Thursday, December 21, 2006

Best and Worst Stud Fees Values for 2007

Commercial Breeders will have to make important decisions soon about what stallions to use in the up and coming breeding season. The decisions they make will have an impact two years from now during the yearling sales of 2009 and later on at the races. Making such a long-term decision carries with it a huge amount of risk. I will touch upon the main risks to which breeders are exposed to each year and give my opinion on the stud fees that offer the best and the worst values for breeders for 2007.

There are four main risks that breeders face.

First, Breeders must contend with market risk. The thoroughbred industry has been going through a bull market in recent years and as a result stud fees have been steadily rising and outpacing the market, especially in the upper stud-fee ranges. Because of this, breeders are seeing their profits diminish. If the market was to fall, breeders will be stuck with significant losses, as the market would not provide them with enough income to cover their costs.

Second, breeders are exposed to mare specific risk. The risk that a mare will not get in-foal, will abort or produce a stillborn foal. In evaluating risks and costs of a breeding program breeders must take into account the fact that mares do not get in foal on certain years. Virtually every healthy mare will miss a year or more during her productive life. This risk increases dramatically as the mare gets older.

Third, breeders also have foal specific risk that they must contend with. Foals can be born with deformities, bad conformation or be too small in size to be commercial. Even the best matings produce less than ideal offspring. In an environment were only 23% of foals produced are actually profitable for breeders, anything less than an ideal foal can create a loss for breeders in the sale ring.

Finally, there is stallion specific risk, which means the risk that the stallion used will fall out of fashion. Many stallions that are ‘hot’ or commercial at the time that the breeder pays the stud fee can have a couple of off years and lose commercial appeal by the time the yearlings hit the sale ring.

Breeders may diversify and diminish the last three risks by increasing the number of mares they own and breeding to different stallions, this is why partnerships make sense in the breeding business. But breeders will always be exposed to market risk. Because of this, it is important for commercial breeders to carefully monitor the costs of their operation. The single largest cost that a breeder faces, by far, is the price of stud fees. Therefore, it is critical for breeders to demand value when selecting a stud for their mares.

The single best investment for commercial breeders in recent years has been to breed to first year stallions and selling the resulting foals in public auction. Breeders that breed to race, however, would be well advised not to use first year stallions; there is little value in them if you do not offer their first foals for sale because of their high initial stud fees. Rather, if a breeder feels strongly about using a recently retired race horse, it would be better for them to wait until the sire’s third or fourth season at stud. The gamble is better because breeders would have more information on the sire, for example by examining the weanlings or yearlings of that sire and they would be able to purchase the season at a discount since most sire’s fees are reduced during their third or fourth season at stud.

There are still very good values to be found in proven older stallions for both commercial breeders and those that want to breed to race. The following list provides my analysis of the best and worst stud fees of 2007. This list does not mean to criticize the quality of a given stallion but rather explore the value that the stud fee provides to breeders. I have divided the list in two, one for stallions whose stud fee is above $25,000 and one for those whose stud fee is below that amount.

Stallions with Stud Fees Above $25,000

Worst Values

Maria’s Mon ($60,000) Having produced stakes winners like Strong Contender, High Limit and the sensational Wait a While in 2006; the stud fee for Maria’s Mon has increased a whopping 140% from the previous year, the largest fee increase of any stallion. He has an average earning index of only 1.61, the lowest of any stallion standing for over $50,000. He produces only 5% stakes winners from foals, also one of the lowest percentages for stallions in his price range. Maria’s Mon represented very good value last year when he was standing for a $25,000 stud fee. This year’s increase has gone too far and offers absolutely no value to breeders whether breading to race or to sell.

Mr. Greeley ($75,000) One of the best and most valuable labels a stallion can receive is to be deemed a ‘sire of sires’ by the market. And so it has been with Mr. Greeley and the success of one of his sons, El Corredor. As El Corredor established himself as a very useful sire, Mr. Greeley’s foals began to exceed all expectations in the sale ring, with yearlings selling for as much as $5,700,000. Before all this happened Mr. Greeley had been struggling and he had seen his fee dropped to $35,000, and he was a great buy at that price. His current fee represents a 114% increase over 2006 but his fundamentals have not changed much. His Average Earning Index of 1.46 is pathetically low for a $75K sire. He also produces only 4.9% stakes winners from foals. He represents an extremely poor value for breeders that breed to race and commercial breeders may find the market disenchanted with Mr. Greeley if those high priced yearlings do not perform to expectation.

Best Values

Smart Strike ($75,000) what a terrific stallion this guy has been! 2.60 Average Earning Index, his CI is 2.07 so he continuously brings up his mares. He produces an astonishing 10% stakes winners from foals, half of which win graded stakes. I predict that this stallion’s stud fee will soon be in the over $100,000 range as buyers begin to figure out his true value. He is versatile enough so that his progeny win on dirt and turf. He is ideally suited for European buyers and his progeny will probably do very well on polytrack. His only down side is that his foals only sold for a median of $75,000 but these numbers should improve as foals by him out of better mares hit the track.

Successful Appeal ($40,000) what can you say about a sire who produced 9.4% stakes winners from foals and that has an Average Earning Index of 2.50 that were produced from very mediocre mares with a CI 1.35? Answer: That he is a fantastic buy at this level. We are certain that Successful Appeals numbers will improve as the products from better mares hit the track. Whether a breeder breeds to race or sell, he offers great value.

Cozzene ($35,000) there seems to be a bias against older stallions and Cozzene is definitely getting up on years. I personally do not believe that the age of a stallion is such a big issue as long as the stallion is still healthy. So breeders should take advantage of this very low stud fee. With a 2.42 AEI and 8.4% stakes winners from foals breeders cannot go wrong with this guy at this price.

Stallions with Stud Fees Below $25,000

Worst Values

Buddha ($10,000) has gotten to an awful start at stud with only seven winners from 120 foals. He has currently an average earning index of 0.32. Dramatic improvement may be needed for him to maintain any hopes of remaining in KY and even then, Breeders should not be jumping to send him mares at this price after the dismal performance of his two-year olds.

Doneraile Court ($10,000) with a 1.13 AEI he is considered a bad value even in Chile where he has done southern hemisphere duties.

Golden Missile ($10,000) this guy has been given plenty of opportunity as he boast a CI of 2.10 but has not done anything with those opportunies. He only has 2% stakes winners from foals and is another overpriced stallion at Adena that is not worth the asking price.

Best Values

Dehere ($20,000) with an AEI of 2.04 and 5.4% stakes winners, the return of Dehere to KY is good news for breeders. He is very well priced at this level and judging from Dehere’s accomplishment breeders should take advantage of this great value.

Five Star Day ($20,000) has 7.4% stakes winners from foals and consistently improves his mares. Even with a 33% fee increase this year Five Star Day remains a solid purchase at this level.

Mutakddim ($12,500) he has always been very solid and has gotten some high-class runners. It has taken breeders in the US some time to realize just how much quality this guy has. With 1.93 AEI and 5.7% stakes winners, he is worth the price.

Hold that Tiger ($10,000) great looking son of Storm Cat with a fantastic family, he is ¾ brother to Hennessy and ½ brother to Editor’s Note. Won the Grand Criterium G1 in France before placing third in the Breeders Cup Juvenile (after a horrible start). He has plenty of 2yos around who should come out running early. The stud fee for this guy will not stay this low if his first crop shows any ability whatsoever. It is not out of the question that he will be fighting for top honors among his freshman class next year with horses like Empire Maker and Mineshaft producing more late maturing foals. This horse could be the best deal at the price range. This is the year to breed to him and take a chance.

Exchange Rate ($10,000) has done wonders in Florida and remains at the same level as last year. With a 1.90 AEI he should improve by getting better mares than he has so far since his CI is only 1.37. One of the best values today especially for the regional breeders.

15 comments:

Alan H. said...

This is a great and informative post. I am curious as to your opinion of Malibu Moon and his new $40,000 stud fee. Thank you!

Warstone said...

Malibu Moon ($40,000) has truly been a rising star. His fee is increased yet again, this year by 33%. With such horses as Declan’s Moon, Malibu Mint, Perfect Moon and Ah Day among many others, he has really overcome a humble beginning and is now headed for the big time in KY. With 1.91 AEI, he has improved his mares consistently and has a very solid 8.4% of stakes winners from foals. I am worried that his median for yearlings sold this year was only $50,000 but this number should improve as his foals out of better mares hit the sales ring. I liked him a lot for $30,000 and he got 156 mares this year, so I think their connections thought that there was enough market to increase his fee. He is still a very good buy and I think that he is a better buy than many of his peers at this new fee level. Also, his numbers may still get a boost from the better books his been breeding in recent years (they are now considerably better than they were a couple of years ago) and that may help a breeder down the line when it is time to sell his yearlings.

There is still good value for $40,000 for him.

Anonymous said...

Great Blog and found it has been very helpful. Thank you!

Question - you often mention the sire's breeding book of mares (sometimes improving as they gain a reputation or go to KY). Is there a way to review this and see the quality of mares a stallion was mated to or is it just an assumption made based on a move from a lower quality breeding state to a higher one such as KY?

Warstone said...

There are several ways to review and see the quality of mares bred to a stallion. You can look up the Comparable Index (which reflects the production quality of the mares) for a stallion and compare it with the previous year's CI for that stallion to see if his books are in fact improving. Another good figure that is also available is the Class Performance Index for the book of a stallion which reflects the racing class of mares bred. Finally, number of mares bred and percentage of foals from mares bred can also tell you about the demand for a stallion and its fertility which are also very important considerations.

However, when there is a deserved increase in stud fee or a move to KY by a very good regional stallion; it is almost always the case that their book quality will improve.

These numbers are especially important to look at before you decide to support a young stallion in his second, third or fourth year. You will want to know that he had enough quality support and a large enough book in the past to create demand for your yearlings in the future.

Anonymous said...

Thank you for your reply. It is often helpful for me to use examples to better understand. Earlier I asked about Dance with Ravens as a Stud, who will be entering his second year at Stud. While I like him for many of the reasons you stated, I am trying to figure out how strong the initial mares were in the first year of this regional stallion in MD. I am a beliver that without quality mares it does not matter how talented the stallion, the odds are foals will not sell well. Using CI and CPI as you reference, how would I figure this out?

Warstone said...

Here are some numbers that may be useful to you regarding Dance with Ravens ($7,500 AP Indy – Dance Smartly by Danzig). He had 126 mares bred to him in 2006. His CI was 1.53 and his CPI was 1.72 (15 of the mares bred to him were unraced). While these numbers are not spectacular, they are very solid for the price range and they do signal a good amount of support especially the fact that a large number of mares are going to him. The big question for you, if you breed to sell, is wheather his two year olds will perform well enough by the time your yearling reaches the sale ring to help you or will he bred a later maturing type so that his first crop will not shine until they are older?

Warstone said...

From time to time TBH Market Watch will report the numbers and I am sure that there are other services that will also have them. But one of the best places to go to for the information may be the farm that stands the stallion, they will have all the necessary information you need and are usually happy to provide it.

Anonymous said...

Your blog is very informative and I enjoy your opinions. I couldn't agree more with your opinion of Cozzene as a tremendous racehorse stallion. He continues to have a strong fertility ratio. What is your opinion of how his offspring are regarded commercially? I know his horses seem to run better at age 3 and older. Are his yearlings well represented at the auctions?

Warstone said...

I think Cozzene is very undervalued by the market, and every year the average price and median price for his yearlings sold at auction drops a little. It may be that as he is getting older, the quality of mares bred to him is declining a little or the fact that there are fewer foals per crop out there promoting older stallions like him. Whatever the reason, the reality is that the market has a strong bias against him and other older stallions (like Rahy or Theatrical which I will put in this category of older but still fantastic buys). But regardless of the market perception he continues to offer great value to breeders and buyers.

I think he is a better buy for those that are breeding to race than for those that are breeding to sell at this time because of the expected downturn in average price in the next years. However, the current stud fee decline to $35,000 makes him very attractive even for the commercial breeder.

Last year he offered 21 yearlings for sale from a crop of only 36 yearlings, 11 sold for a $72,091 average and a $55,000 median. Compare that to 2005 where out of a crop of 52 he offered 24 for sale and 19 sold for an average of $87,395 and a median of $65,000. This year’s yearling crop consists of only 32 individuals.

Because of these trends I believe that Cozzene is and will continue to be one of the most undervalued sires at the yearling sales. Consider that his runner’s average earnings per starter are a whopping $110,495 and that he has a 2.42 AEI from a CI of only 1.74: That is an incredible accomplishment! For $55,000 median? You can bet that I will be looking at all the Cozzenes at the sales!!

Patrick J Patten said...

you have about 4 posts here in your comments section! Thanks for updating the standings. You really should cut and paste these comments onto a new post, I wouldn't have read them had I not been looking. The CI I think is a very long discussion as many people aren't aware exactly what it is or calculated. Keep up the good work.
thanks
patrick

Anonymous said...

How can Rahy NOT be mentioned? Year after year, this little guy does nothing but sire top class, hard knocking horses. And for those who consider him a "filly sire," I can't think of many stallions around that have sired a colt as good as Fantastic Light.

Warstone said...

Rahy is a wonderful stallion. He is actually one of my favorites. I cannot agree with you more on his achievements: he has a 2.45 AEI and 9% stakes winners from foals. I think he is one of the best stallions out there and if you doubt me, all you have to do is go to my website to 'current runners' to see that I actually own one by him (a colt by the way). So I actually put my money where my mouth is when I say this.

Now as for the reason why Rahy is not mentioned is that this particular post was intended to identify sires that offer value for breeders. Rahy has a stud fee of $60,000 for this year; however, his yearling average was only $90,000 a very poor median to stud fee ratio (especially considering that his stud fee when those yearlings were conceived was above $80,000). So I would not recommend Rahy to any commercial breeder at this price, he offers very little value on the commercial end. If you breed to race, then $60,000 is a bargain, I think he is a much better sire than many at this price range.

But unfortunately for the commercial breeders, the best value he offers is for buyers of his stock at yearling sales. It is regretable that the market punishes older proven sires such as Rahy, in this way.

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