As stud fees rise and buyers become more selective, breeders have challenging times ahead

It feels as though we are near a top in the market. To be sure, calling a top is always a risky proposition because market peaks are cyclical. But, from the evidence we see, the bloodstock market appears to be pretty close to a near-term top.

At the Keeneland November breeding stock sale, while the average price increased 1.3% from 1999 and a record 39 horses sold for $1-million or more, a big red flag appeared. Only the very top end of the market really enjoyed strength. Of 3,277 horses sold at the Keeneland November sale, just the top 10% of the market-or 327 horses-increased over last year's sale.

Prices at the Keeneland September sale-the bellwether of the yearling market-increased over 1999, but that sale too was top-heavy. Only the top 20% of the market showed appreciable increases over 1999, with the very top decile appreciating nearly 28%. Much of the substantial increase at the top can be attributed to Lane's End, which bypassed selling horses in July and instead put almost all its yearlings in the September sale.

Despite a market that appears still to be trending somewhat higher, what happens at sales in Kentucky is not necessarily a barometer of what happens overall nationally. That was true in the second half of the 1980s and early '90s.

While prices at the Keeneland September sale bumped along from the mid-1980s until '92 with average prices between $28,000 and $34,000, overall average prices of yearlings sold at public auctions nationally declined virtually every year from 1985 until bottoming in '92.

In an era of high stud fees, average yearling price nationally declined 45.2% from $41,311 in 1985 to $22,651 in 1992. The average at the Keeneland September sale declined just 14.7% in that time frame. Perhaps the leading indicator of where the overall market is headed comes from regional sales, which are the first to show weakness in the supply-and-demand equation. In the mid-1980s, during the biggest boom in prices the industry has experienced, the regional markets presaged the eventual softening of prices in the bloodstock markets overall. Those declines eventually led to sweeping declines in stud fees, notably in horses being newly retired from racing.

Representative of the regional market are those sales conducted by the Ocala Breeders' Sales Co. The OBSC August yearling sale and October mixed sale have both regional and national appeal.

At the OBSC August sale, average prices declined 1% in 1986, 16% in 1987, and 12% in 1988 before finding a bottom in 1989; that market did not recover to its 1985 levels until 1992.

The OBSC October mixed sale showed even more dramatic declines. Average price for broodmares at the OBSC October mixed sale declined 34% in 1986, 40% in 1987, 4% in 1988, 1% in 1989, and 4% in 1990. The OBSC market signaled a bottom in the prices for broodmares and breeding stock in general when prices for broodmares increased 27% at the 1991 October sale, two years before prices on average for yearlings bottomed and started their ascent.

At this year's OBSC August yearling sale, average price declined 9.9%. At this year's OBSC October mixed sale, average price for broodmares declined 45.8% from a year ago. Those are not good signs.

Breeders need to be particularly discerning in making their mating decisions because of the recent escalation in stud fees. Those who breed for the yearling market will have to try to determine what the state of the market will be more than two years from now-a tough guess in any era.

Breeders also must worry about the predilection of today's buyers to all want the same horse-the horse at the upper end of the market.

That trend comes at a time of larger books for stallions and as more racing prospects by the same sire appear in the same sale-a situation that will become more common in the future. That is a buyer's market. Yearlings and weanlings that are less than ideal will become marginalized no matter what the stud fee paid to conceive the yearling or weanling or two-year-old.

These are indeed challenging times for breeders. And they most likely will face even more challenging times in the near future.