Oppenheim on Keeneland September

In his report on the Keeneland September Sale in yesterday's TDN (click here), Lucas Marquardt referred to the market as being both relatively stable, and polarized. Both things are true. I'm sure most people would agree that knowing what to expect from the Thoroughbred marketplace can't simply be a matter of referring to the previous year; this year, for example, the fact that there were 16% fewer horses in the $300,000-average Book 1, and 400 more horses in the 'back books' suggested to us that a fall in the sale's overall gross was to be expected. We projected that decline could be as much as $30-million, resulting in a $250-million gross, and that $23-million of that decline was likely to come in Book 1.

In the event, as we reported on September 15, the decline in Book 1 was limited to $14-million, mainly because the average, for those sold, rose almost 15%, from $303,072 last year to $347,471 this year; also, however, the clearance rate from the Book 1 catalogue declined over 4%, from 61.2% in 2015 to 57.0% this year. Ninety-seven fewer horses–a decline of 22%– were sold in Book 1 this year, prompting predictable calls for a further contraction of Book 1 to a two-day sale. Format changes by sales companies cause consternation if not havoc to us hard-working journalists covering the sales–most, understandably, just give up and report what the sales companies say–but they are inevitable. It won't come as a total shock if we find there will be format changes for the September Sale 2017.

The undoubted good news from the sale was that the decline in gross for the whole sale was limited to about $8.6-million, or three percent. So, in terms of pre-sale projections, the sale was definitely stronger than we expected. It would probably take the rest of the morning, and you would be asleep in five minutes, if I attempted to unravel and explain the various technical movements of market tiers (or, in Keeneland September terms, 'Books'), but let me make just two points which seem significant.

Point number one is this: we expected two key metrics of the market–gross and average–to be off significantly, possibly 10% each. The fact that the final figures are so close to last year's, and in fact the previous three years, are testimony to the strength of the Keeneland marketplace. The September Sale, and the market in general, had a huge 30% rally in 2013, in which year the Keeneland September gross went from $220-million to $280-million. Both the gross and the average (around $100,000) for the whole sale hovered around those figures in 2014 and 2015. Because of the shift in number from Book 1 to the back books, we projected a 10% decline in both gross and average. In fact the gross declined by 3% and the average by 5%, but both remained well within the range to which the 2013 recovery carried the numbers (see the Weekly Sales Ticker for details).

The second point, which is not so cheery, is the decline in the clearance rate from the catalogue, between withdrawals and not-solds–but the good news there is that several consignors we spoke with reported a brisk trade in horses not sold in the ring being moved after the sale, so perhaps this metric isn't as worrying as it looks. In 2013, there were 3,908 yearlings catalogued to Keeneland September. There has been a 15% increase in the number catalogued since 2013, but only a 2% increase in the number sold. The clearance rate from the catalogue has therefore fallen 8% since 2013, from 70.2% that year to 62.3% this year; last year 65.9% of yearlings sold, so 3.6% of that 8% drop has been from this time last year. However, this might not be such a pointer to falling demand as it seems on the face of it; consignors at the 2-year-old sales are used to getting a high percentage of their RNA's moved within a day or two after the sale, and there is plenty of anecdotal evidence that trend is spreading to the yearling sales.

One other statistic Lucas cited yesterday looks very significant: the 34% rise in the number of $500,000-plus yearlings, from 69 last year to 93 this year; and the 12% fall–over 100 yearlings–in the number sold between $100,000-$499,000. That's a little bit what I think Lucas meant by 'polarization'. On the one hand, it's great news that the power players, especially the new American big-hitters–even with only token top-level European buying by Coolmore, Darley, and Shadwell–are really prepared to pay $500,000+ for the top prospects. On the other hand, the fall in the number of $100k-$499k yearlings from 831 to 728 has to be a big worry, because it means overall the number of six-figure yearlings declined from 900 to 821, which is a 9% fall in the overall number of six-figure yearlings–even though, for those which did sell, the average price was probably 10% higher. It also means there was a 7% rise, from 1,845 to 1,971, in the number of yearlings sold for under six figures. So 79 fewer yearlings sold for $100,000 or more; and 126 more yearlings sold for under $100,000. It was all fine, like it always is, if you had one 'they wanted', but that bar gets higher and higher, and means breeders are even more dependent on the 'home run horse' to show a significant profit. These results will not be encouraging breeders to step up their investment in stud fees, and after four years in which the September Sale has grossed $280-million, $279-million, $281-million, and now $272-million, it's difficult to imagine many sires being able to justify a stud fee rise for 2017. Essentially, after a tremendous recovery in 2013, the market has remained flat for four years.

With Keeneland September now completed, rather than using sire averages just within that sale, we now switch back to their overall averages for the sales season, which are available in the Sales Statistics (formerly Insta-Tistics) section of the TDN website. To see a list of the top North American sires of yearlings after Keeneland September, click here. It won't be a huge surprise, after reading the Keeneland statistics, that Gainesway's Tapit (41/52 through the ring sold, average $651,463) and Claiborne's War Front (21/29, $626,428) are the leading North American sires by average, and are a long way in front of everybody else. Tapit and War Front registered single-digit increases from their respective 2015 yearling averages; Darley's Medaglia d'Oro registered a single-digit decrease but still ranked third, with a $344,100 average from 40 sold. The next three spots went to sires which showed significant increases from their 2015 averages: WinStar's Speightstown (33/49, $325,666) and Pioneerof The Nile (43/59, $261,046); and Ashford's deceased Scat Daddy (69/94, $245,026). A few older sires saw pretty significant drops in average.

Claiborne's Orb (51/65, average $148,146; click here to see the averages for North American first-crop sires of yearlings)

was the leader among first-year sires, with a total of seven horses with more than one sold ending Keeneland September with averages over $70,000, including: #2, Ashford's Shanghai Bobby (56/65, $120,835); Calumet's Oxbow (23/27, $112,260); Darley's Animal Kingdom (43/67, $106,802); WinStar's Paynter (33/55, $93,045); Hill 'n' Dale's Violence (62/80, $87,556); and Adena Springs' Point of Entry (25/38, $74,220).

Now attention turns back to the European sales, with Goffs, in Ireland, starting today, and Tattersalls, in Newmarket, who will be selling for most of the following two weeks. Tattersalls in particular is likely to benefit in the short-term from political events outside its control, namely Brexit making the £ sterling 20% cheaper than last year. With Arqana's Deauville August and a few other European yearling sales already in the books, as well as having a few selling in North America, Coolmore's Galileo (8/13, $557,826) and Juddmonte's Frankel (11/13, $512,903) are the leading European yearling sires so far this year (click here). Galileo, Frankel, Tapit, War Front, and Darley's Dubawi, who hasn't had a yearling sell yet this year, constitute quite a formidable top five North American and European sires of yearlings, and likely all five will be averaging well over $500,000, weak sterling or not, by the end of the next three weeks.