An Article Not to Be Missed.

For those of us who are interested in commercial breeding, whether it be for yearlings or weanlings or for those who are interested in just breeding to race, the following article appeared in The American Thoroughbred Review:-

Today's Commercial Environment: A Troubling Influence

The health of today’s thoroughbred industry is often times overly equated with the health of the commercial market. When sales numbers are climbing, it’s assumed that the entire industry is doing well. Media outlets praise the efforts of sales companies, consignors and breeders. But does the health of the commercial market exist in a vacuum, or does it send a rippling effect to other areas of the industry? And if so, what are the consequences, both positive and negative?

Little doubt exists that a healthy commercial market benefits stallion owners, boarding farms, and auxiliary industries such as veterinarians and feed suppliers. However, a broader examination of the industry reveals that a rising commercial market can present significant problems for other industry members.

First and perhaps most importantly, a lucrative commercial market inverts the standard relationship between wholesale and retail value. In traditional economics, the retail market environment sets prices for wholesalers. Wholesalers are rewarded only when the retail market is healthy enough to absorb higher costs of acquisition.

But in the thoroughbred industry, wholesalers (commercial breeders) are selling yearlings with an average rate of return of 26% after all expenses are accounted for. The retailers (owners) are collectively racing for less than half of the money they originally invest each year. Not that a stagnant commercial market would bridge that gap completely, but it would certainly allow owners greater opportunities to realize occasional profits at the racetrack.

Wholesale and retail prices aren’t the only components being inverted under a lucrative commercial market. Stud fees for proven vs. unproven commodities also seem to conflict with more conventional economic models. Older, more established sires get squeezed at the marketplace in favor of unproven sires who have no sire credentials, but effectively stir the emotions of buyers and advisors who adhere to the ‘what may be’ psychology, as opposed to ‘what is’. Back in the 1990’s, breeders lined up in droves to breed to European Horse of the Year and impeccably-bred sprinter Dayjur. Not only did they pay a stud fee well in excess of what others were paying for older, proven sires like Silver Ghost, but yearling buyers and their advisors were paying in the low to mid six figures for his yearlings. Dayjur’s failure best illustrates the potential pitfall of the ‘what may be’ psychology.

(For the full article please click here).