All too often in the Thoroughbred industry, conventional wisdom is wide of the mark. But the consensus has seldom missed the target more blatantly than at the 2001 Kentucky July yearling sales.

The industry's collective consciousness had many negative factors to lead it astray prior to the Keeneland July sale of selected yearlings on July 16 and 17 and the Fasig-Tipton Kentucky July sale on July 16-19. The global economy and the United States economy have been in a slump for over a year. Mare reproductive loss syndrome created a negative mindset at many Kentucky farms although it had no effect on the number or quality of yearlings on offer. The substantial decrease in number of yearlings on offer-particularly at Keeneland July-left many industry participants questioning the relevance and viability of the two July sales.

The smaller supply of yearlings turned out to be the key to an incredible 15.7% rise in combined average price at the two sales. As shown in the accompanying summary of the two sales as a whole (see August 11 issue), there were 26.4% fewer yearlings available in 2001 than at the same two sales in 2000.

Presale predictions of a 15% to 20% drop in average, particularly at Keeneland July, clearly did not take into account the power of the law of supply and demand. Demand for yearlings and willingness to pay high prices may in fact have been somewhat lower in July 2001 than it was in July 2000, but whatever the magnitude of that putative decrease, it was more than compensated for by a 26.4% decrease in supply.

Buyers' complaint

The universal buyer complaint at Keeneland July was that there were not enough yearlings on offer. That complaint carried with it an implicit statement from buyers to consignors: "Look, we're willing to pay you ridiculous prices for horses at this sale; how come you're too stupid to bring them here and let us fork it over?"

That overflow of demand at Keeneland July made it inevitable that Fasig-Tipton-particularly with its 26.3% smaller catalog-would enjoy a banner sale, and Fasig-Tipton indeed posted a 25.7% rise in average. The principal caveat at either sale was the increase in buy-back rate to 36.5% for the two sales combined. In the modern context, such high rejection rates appear to be all but inevitable.

As shown in the accompanying decile chart (see August 11 issue), increases were spread generously over the entire spectrum of the market. In general, increases were larger over the bottom half of the market, but it should be remembered that in 2000 the bottom half of the market generally declined sharply despite spectacular increases at the top.

Returns were equally good at virtually every stud fee level, as shown in the accompanying chart of returns by stud fee range (see August 11 issue). The average yearlings by sires at all stud fee levels from under $5,000 to more than $200,000 met or exceeded the industry profitability rule of thumb of 21Ú2 times stud fee. The extraordinary rates of return on the 49 yearling sold by stallions with 1999 fees of $10,000 or less illustrate once again the current extreme emphasis on conformation. Buyers are still willing to pay substantial premiums for outstanding individuals, even with less than fashionable pedigrees.

Pinhookers rebound

Weanling-to-yearling pinhookers suffered through a very bad year in 2000, losing more than $12.2-million as a whole throughout the year. As shown in the accompanying chart of pinhooking returns (see August 11 issue), they have made a much better start in 2001. Pinhookers resold 59% of the 119 yearlings bought as weanlings in 2000 for a profit of more than $1.4-million on their investment in all 119 before sales commissions. Rate of return was a healthy 106%.

More than a third of that overall profit, however, came from one horse, a Danzig colt out of Electric Society (Ire), by Law Society, consigned by Darby Dan Farm as agent. Listed as purchased by Curragh Bloodstock Agency for $425,000 at the 2000 Keeneland November sale, the colt was purchased at Keeneland July by John Ferguson Bloodstock for $1-million.

Whether the two Kentucky July sales will serve their traditional metier as trendsetters for the yearling market as a whole remains to be seen. The market in July had an "over the moon" quality boosted by the drastically reduced supply and marred only by the high buy-back rate.

Since the Keeneland September sale now constitutes about 60% of the total U.S. yearling market, it is clear that whatever happens there will determine the overall direction of the market.

One faintly disturbing trend at the two Kentucky July sales was the complete dominance of the top of the market by foreign-based buyers. In addition to John Ferguson (representing Godolphin Racing) and Demi O'Byrne (representing Michael Tabor and John Magnier) buying pretty much whatever they wanted, other buyers who base their racing operations primarily in Europe were almost equally prominent. New buyer Paul Collins, representing English-based Bobby Killoran, was second-leading buyer at Fasig-Tipton and bought ten horses for more than $3.3-million at the two sales combined. Overall, buyers who base their racing operations abroad purchased at least 52 horses for $34,767,000, 40.3% of the total expenditure.

American buyers will have to step forward more boldly if Keeneland September is to maintain the advances seen in July.