By Chris McGrath
Hang on a minute. Weren't the seven fat years supposed to be followed by seven lean years? The way the market has gone in 2021, we have barely had seven lean minutes. Nothing, certainly, approaching the kind of reset required, logically and historically, for the cyclical functioning of capitalism.
The prospect of some such “correction” had been the only latent comfort, cold as it was, for a bloodstock market confronted by the global economic shock of the pandemic. Because a decade of almost relentless growth wasn't even ending due to any inherent weakness of the industry: we were just being broadsided, out of nowhere, by something that nobody could ever have factored into their calculations. (Not, at any rate, without Pharoah summoning Joseph from the dungeon). If we took our medicine, at least we knew that the graph now had more space to accommodate a fresh spike in the profit line.
In the event, the market barely wobbled. There were some terrifying days for the 2-year-old sector, admittedly, while clearance rates often suggested a nervous pragmatism, notably in the European market. But overall demand on both sides of the Atlantic proved far more resilient than anticipated. And we have all seen-with due relief, among those who had felt trapped by the slow cycles of our business-how values have come roaring back in 2021.
On the face of it, then, some will be wondering whether we should also renew their anxiety that the market, at some point, remains bound to overheat? The long bull run up to 2020, after all, had been driven by fiscal responses to the last emergency in 2008: continuous doping of the economy with cash, via low interest rates and quantitative easing. This recovery already has a very different feel. It must negotiate rising inflation and fractured supply chains, while the panic of stock markets Friday betrayed an ongoing instability.
Well, whatever happens, our own particular niche of the economy should not overlook a “correction” that did actually take place, this time last year. At that point, even volatility felt like a remote prospect. Everything was stuck. Whether on moral or business grounds–or both, which should perhaps always be the case for capitalism to operate healthily–many stud farms felt obliged to show breeders that they were “all in this together” and took a scythe to their fees.
Nor were they just talking a good game. Sure, even at the best of times they will always trim a few stallions that need a little help. But this time the top dozen Bluegrass farms collectively cut sires with their first foals due, for instance, by 16.2%. In 2020, they had eased the preceding intake by just 0.5%. Stallions about to present their first yearlings were slashed by 19.9%, compared with 8.33% for their predecessors in 2020. And those launching their first juveniles came down fully 22.8%, again more than double the 10.2% squeeze on the equivalent group the previous year. Moreover many senior, proven stallions–who should really have been at a premium, as a relatively safe harbor in turbulent times–also took generous cuts.
Now that the boom times seem to have returned so quickly, however, it is hardly as though stud accountants can turn round to breeders and say: “Well, thank goodness the storm seems to be abating. We do hope you guys will remember how we stood by y'all in an hour of need. But you will understand that we must now restore our prices to the levels we felt competitive, and mutually viable, before last year.”
Instead they have obliged breeders with the kind of selective cuts customary in a normal trading environment–only this time, of course, from a much lower base. And that has to mean one of two things. Either stallion fees were way too high, up until last year; or they are now pitched at such a level, in a humming market, that breeders have a pretty historic opportunity.
Take Omaha Beach, who looked very fairly priced when retiring to Spendthrift at $45,000 and duly welcomed 215 mares in 2020. The one and only reason to cut him to $35,000 for 2021 was that the late B. Wayne Hughes–leading the way, as so often, and promptly emulated by most rival farms–had responded to the crisis by reducing 15 of the farm's 21 stallions. Remember that when Bolt d'Oro had similarly started with 214 mares, in 2019, Spendthrift had left his 2020 fee unchanged.
Omaha Beach promptly replicated his debut book precisely, with another 215 covers, and has made a spectacular debut at the sales, dominating the freshmen weanling averages at $144,692. Nonetheless the Spendthrift team, respectful of the Hughes legacy, have indulged clients by giving him an extra trim to $30,000. This is the type of gesture often made by commercial farms when a young stallion, whose early supporters are demonstrably disposed to use new sires, must compete with the rookies meanwhile brought into play on two subsequent turns of the carousel. It's an incentive to keep the faith, in anticipation of continued momentum at the yearling sales and then on the racetrack. So it's a coherent and familiar strategy, albeit not one that every farm would consider particularly necessary after a sire has passed his first tests (book sizes/sales debut) as well as Omaha Beach. Without the pandemic, however, Spendthrift would surely have been cutting him from $45,000 to $40,000. So, in effect, we're getting a 25% saving on one of the most plausible prospects in Kentucky–even though the market for the sale of his foals has basically retrieved its 2019 values.
Now we all know that our industry faces some uncomfortable challenges; and that it isn't addressing some of them terribly well. But there are another 51 weeks in the year to gnash our teeth over those. For once, let's recognize some positives. A lot of people out there seem to be eager to buy themselves a Thoroughbred, just at the moment when breeding one has become more affordable. Perhaps, after the frustrations of lockdown, the affluent have been reminded that life is for living. If not, well, purse money at some tracks is even threatening to give their investment an air of viability.
So whatever twists and turns await, the initial road out of the pandemic has proved straight and smooth. And let's not forget that we were all given some free gas in the tank.
Sure, maybe stallion fees were too steep before. But they do represent a critical variable, when other base costs–such as keep and labor–are pretty constant, and sufficient to make skimping on your choice of stallion a false economy. Given how marginal a “correction” we had to absorb, in ringside demand, we should count ourselves fortunate that the stallion farms volunteered to substitute one of their own.