by | 11.17.2010 | 12:47am
By Ray Paulick
When the sub-prime loan crisis led to a global financial meltdown at this time last year, many stock market investors lost 10 years of gains with their investment portfolios. That’s where the yearling market is headed, based on projections by the Paulick Report showing how the Keeneland September yearling sale is going to wind up at the end of its 14-day run next Monday.

At the current rate, the final numbers for this year’s Keeneland auction will show gross sales of approximately $190,000,000, the lowest figure since 1998, when total sales reached $169,811,800. The difference between 2009 and 1998, however, is that the numbers were ascending then; the $169.8 million total represented what was then an all-time Keeneland September record and the seventh consecutive year of gains. (Click here for a summary of Keeneland sale history.)

This year’s projected sale-ending average is $65,000, also the lowest since 1998, when the average was $59,475, also a new September sale record. This year’s projected median, $25,000, is identical to the median of 2001. The decline in average price from 2008’s September sale is projected to be 28.6%, slightly higher than the 25% I predicted during a presentation in February to the Kentucky Thoroughbred Farm Managers’ Club. A number of concerned breeders said that night they thought 25% was optimistic—and they were right. The 28.6% decline is exacerbated by unprecedented buyback rates during each of the first six sessions ranging from 30.1% to 41.2%.

If these projections hold up, breeders will have suffered roughly $200 million in losses since the sale’s highwater mark in 2006, when gross receipts reached $399,791,800. That year’s average price, $112,427, was another record for September, as was the $45,000 median.

Day No. Sold Gross Sales Change vs. 2008 Average Change vs. 2008 Median Change vs. 2008 RNA
9/14 107 $24,949,000 -55.5% $233,168 -35.9% $200,000 -33.3% 41.2%
9/15 115 $33,807,000 -41.0% $293,974 -25.1% $250,000 -16.7% 35.0%
9/16 229 $32,718,000 -35.6% $142,873 -24.1% $100,000 -37.5% 34.8%
9/17 252 $26,185,500 -35.4% $103,911 -31.6% $75,000 -40.0% 30.6%
9/19 238 $18,439,500 -39.9% $77,477 -29.3% $60,000 -33.3% 33.5%
9/20 255 $14,843,000 -45.2% $91,542 -36.4% $45,000 -35.7% 30.1%
Cumulative 1,196 $150,942,000 -42.5% $126,206 -32.1% $80,000 -36.0% N/A
Sale-End Projection 2,950 $190,000,000 -42.1% $65,000 -28.6% $25,000 -32.4%  

This year’s prices are all the more devastating when you take into account that breeders almost certainly invested more money in aggregate stud fees to produce these yearlings because of the record, inflated yearling market of 2006. The prospects for 2010 yearling sales are not bright, either, since those horses were produced from 2008 fees; it was not until earlier this year that many stallions operations significantly reduced stud fees.

How will this year’s September sale affect the broodmare market when Keeneland hosts its November breeding stock sale in less than two months? Because the global financial markets collapsed midway through the 2008 September sale, it didn’t have that severe an impact on yearling prices, but it was felt at the 2008 November sale, where the average price of broodmares was down 48.5% from the previous year(from $125,581 to $64,695). That was the most significant single-year drop in average price of mares in the history of the Keeneland November sale; the next closest came in 1990, when the average fell by 40%, from $78,883 to $47,109. However, over a seven-year period, from the market peak of 1985 to the bottoming out in 1992, the average price of Keeneland November broodmares plunged by 61%.

Keeneland’s broodmare market has fallen nearly that far already, but I’m not sure the bottom is yet in sight. As the size of the foal crop comes down even further (and it’s dropped 18% in two years), expect the market to be flooded with mares breeders no longer want nor can afford to keep. That means prices will decline even further, perhaps to a level similar to the early 1990s.

Copyright © 2009, The Paulick Report

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