An industry that saw a $1-billion drop in wagering and a nearly $250 million decline in bloodstock sales in 2008 could use a little economic stimulus. Unfortunately, no such outside plan exists for the Thoroughbred racing and breeding industry in the United States – no federal bailout or earmarks in the massive stimulus plan just approved by Congress.
When I first moved to Kentucky in 1988, the breeding industry was in the midst of a serious economic slump, one that began in 1985 and didn't end until 1992. The seven-year downturn was caused by a combination of overproduction (the number of North American foals born topped out at over 50,000 in the mid-1980s), overconfidence in the market, and federal tax reform that took away many of the incentives to own Thoroughbred breeding stock.
The big question at Thoroughbred auctions for several years in the late 1980s and early '90s was whether or not the market had hit bottom. It's a question that really couldn't be answered until the industry saw an uptick in business, and that didn't happen until 1992. Then, as now, the first part of a down market was the toughest, because breeders were carrying production costs from a bull market into a sales environment that was anything but bullish.
If 2008 was a tough time for breeders, they'd better strap in for an even rougher ride in 2009. Yearlings were produced from 2007 stud fees, a breeding season that came on the heels of an all-time record year for the average price of weanlings, yearlings and 2-year-olds. In fact, the 2006 bloodstock market hit an all-time high for gross revenue, with more than $1.23 billion in North American sales.
Last year's economic crisis didn't really hit until September, though Wall Street had been jittery for months beforehand. Prices for 2-year-olds of 2008 were actually up slightly, and yearling average declined by just 6.9% (though median dipped more sharply, by 16.7%). The weanling and broodmare markets were hit harder, falling by 15.7% and 17.2%, respectively. Most breeders I've spoken with are bracing for declines in the yearling market of at least 20%, and some feel it could drop by as much as 40%.
With such dire predictions in the marketplace, it may sound foolish to suggest that 2009 could prove to be a very good year for people to breed their mares. Stud fees are down significantly, and terms for those fees have seldom been as flexible as they are today.
To quote Warren Buffett, the oracle of Omaha: “Be fearful when others are greedy, and be greedy when others are fearful.” I think it's fair to say that many Thoroughbred breeders are fearful right now.
To that end, the best economic stimulus the breeding industry could have in 2009 is confidence among mare owners that the yearling market of 2011 will have rebounded from the anticipated slump of the upcoming year and, perhaps, 2010. The wild card, of course, is the overall state of the American economy, which even the most optimistic among us does not feel will turn around in the next 12 months.
Not breeding mares that have commercial value is not going to improve anyone's economic standing, and will not help stimulate the industry to get out of this slump. Stallion farms have reduced fees and are working with breeders to get mares bred and stallion books filled. The breeding sheds are now open: sending your mares to be bred supports the industry in so many ways, from the vanning companies, feed companies, veterinary community, boarding farms and stallion farms, among others.
And yet despite this economic downturn, there is still much support for a good product, a conclusion we have reached due to the strong support of advertisers here at the Paulick Report. Of course, we'd like to recommend you support those stallion farms that have invested some of their advertising dollars at the Paulick Report: Airdrie Stud, Buck Pond Farm, Hill 'n' Dale Farms, Hopewell Farm, Spendthrift Farm, Walmac Farm and WinStar Farm. We appreciate each of those businesses, along with our other advertisers (eNicks, Fox Hill Farm, Kris S Bloodstock, Liberation Farm, M & M Thoroughbred Partners, North American Thoroughbred Trainer magazine, and Team Valor), and urge you to recognize and support them in any way possible for their part in contributing to the independent voice the Paulick Report has been bringing to the industry since June 2008.
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