demand, so it’s important that the whole cycle works together.”