Canadian Breeders Shaken by Tariff Threats

The prospect of a 25% tariff being levied every time a horse enters the United States from Canada has unnerved Canadian owners and breeders, casting a shadow of uncertainty across the ongoing breeding season and upcoming yearling sales. The whipsaw nature of the U.S. government's communication regarding the tariff has been enough so far for some Canadian breeders to cancel breeding contracts with Kentucky stud farms and start changing plans to sell yearlings at U.S. sales in the summer and fall. "Let's be honest, this whole business has been like a roller coaster ride," said Sherry McLean with Northern Dawn Stables in Ontario. "We don't know what the reality is going to be in the end, but there are chances we cannot afford to take." The U.S. announced Feb. 1 it would impose 10% tariffs on energy imports from Canada and 25% tariffs on all other imports effective Feb. 4. These tariffs were subsequently delayed March 4. Canada reacted by imposing reciprocal 25% tariffs on imported goods from the U.S. to go into effect March 4. Another delay tabled both tariff plans until April 2. With the tariffs being implemented still possible, the Canadian Thoroughbred Horse Society's national office sent a letter March 12 to its members relaying information from the Ministry of Agriculture and Agri-Foods Canada about how the tariffs could be applied. For mares being exported to the U.S., no tariff applies if the mare was born in the U.S. A tariff must be paid in the form of a cash bond on all mares born in Canada or other countries before they enter the U.S. The tariff is applied to the mare's declared value as provided by the mare's owner. A temporary entry permit is available for 30 days, meaning the horse owner can request a refund if the mare returns to Canada within the 30-day window. The 30-day temporary permit does not require a veterinary port inspection. If the mare is exported with a foal, the foal is subjected to an additional 25% tariff. "The timing of the tariffs are the worst part because breeding season has already begun," said David Anderson, owner of one of the largest breeding operations in Ontario in Anderson Farms. "If it was September, then it would give us the ability to bring in a couple of top stallions, and we could leave our mares home and breed at home. It's not everyone's program to stay at home and breed to Ontario sires. A lot of us are breeding to win the Kentucky Derby, not necessarily an Ontario-sired stakes." Similar tariff rules would apply to horses shipped to the U.S. to be sold privately or at auction. Tariffs do not apply to horses born in the U.S. and a cash bond is required for all horses born in Canada. A temporary entry permit is available for 30 days. If a horse is not sold and returns within 30 days, then the owner can request a refund. The National Thoroughbred Racing Association has provided guidelines on how the valuation at the time of importing will work. The default rule for U.S. Customs is a transactional price that is validated with a sales invoice. If there is no previous sale, a horse owner can use the transaction of a similar horse being exported, but the sample transaction needs to be around the same time as when the subject horse is being exported. An independent appraisal is acceptable, provided it is based on the value of a horse sold to an entity in the United States, according to the NTRA. An imported horse that is later sold, for example, for three times its declared value does not get reevaluated for an additional tariff. The declared value at the time a horse is imported is what matters, according to the NTRA. NTRA Advisory and FAQs on Tariffs Potential Effects on Sales "Everything is so undecided right now, and I'm trying to be optimistic," said Steve Kemp with Ballycroy Bloodstock, a commercial breeding farm in Ontario that also stands four stallions. "Right now, it feels like a hit in the gut at a time the industry is already struggling. "This would definitely impact the sales," he continued. "We've been encouraging American buyers to come up here, and I think we made some progress in our sale (CTHS-Ontario Premier Yearling Sale) last year with that avenue. It would be a shame to see it go back now and the buyers say, 'Oh, it's not worth it to go up to buy Canadian with the tariffs.' I think they've gone too far." Anderson believes from a numbers standpoint, the Ontario Premier Yearling Sale could see an increase in the auction's catalog due to breeders staying home in order to avoid the U.S. tariffs. "I think we're going to see more people selling in the sale," Anderson said. "Whether the buyer base is there or not is yet to be determined. The Americans coming in to buy, there will be some I'm sure but they'll probably plan on leaving those horses to be raised and trained in Canada to avoid the tariffs." Kemp and others said they would have to rethink whether they would send any horses to the U.S. sales ring because the tariff could make it cost-prohibitive. He has one horse nominated to Fasig-Tipton's The Saratoga Sale and another two he had hoped to offer at the Keeneland September Yearling Sale. "Every year we have some American-sired horses so we're not putting all our eggs in one basket, though we stand some very nice stallions," he said. "Now we have to rethink that and may not go at all after you break down the costs to ship, the broker's fees, and the tariff. It might not be worth it. And dealing with our dollar doesn't help either." As of March 14, one Canadian dollar is worth 69 cents in the U.S., so Ballycroy's costs in the U.S. would be 30% higher if paid in Canadian dollars. On the flip side, if a horse in the U.S. sells well, the farm would benefit by being paid in U.S. dollars. Ontario-bred yearlings were well represented at the 2024 Keeneland September sale and Fasig-Tipton's The October Sale in Lexington. Ninety Ontario-breds were offered at Keeneland, of which 60 sold for nearly $5.5 million. Fasig-Tipton offered 39 Ontario-breds, of which 31 sold for more than $1.2 million. "Clearly (the tariffs) will have a negative effect on our yearling sales be it in Kentucky in July or October or at Saratoga," said Fasig-Tipton president and CEO Boyd Browning Jr. "We had 50 Ontario-breds cataloged at last year's October Sale, that's a significant number. "I don't want to hit the panic button yet but what I will say, is that it's negative. If these tariffs, as proposed—and there's still some uncertainty of how everything would work—will certainly have a very negative impact on the U.S. sales environment and will have a devastating impact on the Canadian sales and breeding environment. There's a lot of uncertainty and uncertainty is never healthy." Keeneland vice president of sales Tony Lacy, likewise, implored industry members on the border to maintain unity while the issue is debated in Washington D.C. "We see (Keeneland) not just as a Kentucky-based entity but as something that has a broader reach in every part of the country and many parts of the world," he said. "This is a global industry. We are all very reliant on each other. It's a very delicate ecosystem. If you take out one piece, it can have a severe effect. The (Canadians) are a crucial part of our ecosystem and of our operation. We feel very privileged to represent (Canadians) in their breeding programs and endeavors with trading their horses. We want to maintain a free and open marketplace for our U.S. and Canadian clients." Lacy said he understands the panic and need for reassurance from Canadian breeders while the landscape continues to evolve on a day-to-day basis. "With a situation so fluid it's hard to know what's going to happen but we're doing everything in our power from our angle to move this forward," Lacy continued. "There is a fairly strong Kentucky lobby right now, there's also bourbon wrapped up in this (trade war). If you look at what (NTRA president) Tom Rooney has issued (March 14) there's some exemptions but we're not quite sure if that encompasses horse sales. It's not fully clear and fleshed out yet and that's just the first rendition. There will most likely be changes to this and hopefully it's in a positive manner." Impact on the Breeding Industry On the breeding side, McLean said several of her clients are bringing their mares back to Ontario from the U.S. before the beginning of April. One client canceled a breeding contract with a Lexington area stud farm and booked instead to one of Northern Dawn's stallions. She said another client has three mares she was ready to send to the U.S. that are now staying in Ontario. "I have another client who has a very nice mare booked to a stallion in the States, but he's terrified about what it may cost him," she said. "Normally, I might take one or two mares down there, but I cannot afford to take a chance that it is going to cost more than I'm expecting. With all costs going up, it is just the way it works. If this happens, I think it is going to hit Kentucky and New York pretty hard." Ontario breeders have regularly sent a significant number of mares to Kentucky. In 2023, 45% of Ontario's 582 foals were bred to Kentucky stallions. For all Canadian-breds that year, Kentucky-sired foals accounted for 36%, according to statistics from The Jockey Club. Canadian mare owners could try to leverage the conditions of the 30-day temporary permit recognized by the U.S. Department of Agriculture but John Carey, owner of T.C. Westmeath Stud Farm, said that could also wind up being costly. "You could take a mare down south, breed her, and take her back without tariffs. But that's hard cost-wise and health-wise for the safety of the horse," he said. "She might also come back and end up open, that's another one of the issues. I suppose for the guy who does his own transport, it wouldn't be so bad." Carey said the biggest issue right now is the lack of clarity about how the tariff would be applied. "Anyone who gives you an answer now, it's not going to be the exact answer. I can assure you," he said. David Perry, president of Perry Transport, said mare owners do have an option to keep a mare in U.S. longer using a temporary import bond recognized by Canada's Customs and Border Protection that would allow a mare to stay in the U.S. for up to a year. A longer stay requires a veterinary inspection, a health certificate, and a proof of a negative test for equine infectious anemia, commonly known as a Coggins test. If the mare comes back within the year, the tariff could be refunded. The challenge with this approach is finding a carrier willing to post the bond and take the risk. "For a class A customer, a carrier might say OK," said Perry. "If the mare does not come back, though, then I'm stuck with a tariff, so this isn't something you do casually, but it is doable." How Tariffs Could Affect Racing The tariff also may affect the horse population at Woodbine by discouraging U.S. owners to participate. "Right now it works pretty easy," said Perry. "We have more horses traveling back and forth across the border than people. They come in as a temporary entry, which is a special exemption the horse industry got. But if you bring in tariffs, all that changes." U.S. citizens Al and Bill Ulwelling, the leading owners at Woodbine in 2022, believe the tariffs could have a devastating effect on Woodbine racing. He believes many U.S. owners who currently run their horses at Woodbine will remain stateside for the upcoming racing season. "This would be our 11th year racing in Canada and I have no positivity right now with Canadian racing," Ulwelling said. "There's a lot of American owners up there. We've led in earnings the past year, we make a ton of starts there. If you take out a few of us, that's tough." Ulwelling typically sends his horses southward to Kentucky for the winter for a freshening or to Dr. Larry Bramlage at Rood & Riddle Equine Hospital in Lexington if they require surgery. He said the tariffs would "completely change" the way he and his father run their operation. Cognizant of the incoming April 2 tariff, Ulwelling has already shipped all of his wintering U.S. horses back across the Canadian line before he could be penalized. "We could look like idiots or we could look smart, but the moral of the story is that they are all up there," Ulwelling said. "So at least they can all run up there when they're ready. We love Woodbine, that's our home. Where we want to be is Canada. We love (trainer) Kevin (Attard) and his family. But we realistically cannot afford to pay a 25% tariff every time we cross the border and that's the bottom line." If Canada imposed a reciprocal tariff, Perry says it is possible that U.S. owners could put up a cash bond that could be recoverable when a horse returns to the States. "But what if the horse doesn't come back or gets claimed?" he asked. "If it's not a Canadian-bred, you'll have to pay taxes on it and the tariff. Between that and the added aggravation, I would say that will cut down on the numbers coming up." The bottom line for Perry is that he hopes all the tariff talk ends up being posturing that never comes fruition. "I mean, we're all worried and not just about the horse industry," he said. "We're worried about things that could be catastrophic for both our economies financially and personally. The U.S. and Canada are not just friends and neighbors, we're family, too. Unfortunately, family feuds can be the nastiest. We're all hoping things will get sorted out so we can address these issues on a more gradual basis." Anderson shares Perry's disbelief about the disintegration in the U.S.-Canada relationship. "I was born on the farm, this has been my whole life," he said. "It's a passion for me; I love it. I can't imagine this would ever happen, you don't think about the U.S. and Canada fighting. We've been friends and allies forever. You look at the Thoroughbred industry and I think of it as North America, not Canada vs. the U.S."