Price is what you pay. Value is what you get.
(Image : Summerhill / Emac)
“If you box smart, you can still keep in front.”
Summerhill Stud CEOFollowers of these columns will remember our commentaries on the exposure breeders (and in particular, our cheque-book breeding friends) faced when committing themselves to the payment of stud fees in the region of R250,000. There were some who suggested our statements were prompted by envy, or that they were a marketing ploy to divert traffic our way.
The problem with either of these observations was that we’ve always taken the view that the longer one is preferable, and that short term gain just as easily becomes resentment, while on the marketing side, we long ago understood that when horsemen are infatuated by a stallion’s promise, they will go where their instincts take them, willy-nilly.
There’s been much said about the combined receipts (R215million) of the Cape and National Yearling sales, and there is value in these reflections, but the dirty truth on high service fees resides in the number of people who failed to recover their production costs on the three top priced stallions of the 2008 season. It is so that a number of other yearlings failed to recover their production costs, including those conceived off considerably lower fees, (like some of ours,) but the “hiding” was substantially bigger at the upper end.
Given their pre-eminence as the leading sires of Stakes winners (see table below), Western Winter, Fort Wood and Jet Master richly deserve their place at the top of the stud fee table. The question is, what should the top stud fees be?
We’ve always lived by the adage that, against the average price of a sire’s progeny, breeders should be able to make a profit. In the end, it’s the only sustainable solution. That won’t stop some horses failing to return a positive outcome, but in broad terms, it gives most producers a chance. In the context of a stud fee approaching a quarter of a million Rand, payable upfront, (with a live foal guarantee it should be said,) and adding a R100,000 to R120,000 for the costs of the keep and amortization of the broodmare, the foal, the holding cost on your money, the cost of marketing and the commission payable to the sales company, we would estimate an outlay of the order of R370,000 for the progeny of such a stallion. It’s illuminating, in that context, to visit the results of the National Yearling Sale, where the combined offering for the three top stallions was 74, 69 of which were sold, and a disappointing 41 failed to make their costs of production. There will be those who’ll tell you, that’s how markets work. And if you buy at the top, it’s the risk you take. On the eve of my departure for the AGM of one of the world’s best risk managers, Warren Buffet’s Berkshire Hathaway, I’m tempted to remember, “Price is what you pay. Value is what you get”, and another parol, “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
Against these numbers, horses like Captain Al (average R234,808), Silvano (R277,667), Kahal (R167,105) and Muhtafal (R182,692), all established sires in their own right and all standing in the R50,000 – R60,000 bracket at the time, just managed to get their customers home in the black, yet it remains a matter of concern that proven sires of this calibre should be sailing so close to the bone. The ex-Summerhill stalwart, National Emblem, with his third Klawervlei crop on offer off a stud fee of R80,000, averaged R151,250, the surest sign of how brittle (or should we say fickle?) the market can be.
One thing’s for sure, and that is that the market will demand a reappraisal of stud fees, and the reality is, the market will get what it wants. Going forward, and looking at the production capacity of the nation’s leading stallions in the way of Stakes winners, it’s probably fair to say, our market still remains, despite these numbers, the best value-for-money in the world. And if you box smart, you can still keep in front.
Any stallion able to sustain a stakes’ winners to runners percentage of 10% and beyond, meets the international standard for an exceptional sire, and it seems South Africa is in a purple patch right now, measured in those terms. That Western Winter, who tops the log, should have 9 of his 15 on offer at the National Sale, make less than the production cost, begs the question we asked in the immediate aftermath of the sale, and that is just how much the money taken at the Cape Premier sale, knocked-on to the final numbers in Johannesburg.