Racehorse TALK

A group of influential Hunter Valley broodmare owners are contemplating their long -term future in this industry as market forces conspire to make life as an independent commercial breeder increasingly difficult, a situation exacerbated by high service fees.

They created the following table to calculate what they believe is a reasonable service fee that still allows a commercial breeder to break even if he produces an average yearling that can make the median for the sire at the sales.

The estimated yearling price in the table below is based on the median price for a particular sire including pass-ins at reserve price from all yearling sales this year including recent sales such as Inglis Scone and Inglis Autumn.

By including passed-in lots at the price of the last highest bid, the median produced might be somewhat flattering, but nevertheless is a figure that paints a ‘warts and all’ picture of what really happened at our yearling sales this year, and not just at the pointy bit of the market everyone likes to read about.

Take off sales commission of 10%, costs of $20k and an allowance for mare amortization and you hopefully get a profit before service fee and this is the amount you can afford to pay to break even.

The general view is that if you breed a yearling that represents the “average” for a particular stallion on type and pedigree, you shouldn’t make a loss.

If your yearling is nicer, you make a profit – worse, a loss and most people would concede that’s a pretty fair position for all concerned.

The problem, as seen by some commercial broodmare owners, is that current advertised service fees for a significant number of sires offer small potential for profit for the serious commercial breeder.

Paying over-inflated service fees over a long period of time makes it nearly impossible for an independent commercial farm to run at a profit and the fear is that independent mare owners will eventually fall by the wayside as they simply run out of money, remembering that yearlings sold in the next two years on what is almost certainly going to remain a depressed market will be those conceived from record fees.

Newcomers will emerge on the scene, as they always have from time to time, but the cost of playing the game is becoming so prohibitive these “replacement” breeders will become fewer and further between.

Some commercial broodmare owners believe that unless service fees come down to a level where the mare owner has a reasonable chance of making some money, the studs will end up with a small percentage of payers (maybe as little as 20%) and stallions will be bred to the farms own mares (possibly as high as 80%).

It’s a situation we already see developing in Australia with major stallion farms such as Darley, Coolmore, Arrowfield and Vinery (Harvey/Singleton) having acquired significant broodmare bands of their own, thereby removing much of the burning necessity to price their stallions in a competitive way to attract outside clientele.

Observations:

The Market. Attempting to use sale results from this year (a crash) to predict the market in three years time may well be flawed logic if the market rebounds quickly and we return to the heady levels of 2007 and 2008.

Will that happen? Probably not, although it would be a reasonable assumption to think the market will be on an upward arc by then, although, most pundits agree it’s going to be a bumpy ride for quite a while yet and if prizemoney levels in racing start dropping (a possibility broached by Racing NSW CEO Peter V’Landys on TVN’s Thoroughbreds program earlier this week) the bloodstock market may never recover to previous levels.

Over-mating. The practice of over-mating mares is one of the primary causes of disappointment in the sale ring with a lack of female pedigree and physical type forcing many youngsters by stallions deemed ‘commercial’ by their service fee into increasingly lesser sales by the auction houses.

Never before has it been so important to mate your mare prudently rather than on a whim that she might produce a stunner to a stallion that is out of her league. We’ve all seen it work, there’s at least a couple at every sale, but what about all the others that didn’t work and have burnt their breeders out of the game.

Stallion Appeal. Three years time is a long time in the world of racing and bloodstock and there are sires on the table above and many young horses that are just below the cut-off point who will be placed completely differently in 2012.

Young sires showing promise could have kicked to the top bracket of the list while others that appear to be doing OK now, will have slipped from favour, it’s a harsh and fickle business as we all know and punting the right stallion is a major part of operating a profitable breeding operation.

Most of the current successful independent commercial breeders are those that punted Redoute’s Choice in his $30,000 days and Encosta de Lago from his $8,000 days, so identifying what is the real value in the up and coming ranks is imperative.

http://www.breednet.com.au/profile/Service_Fees_Still_Too_High.asp