Stable Ground: Yearling market shows signs of recovery

Since 2006 when the Thoroughbred auction industry reached its peak, total sales, average price, and median have declined every year at the Keeneland September yearling sale.

All three of those metrics increased in 2010, a year in which most market players are just hoping for some stability .

There are a lot of ways to judge a horse sale. To me, the most important stat at Keeneland this year was the 3.3% increase in total sales.

That growth came despite a catalog that was 332 horses smaller and an 80% decline in spending from 2009 leading buyer Sheikh Mohammed bin Rashid al Maktoum, whom the industry has relied on so heavily.

Certainly, the picture at Keeneland was not all rosy. Commercial breeders took it on the chin for the second consecutive year. Only 13% of the yearlings in the sale sold profitably according to Thoroughbred Times’ estimates.

Having paid the pre-bubble-burst stud fees of 2008 and forced to sell into a recession -- commercial breeders were up against it. But there is some good news to report in this arena.

Although costs of production remain too high, stud fees are becoming more reasonable. Combined with decreased supply of yearlings, the economic picture for commercial breeders should improve in 2011 and beyond.

The market downturn also has commercial breeders thinking more about the quality of mares they breed and the end result of their matings -- producing a good racehorse. (perhaps a side effect of having to race their buy-backs?)

Buy-back rate decreased slightly to 26.7% this year. Combining outs and buy-backs, the amount of inventory sellers were stuck with after the sale declined by 11.4%. And inventory is the enemy, especially considering how much it costs to carry a horse another year or two.

In order to recover from a recession, the market has to hit bottom. Given this year's progress, it appears the bottom of the yearling market was 2009.

It’s no longer getting worse. In 2010, that’s reason for optimism.