If you’ve got cash and are not in debt up to your eyeballs, the next couple of years are going to be good years to be buying yearlings and breeding stock.
There will be bargains out there.
Those of us old enough to remember what happened 20 years ago, when the last serious worldwide financial tidal wave occurred, see it happening all over again. This time, it looks like a full scale tsunami.
Though it took a couple of years to feed through, bloodstock prices in Australasia plummeted between 40 - 60%. Breeders who had been breeding at a high cost of production – big service fees in particular – took a pummeling when a shrinking buyers’ market eschewed over-matings. Weakly structured stud businesses went down the gurgler.
If you’re relatively new to this business you might think this is a fairytale. It’s not. The horse business, which relies on players at all levels not just the most wealthy, is very sensitive to the wider economy. It might take an extra year before the full impact is felt here, but felt it will be. Some studmasters who have been gouging breeders with service fees in the last few seasons will be begging for your custom (even though invariably they will oppose you in the yearling market). If you can still be bothered, that is. Not that they will lose much in having to chop their fees – many of their stallions have been mind-bogglingly profitable throughout their stud lives.
It was interesting to read in other media comments attributed to Garry Chittick, owner of Waikato Stud, probably NZ’s top performing stud this decade. He says he’s down 150 bookings on last year. It can’t be because his stallions are either over-priced, duds or unappealing in the NZ context – O’Reilly, Pins, Savabeel, No Excuse Needed, Fast ‘n’ Famous, Scaredee Cat. Though he speaks from a position of strength, he’s never been frightened to call a spade a bloody spade. In this game of smoke and mirrors and PR spin, few would have the balls to flesh out their argument publicly with “commercially sensitive” hard numbers, so Garry has shown leadership in drawing attention in this way to the malaise which is occurring.
The world’s biggest breeding stock sale, Keeneland November in Lexington, completed its eighth session on Tuesday, which means 60% of the catalogue has been offered. The gross is down 46.5%, the average down 36.9% and the median down 33.3%. There have been 284 fewer horses sold than at the same stage last year. Buyers are keen on the weanlings and are walking away from mares, especially those whose commercial prospects are questionable. Consignors have been withdrawing their entries in significant numbers to save themselves the bother/cost of having to buy them back in, unwilling to let such a weak market value them (what is their value other than what the market will pay for them on any given day?). It must be a frustrating sale to attend.
To get things in slightly better perspective, it was unquestionably a higher quality catalogue last year, so some of the deficit is due to that. The less attractive offering may well be due to owners of high-end fillies and mares deciding they did not want to have their horses valued on a declining market so they refrained from entering them. Last year, the Australian dollar was riding around 90 cents US, as against around 67 cents US this year. ANZ buyers, of whom I was one, bought about 25 mares; this year, up to Session 8, I’ve identified six in the names of ANZ buyers including Dean Fleming’s US$1.3 million Diamond Necklace, though perhaps there's more under other guises. Leaving her to one side, because Fleming is a northern hemisphere player, the other five have ranged from US$25,000 to US$270,000. Even with the dollar the way it is and the extra costs of shipment, individually they look value. With catalogue quality dropping away progressively, I don’t expect much more participation from ANZ interests.
The market will “correct” globally for some time yet. The well-situated breeder with long term aspirations who is prepared to do, or have done for him, the required homework, has a period of considerable opportunity opening up to him.
Incidentally, I love the term “correction” as it applies to price levels. Corrections only happen in hindsight. Which sellers were objecting, at the time, that the prices were ridiculously high in the first place?
2 comments:
steve your comments on overpriced stallions certainly hit a cord . arrogance by the main players in the last two years has been unbelievable . you are correct i have noticed they are suddenly being a little more attentive and thoughtful in fact one of the big studs bought me a drink last week at the races .I am looking forward to seeing the price of redoutes next year along with hussonet and encosta . God forbid i might be able to send my group one mares to redoutes next year
In supercharged times like we have been through, when yearling prices have gone through the roof, studs will price people out because it leaves more of the market for them. If the people still roll up, it's glory days for the stud. In straitened times, when yearling prices start falling, stud fees become very competitive because cash is suddenly king again. That's the thought process behind it. Human nature. It hasn't got much to do with the welfare of the broodmare owner. I also think you can make a case for when a stallion's service fee is dramatically reduced this year because the jury says his stock are no good, those who paid the big freight last year ought to be partially reimbursed for having their mare in foal to a horse the stud is now telling us wasn't worth it.
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