Oversupply or Underdemand?

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A popular word making the rounds at Thoroughbred auctions these days is 'overproduction.' Last time the term was in vogue was the mid-1980s, when breeders throughout America reacted to market conditions by producing a record number of foals.

From 1980 to 1984, according to The Jockey Club, the number of registered foals bred in the United States increased by 38%. Kentucky's increase in production outpaced the national average, rising during the same period by 55% and hitting an all-time high of 9,111 in 1984. At the time, Kentucky foals represented 19% of the U.S. crop, which in 1984 numbered 45,466.

While the U.S. crop continued rising, reaching a record high of 47,346 in 1986, the number of Kentucky foals started to fall as commercial prices began a rapid descent in 1985. By 1992, the Kentucky crop hit bottom at 6,871 foals, roughly equivalent to the number born in 1981. The state's share of the national foal crop remained at 19%.

Commercial prices began to stabilize in 1992, giving breeders at least a shred of optimism about the future. Many of them put their toes back in the water. Others appeared to wait a few years and then dove back in head-first.

Kentucky's crop grew slowly at first, to 7,008 in 1993 and 7,682 in 1995. By 1998, the state reached a new high-water mark of 9,495 registered foals, surpassing the previous record in 1984. The number increased to 9,850 in 1999.

Thus, Kentucky's production of Thoroughbred foals jumped by 43% in seven years, fueled primarily by 1980s-like increases in the commercial marketplace. Nationally, however, it's a completely different story. From 1992 to 1999, as Kentucky's crop grew, the number of foals bred in the other states fell from 28,614 to 23,415, a decrease of 18%.

Why this consolidation in Kentucky? Willie Sutton, the famous bank robber of the 1930s and '40s, might have suggested "because that's where the money is."

For most of the 1990s, Kentucky experienced significant purse increases, in part through the Kentucky Thoroughbred Development Fund that supplemented purses for owners of Kentucky-breds at the state's racetracks. The superior purses fueled higher commercial prices and enticed horsemen to produce even more foals in Kentucky.

Then, just as the number of Kentucky-bred foals was peaking, purses at the state's racetracks began to decline. At Churchill Downs, the state's flagship track, purses fell during the 1999 spring meeting, and they continued to drop in 2000 and 2001. Gambling riverboats on the Ohio River have been taking customers away from Kentucky tracks, and owners have begun to send their horses to other states where purses are enhanced by revenue from slot machines.

The drop in purses for the state's Thoroughbreds has lowered the incentive for some owners to buy Kentucky-bred horses. The result, of course, is a softening of the commercial market, which breeders have experienced over the last couple of years. A falling market will lead to fewer foals being born in the state.

The 2001 foal crop has had an unexpected reduction of about 500 Thoroughbreds because of mare reproductive loss syndrome, the mysterious equine health problem that caused both late- and early-term fetal losses in mares when it hit the state in April 2001. MRLS will reduce the 2002 crop by as much as 30%, or 3,000 foals, according to a state-funded study.

This short-term reduction in supply does not address the Kentucky Thoroughbred industry's long-term challenge. Some may call it oversupply. I believe the unfavorable economic conditions of racing, particularly in Kentucky, have led to a severe reduction in demand.

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