Economics Lesson From Horse Auctions
Fundamental principles of economics were behind a recent Courier-Journal article about depressed prices at Keeneland's September Yearling Sale.
Apparently, there are too many foals to be sold, and the oversupply is depressing the prices paid. And how's the market reacting? The supply is contracting as breeders react to the new lower yield:
During the first four days of the 14day sale -- a period when the finest horse are usually auctioned -- buyers spent 42.52 percent less on yearlings than last year. If the trend continues, the sale is shaping up to be the third straight September Sale to record lower gross sales, average prices and medians than the year before. It would be the first time since 1992 that those key financial measures fell for three straight years.
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Case Clay, president of Three Chimneys Farm where Kentucky Derby winners Big Brown and Smarty Jones and Barbaro's sire Dynaformer are stallions, said stud fees likely will come down even more than they did this year.
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Though the decline is already leading to fewer foals -- which eventually may set the stage for healthier sales-- industry leaders say this year's low prices may force some breeders out of business.
That's how the market works. Supply expands, prices drop. Companies cope with the lower price level prices by finding greater efficiencies in production or fail to compete. Input costs are controlled so that the new price level is sustainable and/or the supply reduces so that price increases.
It's good to know that Kentucky's horse markets are functioning well.
