Breeding Drain or Racing Gain: Burning cash to turn a profit

Cover Image courtesy of Swettenham Stud

Selling Glastonbury Farms in 2020 was the turning point for Duncan Grimley to examine his stock. With his family lacking the passion to keep the business running, he sold up and made the shift to agisting his broodmare band, which threw stark light onto the mares who were not paying their own way.

“It made me refocus on the number and types of horses I run,” Grimley said. “When you’re not paying a monthly agistment bill, you can take a punt on something a little less commercial. Now, every horse has to stack up by itself, it can’t be glossed over because one is paying for another five.”

In four years, Grimley has reduced his broodmare band to 15 mares, down three quarters of the numbers he previously owned.

“Things have gotten a lot more expensive. Service fees have gone up considerably, transport costs have gone up considerably, sales costs have gone up considerably.

“Over the last six years, staff costs have probably doubled.”

We’ve crunched the numbers after talking to breeders and farms across the country, and an average cost of $52,000 has been determined to produce a yearling, with an additional $17,000 to get that horse to a physical auction. This does not include service fee, sales commission, or capital cost of the mare.

It's a tough game.

A narrowing market

The shrinking view of what people buy at the sales has also had a profound effect on breeding; Grimley must pay close attention to what holds sway at the sales, who is retiring to stud, and who has precocious offspring when choosing a stallion. He acknowledges the plummeting value of the locally-bred middle distance horse that can be aimed at a Derby or Oaks campaign.

“People nowadays want to buy a type,” Grimley said. “They're all looking for a type, and they're all looking for the same type. So if you get the right type, you can get a fortune, but if you get something that’s not the type they're looking for, you're struggling to get a bid. That’s where the big difference is nowadays. Everybody is breeding to sell.”

Precocity is of high value when owners pay a premium to trainers; nobody wants to wait until a horse is halfway through its 3-year-old season for a result, regardless of how it may pay them back over the next couple of seasons.

“If you’re waiting until the middle of their 3-year-old career to be told whether it’s any good or not, that’s probably another $140,000 you have spent on top of the sale price,” Grimley said. “If you get a good horse that can run in a Derby or some of those races, you are going to get a lot of money back, but it's a long way down the track from when you buy the yearling.”

Beforehand, Grimley enjoyed trading his stock and cultivating a pedigree, but now the allure of the first season stallion has become too big of a draw to avoid when selecting a stallion for the sales ring. He has observed that first season sires get the lion’s share of the catalogue with their first yearlings and how that number swiftly declines afterwards - unless they can prove themselves, and do so quickly.

“We've always been predominantly interested in 2-year-old speed, getting into the 3-year-old sprinter miler. Derby horses basically don't get a look in, do they? Some of our best proven stallions are Cox Plate winners, but they still struggle in the commercial market.”

That is the difficult part, Grimley notes.

“That’s what drives the dichotomy that you have to have as a breeder,” he said. “The proven horses don't necessarily help you when you get to the yearling sales.”

The cost of conception

For Grimley, the bills begin at the fall of the hammer at a broodmare sale.

“If I buy a mare at a broodmare sale for $180,000, it will cost me about $800 to get her home,” he said. “From there, it’s about $1200 a month, including vet, farrier, and the dentist.”

By the start of the breeding season in September, Grimley estimates paying for three months - or $3600 - for agistment of a dry mare and $1500 for a seasonal reproductive contract, as well as insuring her to the tune of $6000. Calculated as a percentage of value, this equates to 3.3 per cent of the sale figure, although the exact percentage can vary with insurance company and terms of cover.

If a stallion is further away, short term agistment at the stallion farm adds to the expense. Woodside Park Stud is one farm that sees a large expansion of numbers during the breeding season with mares travelling to visit their six-horse roster.

“We have about 60 mares on the farm at the moment, and that might increase to 150 during the season,” said Mark Dodemaide, stallion nominations at Woodside.

“Most will stay until their 30-day or 45-day positive scan, depending on the owner. At 30 days, you have a heartbeat, so you’re feeling pretty safe.”

Delivering the foal

The cost for a mare in foal remains on average equal to that of a dry mare; the average gestation period is 340 days, or 11 months and one week, which amounts to an outlay of $13,500 for Grimley.

With a winter drought affecting much of Victoria and South Australia, Dodemaide estimated that cost had to rise; “With the drought, people are really copping it in the neck. It’s quite expensive to buy lucerne and feed right now. You wouldn’t get much change from $40 a day.”

Sean Dingwall at Blue Gum Farm felt the same, saying, “our two primary costs are feed and labour. We would have spent an extra $200,000 on hay (this year).”

Foaling down fees vary countrywide - while it sits as low as $660 in less intensively farmed regions, Grimley set the figure at $1000.

Marcus Heritage, nominations for Swettenham Stud, explained that having a set cost for foaling down reduces the risk and guesswork for most clients. Having 24-hour supervision at the foaling unit is imperative to ensuring high quality neonatal care.

“We actually foal down for a lot of the smaller farms around us,” Heritage continued. “They have found it's just too expensive and a waste of time to only be foaling down 10 or 20 mares in a season. Obviously it's less earnings for them, but it's just financially not viable to foal down such small numbers.”

Costs increase with a mare with foal at foot to match the increase in labour and nutrition required. Drenching, farrier, and vaccinations now cover two animals, with the basic agistment cost rising to an average of $45 a day. Under the guidance of a good farrier and the close eye of a stud manager, a well conformed foal that is growing properly can avoid the expense of fetlock bridge surgery.

Grimley estimated a monthly bill would rise to $1600; over six months until an August-born foal is weaned in March, that would amount to $9600. In this window, the foal would also be insured, a figure Grimley set at $4000 based on the purchase value of the mare and his stallion of choice.

A separate expense

Weanling handling is also normally a flat fee, which Grimley set at $1000. The handling process and subsequent mini-preps are less labour intensive than a yearling preparation; Dingwall shared that 20 weanlings are currently going through another preparation at Blue Gum Farm, with one staff member per seven weanlings.

This is also the time where most weanlings will undergo survey radiographs to assess if they need any arthroscopic surgery before sale. Grimley and Dingwall placed the cost around $900, with the hopes of avoiding the cost of arthroscopic surgery, which begins at $4500 for the first joint.

“Fingers crossed, you have a low risk horse,” Bhima’s Mike Fleming said, although he shared that he preferred to err on the side of caution with anything caught on survey radiographs. The reduction in price - or inability to get into a sale - from leaving bone fragments and lesions in joints far outweighed the cost of surgery.

“If removing them surgically makes the horse low risk for racing, I think it’s better off to go through with it,” he said.

At this point, the weanling incurs its own fee separate from the mare - Grimley placed this in the same ballpark as a dry mare fee, incurring $1200 a month in total care. Over eight months until the earliest yearling preparations of the season, that would add up to $9600.

Before the beginning of sales preparation, by Grimley’s estimations, $52,000 have been spent on bringing up a yearling - and that is not factoring in the mare’s sale price, or the service fee.

Table: Major costs incurred by a yearling before sales preparation (not including service fee or mare purchase price)

Preparing for the ring

“If you work on $100 a day, that's roughly where it is in terms of preparation cost,” Dingwall said. Grimley agrees with this number. “You've probably got about $600 worth of shoeing during the preparation. You've got one set of radiographs, then you may as well work on $900. You've got at least two scopes, but possibly three, so you allow another $600 for scoping.”

A 10-week sales preparation would add up to $7000 in simple daily costs. Dingwall factors in ulcer treatment and supplements when pricing his preparation. With the additional cost of shoeing twice in a preparation, repository radiographs, and more than one scope, that number rises to $9100.

Hiring more staff during this period is crucial to a successful preparation.

“I don't know anyone that doesn't do that (hire more) when you're prepping sizable drafts,” Dingwall said. “Our Inglis Melbourne draft was 32, and we run on a ratio of one person to five horses.

“We're also running the rest of the farm at the same time. When the Magic Millions Gold Coast horses are in, we're still in the middle of the breeding season.”

Something that has become essential for sales now is photos and videography, which Grimley estimated at $400 per horse.

“We have COVID to thank for that,” Fleming said. “Beforehand, we hardly ever did it, but everyone expects it now. If the horse passed in, you would take a photo then.”

Once the photos are finalised and the last on-farm parade completed, Grimley estimated a spend of $1000 on transport to the sales, and $3500 (charged per horse) for staff accommodation and labour. Dingwall said that those costs could climb steeply if a sale coincided with tourist seasons or large events in the destination city.

“With 10 horses in the draft, we’re working on around $5000 per horse in sales costs, just for accommodation, labour, and food,” he said.

As such, the average consignor anticipates a 2.5 per cent commission from sales, in addition to the 10 per cent commission due to the sale company. On top of that, all sales require an entry fee; Grimley placed the number at $3000 for the upper echelon of yearling sales.

Over the last 10 weeks before a yearling steps in the ring, it adds another $17,000 worth of expenses to the total before commission.

Table: Major costs incurred by a yearling during sales preparation

In order to break even, a yearling must clear $80,000 (12.5 per cent, or $10,000, in commission plus $69,000 in costs) without factoring in the service fee.

Grimley highlighted that, of course, the higher the price, the higher the commission. A yearling bred on a $27,500 (inc GST) service fee would need to make $110,300 in the ring to ensure that service fee, commission, and all costs were covered.

At the Australian yearling sales this year, the median yearling offered made $47,500, falling $32,500 short of covering costs, not including the service fee, commission and capital cost of the mare.

Including service fee, 145 of the 183 Australian-based or shuttle stallions with progeny at the yearling sales this season could not have covered costs with their average yearling price.

The costs of doing business

It has been a common consensus between all that labour is one of the most expensive elements of the business. In the Hunter Valley where Glastonbury was based, the mining industry pays better than studwork, and affordable housing can be difficult to secure if farms don’t provide accommodation.

It becomes a vicious cycle; the number of long-term, experienced stud workers is dwindling, which has led to a rise in the number of freelance workers at sales, who cost more than a permanent staff member.

“It’s harder to get (long-term) staff from overseas because of the visa issues that everyone has,” Grimley said. Thus, those able to get short term visas for the sales season have a monopoly on the situation. Experience on the lead is an expensive, highly desirable trait, and the expectation is that airfare and accommodation will be the responsibility of the vendor.

Studs like Swettenham and Woodside Park have found ways to reduce labour costs by simply ceasing to offer additional services like yearling preparation.

“We stepped away from yearling preparation purely because it was just one more thing we didn't have to have the ongoing cost of,” Heritage said. "It just made no sense for us to try and have our hand in everything. So we probably foal down more than we used to, because we no longer have to try and keep up doing a bit of everything.”

It goes the other direction for many of their clients who now outsource foaling down.

“For a lot of these small farms, they’re not hiring additional staff, they’re doing the nightwatch themselves,” Heritage added. “It isn’t good for your health to be up all night and then put in a full day’s work afterwards. Other industries must look at that and think, ‘that’s just not safe’.”

The hidden toll for farms that bankroll themselves, without a large volume of clients, comes in the form of mortgages, insurance, and property taxes, which are invisible to the buyer and often the client. If it’s this hard to break even, how many more breeders will simply step out of the game?

The widening gap

The long and short of it is that the late maturing racehorse is no longer commercially viable. Part of the problem, Grimley points out, is due to the lack of programming at the end of the juvenile season; as TTR have already examined, after the G1 Champagne Stakes and the G1 JJ Atkins Plate, juvenile racing beyond 1400 metres all but vanishes from the race diary.

With nowhere to develop these local-bred middle distance horses, there's little incentive to buy.

“There’s nothing to run these horses in,” Grimley said. “Therefore, you get horses going to the Victoria Derby in their first or maybe second preparation.”

Grimley doesn’t foresee much improvement in the bottom of the yearling market going forward - if anything, he sees the polarisation between each getting bigger. The bigger farms, whose large broodmare bands can prop up their stallions, will just keep getting bigger, while the smaller breeders will suffer under the same pressures he has felt when culling his herd.

“The guys that have one or two mares, they're probably getting disillusioned by it,” Grimley said. “They're not getting their horses into the sales. It’s becoming very expensive to compete against the bigger farms that have got such large broodmare bands now.”

And what is happening when those small breeders try to exit the game? Grimley has seen the uptick in mares being offered at sales in foal, and how often they sell for far below the service fee paid for the cover. People are getting out, whatever the loss.

If you would like to contribute to this series, send your thoughts or ideas to vicky@ttrausnz.com.au.