I don’t know if it’s just Palermo, or other new stallions and broodmares too, but when I do hypothetical mating I get the message “The stallion you submitted was not found!”.
This seems to be a regular problem with new studs and broodmares.
This was brought up last year. It seems the game doesn’t acknowledge stallions/mares retired to breeding within in the last year. I presume the game will acknowledge them once that “1 year since retired” has lapsed.