First-year Stallions and Profitablity

On average, in 2005, only 25% of yearlings that sold at auction actually produced a profit for their breeders. That figure dropped to 23% in 2006. The decline in profitability has placed added pressure on breeders to sell a set number of their horses for a large profit in order to compensate for the losses generated by 80% of the yearlings they sell. Indeed, if breeders are unable to produce one or two horses that will sell for a large amount of money, they will show substantial losses for the year. As a result, breeders have to become increasingly strategic in their choice of stallions. One of their best alternatives is to choose a first a year stallion.

We will examine how first year Stallions have performed for the breeders that have supported them in their intial year at stud and why breeding to a first-year stallion provides powerful economic incentives for commercial breeders.

There are three main factors that commercial breeders should look for in deciding which stallions to use. First, what percentage of the yearlings by that sire are profitable. Second, what is the degree of profitability of those yearlings. Third, what is the risk that those values will not hold up by the time the yearlings produced hit the sales ring.

Percentage of Profitability

With the above framework in mind, we will begin by examining the stallions that sold yearlings for the first time this year. The table below shows stallions who stood for more than $10,000 for the first time in 2004 (the year when this year’s sale yearlings were conceived), the stud fee for which they stood in 2004 and the percentage of foals that were considered to be profitable.

Stallion/ Stud Fee /Percentage Profitable


Vindication
Fee: $60,000
% Profitable: 55%

Sky Mesa
Fee: $30,000
% Profitable: 52%

Harlan’s Holiday
Fee: $17,500
% Profitable: 49%

Kafwain
Fee: $10,000
% Profitable: 47%

Posse
Fee: $10,000
% Profitable: 47%

Empire Maker
Fee: $100,000
% Profitable: 40%

Mineshaft
Fee: $100,000
% Profitable: 38%

Yankee Gentleman
Fee: $10,000
% Profitable: 34%

D Wildcat
Fee: $10,000
% Profitable: 32%

Proud Citizen
Fee: $12,500
% Profitable: 31%

Hold that Tiger
Fee: $15,000
% Profitable: 29%

Aldebaran
Fee: $50,000
% Profitable: 24%

Macho Uno
Fee: $15,000
% Profitable: 22%

Volponi
Fee: $10,000
% Profitable: 14%

Century City
Fee: $12,500
% Profitable: 12%

Milwakee Brew
Fee: $15,000
% Profitable: 4%

Sligo Bay
Fee: $10,000
% Profitable: 3%

As we can see from the table above, it is one of the best investments for breeders to breed to first year stallions. Of the stallions above that stood for $10,000 or more during 2004, all but three of them produced a higher percentage of profitable yearlings than the overall market. This statistic also shows that every stallions that stood for more than $15,000 had a percentage of profitable yearlings above the average for the market. This produces a very large incentive for commercial breeders to breed to first year stallions instead of their older and proven counter parts.

Degree of Profitability

The second important factor for breeders is the degree of profitability of those yearlings. This means how much money the breeder is able to get for the yearlings of that stallion. Comparing this figure to the stud fee is useful because it can give us an idea of what the actual profit was for the breeder. Because a breeder will have higher expenses when breeding to a high priced sire because the mare he would use would be more valuable; this statistic can let us know just how profitable those yearlings are.

The table below shows the average price for the yearlings of first-year stallions and how many times their stud fee this average represents.

Stallion Average /Yearling Price /Yearling Avrg. Times Stud Fee


Kafwain
Yearling Avrg: $74,195
x Stud fee: 7.419

Posse
Yearling Avrg: $68,540
x Stud fee: 6.854

Harlan’s Holiday
Yearling Avrg: $101,369
x Stud fee: 5.792

Vindication
Yearling Avrg: $340,516
x Stud fee: 5.675

Yankee Gentleman
Yearling Avrg: $53,954
x Stud fee: 5.395

D Wildcat
Yearling Avrg: $49,150
x Stud fee: 4.915

Proud Citizen
Yearling Avrg: $58,223
x Stud fee: 4.657

Sky Mesa
Yearling Avrg: $128,585
x Stud fee: 4.286

Empire Maker
Yearling Avrg: $379,125
x Stud fee:3.791

Hold that Tiger
Yearling Avrg: $50,397
x Stud fee:3.359

Macho Uno
Yearling Avrg: $42,589
x Stud fee:2.839

Mineshaft
Yearling Avrg: $277,532
x Stud fee:2.775

Aldebaran
Yearling Avrg: $101,568
x Stud fee:2.031

Century City
Yearling Avrg: $20,574
x Stud fee:1.645

Volponi
Yearling Avrg: $14,868
x Stud fee:1.486

Milwakee Brew
Yearling Avrg: $18,893
x Stud fee:1.259

Sligo Bay
Yearling Avrg: $7,616
x Stud fee:0.761

We can see from the table above that some of the returns to breeders are extremely high when they breed to first-year stallions. Even if a breeder hit the jackpot and bred to the right stallion at the right time, say Distorted Humor in 2004 when his fee was $50,000 (it is now $225,000), he would have sold the yearling for an average of $297,085 or 5.941 times the stud fee. Considering how much of a gamble he was taking in choosing Distorted Humor instead of say Gulch or Thunder Gulch who also stood for $50,000 in 2004 but whose stud fee has been decreased for this year by 20% and whose yearlings sold for under 2 times their stud fees.

Risk of loss of value

A third consideration that will give a breeder a very big incentive to breed to first year stallions is the uncertainty that can surround proven stallions. A breeder’s decision on what stallion to use in a given year will not bear fruit until he brings the product of the mating to market two years later. Many things can happen in two years. A once hot stallion can suddenly go cold and his stud fee can be slashed, sometimes dramatically. Once fashionable stallions can fall out of favor. But breeders know that first year stallions will be at their peak demand when they hit the sales ring.