By Russell Meerdink
There is something about horses that make savvy businesspeople forget what
they learned in Business 101. The dream of breeding the perfect sales yearling
often dulls the sharp business judgment that earned them the money to get into
the horse business in the first place.
Few breeders calculate in advance what it will cost them to breed and raise a
sales yearling. As a result, a large number of the yearlings going through the
sales ring - maybe even a majority - are sold at a substantial loss or, at best,
at a very modest profit. Yearling Buyers acquire a large percentage of their
racing stock at prices below the cost of production. That's not the way the
marketplace is supposed to work.
Even when everything goes "right," it costs a lot more to breed a
horse than most breeders realize or are likely to admit. The risks of breeding
and selling sales yearlings are so great that most banks won't finance a
broodmare band without substantial, non-equine collateral. It is logical to
assume that in this uncertain business that every breeder would want to know his
breakeven point before putting a mare to any stud. That is rarely the case.
Let us assume that this year you want to apply the same business principles
to your breeding operation as you do to your other business ventures. The
starting point is to find your breakeven point.
Determining your breakeven point comes down to doing some honest cost
accounting and eliminating all "wishful thinking" from the formula.
This is a hard, no-nonsense exercise to find what it will really cost to breed
and raise that horse. Only after you are armed with reliable data can you make
the hard business decisions that must be made.
There are eight separate expense categories that accumulate when breeding a
horse and raising a foal for sale as a yearling. The sum of the eight expense
categories determines the breakeven point. Doing the math is as simple as
accurately listing the anticipated costs in each of the categories and adding up
the numbers. For those who prefer using a computer to do the job, we have
prepared a FREE, easy-to-use spreadsheet in Excel format* (download
download instructions) to help you calculate your actual costs. If you prefer, we
can send it to you on disk or by email, just give us a call at 1-800-635-6499. The
Excel spreadsheet allows you to quickly analyze various scenarios and "what
*Please note that you must have Microsoft Excel installed on your computer in
order to use this spreadsheet.
Whether you do the math by hand or by computer, here are the items that go
into an honest cost accounting of breeding a horse and raising the foal for sale
as a yearling. In each of the categories we have allocated common expenses. Your
actual expenses may vary but are easily calculated using the free spreadsheet.
As we go through the expense categories please follow along on the example
spreadsheet at the bottom of this page.
Expense Category #1-Stud Fee-This is one of the more easily calculated
expenses. The stud fee is what you pay for it. Simple enough. If you own a
lifetime breeding you may want to amortize the cost over three or five years.
This will take into account the fact that the stallion may die or lose
commercial popularity. If you "expense" this cost in the early years
and he goes on to have a long and profitable career, future breedings -for the
purposes of this accounting-are free. It is one of the few free things you will
ever receive in the horse business.
For the sake of our example, let us assume the stud fee is $5,000.
Expense Category #2-Mare Cost-You don't need an MBA to understand that to
produce foals you need a broodmare band and the cost of each mare must be
factored into the cost of producing her foals. Mare Cost is the price you
paid for her, divided by the number of foals you expect her to give you over her
productive career. Let's assume you paid $30,000 for your mare and you
realistically believe that she will have ten productive years. The breed average
on well-run farms for getting mares in foal is about 70% so your mare is likely
to produce eight foals. The temptation here is to argue that you can beat the
breed "in foal" average. The big boys with their on-staff
veterinarians can't do it and neither can you. So when calculating Mare Cost you
must allocate her cost over 70% of her productive years.
For the sake of our example, your mare cost is $4,286 ($30,000/7 years).
Expense Category #3- Breeding Expenses -
The cost of getting your mare in
foal goes beyond the cost of the stud fee. You are likely to incur semen
collection costs, semen transportation costs, veterinary examination fees prior
to breeding, veterinary fees to artificially inseminate the mare and veterinary
fees to determine that she is pregnant. If this is not enough, it is likely that
you will incur all of these several times before your mare catches. The breed
average is about two breedings for each pregnancy and in our example we will
assume the mare must be bred twice. There are a number of categories of breeding
- Semen Collection Fees -
Most farms charge a fee for collecting the
semen, processing it and packaging it for shipment. The amount of the fee
varies from farm-to-farm but, on average, it is about $100. Since we probably
will be breeding the mare two times, the total cost of collection is $200.
- Semen Transportation costs -
The semen will be shipped to you in an
Equitainer or some similar, insulated container that you must purchase or
rent. Add this to the next day Federal Express shipment your cost will be
approximately $75 or $150 for the two shipments.
- Veterinary expenses - Veterinary expenses add up quickly, particularly
for the breeder using shipped semen. To start things off, the mare must be
cultured and undergo a breeding soundness examination. Then begins a series of
ultra-sounding procedures to monitor her ovulation. Follicle growth must be
closely monitored so that semen can be ordered to arrive a few hours before
ovulation occurs. It's a tricky business. Miss by just a few hours and it's
back to "Go." Then she is inseminated and a series of ultra-sounds
are taken over a period of days and weeks to determine whether she is in foal.
Let's say that the total cost of doing all this is $400 for the two breedings
that it will take to get her in foal.
The total of the above breeding expenses is $750.
Expense Category #4-Mare Maintenance (13 months) -
This category is the
cost of providing "room and board" for a period of 13 months. The
13-month period assumes 11 months of gestation and an additional two months
before she is again in foal. This category is further broken down into four
(a) Board -
This is the category that has the largest potential for the
wishful thinking breeder to fudge the numbers. You can board your mare at a
first-class farm for about $15 per day and at a somewhat lesser facility for
maybe $10-$12. Even if you keep your mare on your own property, a strong
argument can be made for charging yourself the same price as it would cost to
board her at a commercial farm. The labor you provide should be compensated at
the same rate as it would be if someone else were providing it unless, of
course, mucking stalls is your hobby. The word "hobby" is one that no
horse owner should ever utter except behind closed doors in the privacy of his
own home and certainly never within earshot of an IRS agent! The value of your
labor, feed, bedding, utilities, supplies, gas for the tractor, real estate
taxes, a fair return on the value of your real estate and the dozens of other
hidden expenses probably comes to no less than $10 per day. You can compute your
own daily board costs depending upon your situation but in our example we will
use $10 or $4,260 for the 13 months.
(b) Veterinary Care -
Here we will assume the mare is healthy and
requires only routine checkups, shots, worming, etc. Veterinary costs associated
with breeding are covered elsewhere. In this example let's assume a bare-bones
veterinary cost of $15 per month or $195 for the 13 months.
(c) Farrier Care - This cost will vary from mare-to-mare but in this
example let's assume she goes unshod and is trimmed every 45 days (9 times in 13
months) at a cost of $30 per trim or $270 total cost.
(d) Insurance -
Every business must insure its valuable assets and the
horse business is no different. In our example, we have a $30,000 mare that we
can insure for about $1105 for 13 months.
The total of all mare maintenance expenses is $5,830.
Expense Category #5-Foal Maintenance (18 months) -
You must maintain the
foal from the time of its birth to the day it is sold. The foal's actual birth
date and actual sales date can be easily calculated but in this example we are
assuming that is 18 months. Similar to maintaining the mare, there are four
- Board -
The board for your foal at a first-class farm is about $2 per
day as a suckling and $15 per day as a weanling and yearling. Included in the
board are some early lessons in leading, picking up the feet and in manners in
general. For our example, let's assume that you will be raising your foal at
home on your own farm and will hire someone to do the work or will pay
yourself for doing it. Let's assume that a fair cost is $2 per day for the
first 6 months ($364) and $11 per day for 12 months ($4,015). That's a total
- Veterinary Care -
The foal will require an examination by your
veterinarian within 24 hours of birth, and over a period of months will need
routine inoculations and worming. At sometime or another, it will run a fever
and may require a few stitches to close up a cut or two. Let's say that the
foal's vet bills average $20 per month over the 18 moths for a total of $360.
This leaves nothing for extraordinary vet expenses in the event that something
seriously goes wrong.
(c) Farrier care - This is not an area that you will want to skimp on.
Straight legs and orthopedic soundness are a must. Assume that the farrier
will take a look at the foal every six weeks or about 12 times in 18 months.
Sometimes no work will be required and only light rasping at other times. But,
as the foal grows older, it will require complete trims and eventually shoes
for the sales ring. Let's also assume that the farrier will check the foal as
part of his visit to the farm to check all your other horse. As a result, on
average, the 12 farrier checks will cost $30 each for a $360.
(d) (Insurance) -
Good business practices dictate that the foal be
insured. Most insurance companies will readily agree to insure the foal for
twice the amount of the stud fee. To insure the foal for more may or may not
require additional appraisals or documentation. In this example, the stud fee
is $5,000 so our foal is insured for $10,000 (less than our cost of
production) for 18 months at a premium of about $600.
The total of all foal maintenance expenses is $5,699.