Keeneland Sale Analysis: Great, But Reality Check Needed

That the strength of the yearling market held strong throughout the marathon Keeneland September yearling sale is nothing short of, as Keeneland sales director Geoffrey Russell is wont to say, "phenomenal."

After opening with the much-publicized softness at the top end, with the gross and average prices down 20.5% and 23.6%, respectively, the sale settled into a steady pace with increases posted in every session from day three through 14 (there was no 2006 comparable for session 15, which was added this year).

The final gross of $385,018,600 and $101,347 average reflected declines of 3.7% and 9.9%, respectively, from last year’s record 14-day sale, and could be directly traced to the select session declines.

The strength of the market shown throughout the rest of the sale is more of a testament to the mantra chanted with regularity by Keeneland officials that this is the true international marketplace for yearlings. And it could not have been any more apt than this year, with increased buying by non-domestic buyers emboldened by weakness of the U.S. dollar.

“The strength of our sale is the weakness of the dollar,” Russell said.

More buying by foreign (in this case, non-Coolmore and non-Maktoum) buyers pushed domestic buyers farther out into the marketplace than they were accustomed. Indeed, many Keeneland regulars from the U.S. found they had to stay in Lexington longer than normal to fill their yearling orders.

For example, Kip Elser, buying yearlings that will be re-sold as 2-year-olds through his Kirkwood Stable operation, noted it was very hard to get the horses he wanted due to the overall strength of the market. Not that he’s complaining too much. After all, if the same results seen at Keeneland are in evidence at the juvenile auctions next spring, Elser and other pinhookers will be selling in a strong marketplace.

While the overall Keeneland results bode well for the health of the industry, beneath all this bullishness are some signs of problems within the breeding and public auction arenas. Certainly, not everyone made money at Keeneland, and the losses sustained by some breeders are cause for concern.

Two of the biggest problems facing the industry right now are related: overproduction and the expansion of stallion books. The number of foals being produced annually continues to rise, albeit nominally, as larger numbers of mares are being bred to some stallions. The 100-plus foal crop for some of the more popular stallions is not unusual.

Added to these factors is the trend by so many mare owners to breed for the market and not for the racetrack, leading to the increased number of yearlings being offered for sale at auction. This leads to a large number of yearlings sired by an individual stallion being put into the marketplace at the same auction and no matter how popular or successful the sire, the numbers finally catch up.

Of course, some of the mares being bred to these stallions should either be bred to less expensive sires and/or their foals should be retained for racing purposes rather than offered for sale at auction.

“There are some non-commercial horses going through the ring,” Russell said. “Not every horse is a sale horse.”

When a post-sale analysis of the Keeneland auction is conducted, some breeders and stallion managers will conclude that a change of course is needed.

The result could be cutbacks in the number of mares being bred to certain stallions, a closer look by breeders on whether a mare should be bred to a commercially fashionable stallion or one more likely to throw a good runner from the mating, and finally a determination not to offer a yearling at auction because it is not financially feasible.

The question is how soon these transitions will take place. There should be some indication when stud fees for 2008 are announced, as some stallion managers may keep fees at the same levels but announce a limit on the number of mares to be bred.

And some breeders may take their losses and sell off mares whose yearlings are not commercially viable, which would be evidenced by increases in the number of mares entered in the fall mixed sale.

The bottom line is the breeding and auction sectors are in need of a reality check.

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