ALPACA INFO

Alpacas were domesticated in South America over 5000 years ago

There are two breeds of alpacas. The huacaya (pronounced "wah-KI-ah") has a soft, dense fleece with a waviness ("crimp") that gives it a fluffy, teddy bear-like appearance.  The suri (pronounced "SIR-ee") has no crimp, so the individual fibers wrap around each other to form lustrous, pencil locks that hang down from the body, elegantly parted at the spine. While their body types are the same, the unique fibers they produce give them their own distinguished look. The suri is rare, with a worldwide ratio of huacayas to suris at about 98% to 2%.

Huacaya

Suri

Producing one of the finest, most luxurious natural fibers in the world, alpacas come in 22 identified fiber colors and color variations recognized by the worldwide fiber market. From pure white through fawn, browns to jet-black, there are color shades from pale silver to steel blue, to rose-grey. The alpaca is the only fiber animal that can produce a natural red color. 

Alpacas produce 3 to 10 pounds of fleece, ranging from 3 to 6 inches in length, depending on the age of the animal and the shearing method and schedule. They're usually shorn once a year in the spring. Quality alpaca fiber is as soft as cashmere, several times warmer and three times stronger than sheep's wool, yet only half the weight. It is non-allergenic and with the low scale height of the finer micron fiber it does not feel scratchy like other animal fibers. Alpaca fiber is unbelievably soft!

Alpaca fiber has no lanolin or other greases and it is usually relatively clean and dry, unlike sheep's wool, which contains lanolin and significant amounts of waste material. This makes cleaning and processing simpler and more enjoyable. Both types of fiber blend well with wool, silk, cotton, mohair, and cashmere. Alpaca fiber also easily accepts dyes. Suri and Huacaya fiber are highly sought after by both cottage-industry artists (like hand-spinners, knitters and weavers, for example), and the commercial fashion industry, worldwide. Its uses are endless in clothing, luxury apparel, textiles, even specialty interior fabrics. Used alone or blended, left natural or dyed, alpaca end products are soft, luxurious, pleasurable treasures to own.

Why own alpacas? There are so many reasons why owning alpacas is highly appealing. Alpacas are gentle and timid, yet curious. These docile, easy-going creatures possess an intelligence and social nature that make them easy to train and very enjoyable to watch. They are hardy and simple to care for and adapt well to most climates. Clean, quiet and easily managed, alpacas are ideal livestock for hobby / gentleman farming (with relatively small acreage). They also make great pets and 4-H projects for kids - the whole family can be involved!

There are regional and national show divisions for the alpaca industry in which breeders can have their animals independently judged in competitive classes with other alpacas. The showing of alpacas gives the breeder opportunity for feedback on how their breeding stock is developing. It is an event that the whole family can participate in (there are special classes where children can show their alpacas) as well as providing opportunities to network with other alpaca owners and learn from their experience.

Alpacas offer an outstanding choice for livestock ownership. They have long been known as the aristocrat of all ranch animals. Alpacas have a charismatic manner, they do very well on small acreage, produce a luxury product, which is in high demand, and a large herd is not required to be profitable (90% of all alpaca owners own 10 alpacas or less!). They are considered the finest livestock investment in the world!

Unlike the end products of most "exotic" animals, as well as most "traditional" livestock, the end product of an alpaca is its unique fleece - a continuously growing cash crop that can be reaped year after year, without killing the animal. One of the many aspects we appreciate about alpaca ownership.

Alpacas are a sound, quality, investment. There are excellent profit opportunities and tax advantages when investing in alpacas. They are rare, producing a high quality luxury fiber that is in demand world-wide. They are fully insurable for approximately 3.25% of their value. They can often be financed with a modest down payment. The current alpaca market is based on the breeding and sale of quality breeding stock, which commands premium prices. For the past two decades the value for females has remained fairly consistent with prices ranging from $12,000 - $25,000 or more. Proven herd sires sell from $20,000 - $50,000 with exceptional males selling in the high six figures! The trend of producing higher quality breeding stock that command higher sale prices has been noticeably on the rise in the last few years.

Alpaca Fast Faqs

v     Alpacas are members of the camelid family. They are relatives of camels, llamas, guanacos and are descended from vicunas. The vicuna has the finest fiber in the world.

v     They are a small and relatively easy livestock to maintain. They stand about 36” at the withers and weigh between 100 – 200 lbs. (The llama weighs between 200 – 400 lbs. for comparison)

v     Alpaca fiber comes in a great variety of natural colors – some 22 distinguishable colors in all! From white, fawn, brown, grey, and black with beautiful shades in between that display a virtual rainbow blend of colors.

v     The alpaca’s end product is their rare luxurious fleece. It is a renewable fiber that grows 3”-6” annually. It is usually shorn in the spring time and then processed into yarn and finished garments.

v     Alpaca fiber is stronger and more resilient than the finest sheep’s wool, and warmer than wool for the same weight. It is prized for its unique silky feel.

v     Alpaca’s live approximately 20 years. Females can be bred when they approach 14 months old or are over 100 lbs. They have 11.5 month gestation and give birth to one baby alpaca known as a ‘cria’ per year.

v     Alpacas are very hardy and require minimal shelter and protection from heat and foul weather. A three sided shelter with a simple shed roof is sufficient. Fencing with a 4’ high field or ‘no climb’ fence is adequate to keep them penned and protected from most predators such as dogs or coyotes.

v     Alpacas can be raised 5-10 per acre if adequate pasture is available or they can be raised on a ‘dry’ lot and fed grass hay if desired. A single 60 lb. bale of hay will feed approx. 20 alpacas per day! As a comparison, a horse will eat approx. a half  bale of  hay per day!

v     Routine alpaca care is simple: Besides hay, alpacas are fed approx. 1 cup of grain each day to provide vitamin supplements, and they need access to water. They need a monthly dose of medication to control parasites, 2-3 times a year trimming of toe nails, and an annual shearing of their fiber. They cost about $1.00 each per day to maintain!

v     Alpacas are gentle, intelligent, and curious social animals that communicate with each other through body posturing of the head, neck, tail etc. They also produce a gentle humming sound. They use a communal dung pile and deposit their waste in concentrated areas which makes cleaning up after them very easy.

v     Alpacas are easily transported; they can be easily moved in a Mini-Van for short distances or moved cross country with livestock trailers.

v     Alpacas are DNA blood tested to insure pedigree and are registered with the Alpaca Registry Inc. They are issued a Registry Certificate that is treated as a Title document for ownership. There is an Alpaca Owners and Breeders Association that exists to support the growth of the alpaca market.

v     Alpacas are unique and enjoyable to be around! The purchase and ownership of them can be habit forming if not highly addictive!

Alpaca Tax Planning

Alpaca Taxes 2007:
Why Not Have Uncle Sam Help You Buy Your Alpacas

By Mike Safley

To begin I want you to know that the idea of taxes is not new nor the exclusive sin of the United States Government. In Roman times, Caesar Augustus decreed, "that all the world should be taxed." Politicians have taken taxation to heart for centuries. We have, on occasion, been given good advice about our responsibility to pay tax. The Honorable Supreme Court Justice Learned Hand instructed the IRS, in a high court decision, that it was not a citizen's duty to conduct himself so as to pay the maximum tax possible, but that a common man might arrange his affairs so as to pay the least amount of tax possible. God bless the judge, and God bless our alpacas and their tax advantages.

I must confess, I don't like to pay taxes; I always do, but I'm never happy about it. I inherited this bias, I believe, from my father. Dad was always fully convinced of his beliefs, and he believed that IRS agents were the bad guys.

Dad was one of the first full time llama farmers in the U.S. to be audited by the IRS. It was quite a task to prove to the agent who conducted Dad's audit that llamas were in fact a profit making enterprise. The agent decided that before he completed his review of Dad's tax return, he wanted to see these llamas with his own eyes; just to make sure, of course, that everything was on the up and up.

After much negotiating between my dad's accountant and the agent, it was agreed that the agent could view the llamas from the road in front of Dad's farm; he wasn't to be allowed on the property. When the fateful day arrived, Sam, the IRS agent, appeared at the fence in front of Dad's ranch. It wasn't long before Bonnie, his big black llama, wandered up to the fence and offered Sam a kiss. I still to this day believe that my dad's audit was the only one ever closed as a result of a llama's kiss. Thank God, she didn't spit!

Raising alpacas can offer the farmer some very attractive tax advantages. In 2003 those benefits got a lot better due to the "Jobs and Growth Reconciliation Tax Act." which was enacted into law on May 28, 2003. It was amended for the 2007 tax year. The new rules added several powerful incentives for people who buy alpacas. The 179 deduction has been raised to $108,000. These benefits are for assets placed in service after May 5, 2003 and they expire in December 2009.

If alpacas are raised for profit, all the expenses attributable to the endeavor can be written off against your income. Expenses would include not only feed, fertilizer, veterinarian care, etc., but depreciation of such tangible property as breeding stock, barns and fences, all of which can help shelter current cash flow from tax. Beyond these basics there are several strategic tax advantages for the alpaca farmer.

The fact is that Uncle Sam will pay for a portion of the cost of acquiring your herd, assuming you are currently paying income tax and plan to continue paying income tax over the next six years. You can write 100% of your original purchase price off, up to a maximum of $108,000, in the year of purchase. If you are in the 45% tax bracket, the deductions for depreciation that the animals are eligible for may save you up to 45% in cash, of your original purchase price.

If you were to buy ten females for $108,000, pay $36,000 down, and take advantage of IRS code section 179, insure the animals and finance the balance over 4 years, the government would give you a tax refund of $50,607 and you would have cash out of pocket of ($7,582) in the first year. In other words in the year of purchase you would pocket $7,582 in net cash, after tax. This assumes you are in a 45% tax bracket (state & federal). (See page 8 for the complete details.)

If you would like Northwest Alpacas to compute the after-tax cost of your prospective alpaca purchase according to the 2007 tax law update, please email Fred Kraft at Fred@alpacas.com. He will be glad to do a six-year projection that calculates the after-tax cost of your alpacas.

I recommend that you engage an accountant for advice in setting up your books and determining the proper use of the concepts discussed in this article. The aim of this discussion of IRS rules is to make you more conversant with the issues of taxation.

Alpaca breeding also allows for wealth building, while deferring tax on your investment's increased value. A small farmer can purchase several alpacas and then allow their herd to grow over time without paying tax on its increased size and value. If the same amount of money was invested in a Certificate of Deposit, any interest earned would be currently taxable. In addition, the C.D. could not be depreciated, thereby offsetting the amount of tax due.

This deduction is available every year when you purchase IRS code 1245(a) (3) assets that are acquired for use in an active business [(Code Section 179 (d) (1)], assuming that you have not used the deduction on a computer or some other qualifying asset. Many people do not understand that you can use this deduction to write off your purchase of up to $108,000 worth of alpacas this year and that they can take another $112,000 deduction next year. The following example takes into consideration IRS code section 179. (If you would like a copy of the code section, please give us a call 503-628-3110 or email Fred@alpacas.com. )

Purchase price (one or more alpacas):   $108,000
Section 179 tax deduction ($108,000)
Tax savings 45% (tax bracket 45%)      ($48,600)
Actual after tax cost out of pocket           $59,400

In other words, if you are in the 45% tax bracket (state & federal) the government will reduce your taxes by 45% of the cost of $108,000 worth of alpacas. This deduction is available for all taxpayers. To see how much this will benefit you, simple calculate your state and federal tax bracket and multiply it by the amount of your purchase up to $108,000.

Please Note:
1) that you must have sufficient income to use the deduction. If you have no ordinary income then the deduction will be limited, 2) the unused portion of the deduction can be carried forward to subsequent years, 3) you may want to forgo electing to take the deduction and simply depreciate the cost of your alpacas. This approach would allow you to create a net operating loss which could be carried back two years and you may obtain a refund of previously paid tax, and 4) to benefit from the 179 deduction the tax payer can not place more than $430,000 of qualifying assets in service in the year that the deduction is taken.

The first step in qualifying for favorable tax treatment as a farmer is establishing that you are in business to make a profit. You can not raise alpacas as a hobby farmer and receive the same tax preferences as a for-profit farmer. A farming operation is presumed to be for profit if it has reported a profit in three of the last five tax years, including the current year.

If you fail the three years of profit test, you may still qualify as a "for profit" enterprise if your intention is to be profitable. Some of the factors considered when assessing your intent are:

You don’t have to qualify on each of these factors - the cumulative picture drawn by your answers will provide the basis for the determination.

One of the frustrating factors in dealing with the IRS rules is getting to a definitive answer. The code is often more grey than black or white; consider the following statement which is found in IRS publication 225, Farmers Tax Guide:

"This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation of the Service. Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretation of the Service."

I recommend everyone who farms alpacas obtain a copy of this handy guide at your local IRS office or at the IRS website at www.irs.gov. It is very informative.

Once you've established that you are farming alpacas with the intent to make a profit, you can deduct all qualifying expenses from your gross income. The discussion from here forward presumes you are a cash basis taxpayer and you keep good records. Accrual basis tax payers would also be allowed the same tax treatment, but their timing might be different.

First, the following items must be included in your gross income calculations:

1. Income from the sale of livestock
2. Income from sale of crops, i.e., fiber
3. Rents
4. Agriculture program payments
5. Income from cooperatives
6. Cancellation of debts
7. Income from other sources, such as services
8. Breeding fees

Then the following expenses may be deducted from this income:

1. Vehicle mileage at .445 cents a mile for all farm business miles
2. Fees for the preparation of your income tax return farm schedule
3. Livestock feed
4. Labor hired to run and maintain your farm (remember, you must not deduct the expense of maintaining your personal residence)
5. Repairs and maintenance
6. Interest
7. Breeding fees
8. Fertilizer
9. Taxes and insurance
10. Rent and lease costs
11. Depreciation on animals used for breeding, real property improvements, barns and equipment
12. Farm-related travel expenses
13. Educational expenses, which improve your farming expertise
14. Advertising
15. Attorney fees
16. Farm fuel and oil
17. Farm publications
18. AOBA dues and registry fees
19. Miscellaneous chemicals i.e. weed killer
20. Vet care
21. Small tools having a useful life of less then one year

Please note: Personal and business expenses must be allocated between farm use and personal use, for instance, with such expenses as utilities, property taxes, accounting, etc. Only the farm use portion can be expensed.

Once you've determined your net income or loss, it is included on your tax return as an addition to or a deduction from your ordinary income. Losses can be carried back for two years and forward for twenty years. To deduct any loss, you must be at risk for an amount equal to or exceeding the losses claimed. The "at risk" rules mean that the deductible loss from an activity is limited to the amount you have at risk in the activity. You are generally at risk for: 

1. The amount of money you contribute to an activity
2. The amount you borrow for use in the activity

You must establish the cost basis of your assets for tax purposes. This basis is used to determine the gain or loss on sale of an asset and to figure depreciation. In determining basis, you must follow the uniform capitalization rules found in the IRS code. Animals raised for sale are generally exempt from the uniform capitalization rules, and there are other exceptions for certain farm property. You need to become familiar with these rules.

Once you've established the cost basis of your various assets, you take a charge for depreciation against your annual income. This process allows you to expense the historic cost of an asset to offset present income. The effect is to create non-taxable cash flow on a current basis. This benefit is especially attractive in an environment of higher taxes.

There are several methods of writing alpacas off, beginning with the straight line method which allows you to deduct one-fifth of their cost each year, except the first year, in which the code allows for a prorated write off based on the month of your purchase. The net result of this method is that it takes six years to write off your alpacas, unless you buy them in January. The straight line system can only be used by making an election. There is also the modified accelerated cost recovery system using 150% declining balance and the half-year or mid-quarter convention (MACRS) which allows animals to be written off as follows: 15% year 1, 25.5% year 2, 17.85% year 3, 16.66% years 4 and 5, and 8.33% year 6. This is an accelerated schedule allowing for a larger percentage of the asset to be written off early. The MACRS system is the system preferred by the IRS since it does not require an election. Alpacas born at your ranch have no cost basis and cannot be written off, although they may qualify for capital gain treatment on sale. The costs related to financing or interest on your purchase is also deductible. Many people pay cash for their animals so writing off the interest is not an issue. The following examples articulate the benefits of tax deductions derived from an investment in alpacas. The examples do not include expenses for feed, veterinarian care, supplies, and transportation.

FINANCING

Let's consider what would happen if you purchased a herd of six alpacas for $108,000. In this scenario we will assume you are in the 45% overall tax bracket (state and federal), use the section 179 deduction in year one, use the MACRS depreciation method, finance the herd at 8% interest for four years, and insure the herd for the balance owed after a 30% down payment. If you would like to receive a customized projection, similar to the following, for your purchase, please email Fred Kraft at Fred@alpacas.com. All purchases of less than $108,000 are 100% expensible in the year of purchase. (Please consult your accountant to determine how these benefits pertain to your actual taxable circumstances.)

FIVE YEAR AFTER TAX PURCHASE PROJECTION

(See PDF document to view entire Tax Planning table) 

The total after tax cost of purchasing a $108,000 herd for taxpayers in the 45% bracket (state and federal) is $77,786, spread over six years, including principal, interest, and insurance.

CAPITAL IMPROVEMENTS

Capital improvements to your ranch can also be written off against income. Barns, fences, pond construction, driveways, parking lots all can be expensed over their useful life. Equipment such as tractors, pickups, trailers and scales each have an appropriate schedule for write off. The depreciation schedule for each asset class varies from three years to forty years. A barn or special purpose agricultural building can be written off pursuant to Section 179 in the year it is put in service. If you do not chose to write the barn off as a Section 179 asset then you can depreciate it. To qualify for a 179 deduction it must be put in service after May 5, 2003 and before 2010.

The original cost basis of an asset is reduced by the annual amount of depreciation taken against the asset. Other costs add to basis, such as certain improvements or fees on sale. The changes to basis result in the adjusted cost basis of the asset. Upon sale excess depreciation, previously expensed, must be recaptured at ordinary income rates. The recapture rules are a bit complex, as are most IRS rules, but the IRS Farmers Publication I've mentioned explains them well.

When an asset is sold, say for instance a female alpaca, which was purchased for breeding purposes and held for several years, the gain or loss must be determined for tax purposes. If this alpaca was purchased for $20,000 depreciated for two and a half years or, say, 50% of its value, and then resold for $20,000, there would be a gain for tax purposes of $10,000. In other words, your adjusted costs basis is deducted from your sale price to determine gain or loss.

Once you've determined the amount of a gain, you must classify it as either ordinary income or capital gain. This year ordinary income will be taxed at a maximum rate of, up to, 35% and capital gains are taxed at rates of, up to, 15%. Previously these rates were 39% and 20% respectively. The sale of breeding stock qualifies for capital gains treatment (excepting that portion of the gain which is subject to depreciation recapture rules). Any alpacas held for resale, such as newborn cria which you do not intend to use in your breeding program, would be inventory and produce ordinary income on sale. Animals born on your ranch and held for breeding purposes, which usually involves holding them for more than two years, can be taxed at capital gain rates on sale. The capital gains treatment of sale proceeds are an attractive benefit of raising alpaca breeding stock.

There are other tax-saving strategies that can be utilized in concert with operating your farm. For instance, you are entitled to claim a charitable deduction for the fair market value of a capital asset, which you contribute to a qualifying charity or institution. You can also exchange like for like (Section 1031) assets and avoid the tax of a sale. An example of this strategy would be a breeder who wanted to diversify his bloodstock. If he sold his alpacas and simply bought more, he would be required to pay tax on his gains. If he exchanged his alpacas for others, there would be no tax due. Employing the exchange concept can be very beneficial; for it to work efficiently; a third-party buyer is usually introduced into the transaction. The model for this type of transaction would be a real estate exchange. I'm sure your C.P.A. would be familiar with the use of like kind exchanges and how it might benefit you.

Installment sale rules allow you to defer income to future years. If you sell an alpaca with credit terms, you can defer your gain until you receive payment (excepting that portion of the gain which is subject to depreciation recapture rules). If an animal dies of disease and is insured, you can use the involuntary conversion rules in the code. These rules allow tax-free replacement of your animal.

Please bear in mind that I am not an accountant. This discussion of tax issues omits a number of rules which will impact your taxes. I did not discuss tax preference items, alternate minimum taxes, employment taxes and other concepts of importance. Whether we like it or not, this is a complicated world we live in; it often requires CPA's and on occasion an attorney. Whatever happened to the days when all you needed to farm was a mule, a plow, and a strong back?

In summary, the major tax advantages of conducting an alpaca business include the employment of expensing capital assets depreciation, capital gains treatment, and the benefit of offsetting your ordinary income from other sources with losses from your farming business. Wealth building by deferring taxes on the increased value of your herd is also a big plus. It pays to keep your eye on the tax law changes instituted by Congress. On occasion, like in the year 2007, you may find a silver lining in the clouds of government.

Source: The Alpaca Library, Northwest Alpacas
For Questions or comments: info@alpacas.com

The Alpaca Market in the year 2018

By Mike Safley

I have given hundreds of seminars about alpacas in the last 20 years. There is one question that I am always asked: How long do you think the market for alpaca breeding stock will last? For years my pat answer was: At least five years. After fifteen years of giving that answer I realized that my answer was wrong every time.

The truth is that the alpaca market has exceeded most of us old timers expectations. And based on the view from my ranch today, I see no end in sight, but I am no longer guessing how many years the market will be good.

I recently sat down to write and think about the future of the alpaca market. I was prompted to do this by an article I had just read in Llama Life II about the current llama market. The magazine contained the news of a sale at which more than 200 llamas were sold at auction. The high selling herdsire was gaveled down at $220,000.00. (For details see, The Future of the Alpaca Market below.) This number set me back, I remembered my dad telling me that the llama market would be good forever. Later, after Dad and I purchased our first alpacas, I used to cringe with financial sophistication when Dad would advise people interested in getting into alpacas that the market would always be strong.

My dad bought his first llamas in the early 1970s, and not long after the purchase he was breeding and selling them for lots of money. I was in the real estate business at the time and I soon concluded that my dad, with all his optimism for llamas, was nuts. I was convinced that Dad was riding for a fall. Pot belly pigs, hedgehogs, ostriches, and emus all came and went but Dad kept making good money with his llamas.

One day Dad met a fellow in the airport and spent a few hours talking with him about his llamas. Now, I have to tell you that my dad was a pretty fair salesman and it wasnt long before the gentleman, who was from Louisiana, bought Dads entire herd. I was amazed; the sale price made my dad a millionaire. That was 1983; thirteen years after Dad bought his first llamas. The llama market stayed red hot for many more years but Dad was on to a new love: alpacas.

By now I was convinced; Dad and I bought our first alpacas in 1984. We paid $50,000 for 4 females and 1 male. And here I am almost 20 years later still in the business. Dad passed away not long ago, God rest his soul, but he went to his grave believing that the alpaca market would be good forever and I am sure that today he is up in heaven tending a few alpacas.

As time has passed I have come around to my dads way of looking at things. I can no longer be objective about the alpaca market. After all, alpacas were domesticated 5,000 years ago and people are still tending them for profit. There is an international market in their luxurious fiber that began in the 1800s. Today alpacas are spreading around the world.

THE INTERNATIONAL ALPACA MARKET

When Dad and I purchased our first alpacas they were found only in three other countries, Peru, Bolivia and Chile. Now they span the globe. The following census of alpacas by country was based on an informal survey of alpaca populations done in 2003.

The countries with alpaca populations of less than 3,000 are Germany, Belgium, the Netherlands, Switzerland, France, Italy, Spain, Portugal, Japan, and South Africa.

I believe that alpacas will continue their migration around the world. The genie is out of the bottle. Alpacas are the worlds finest livestock and herds are being established country by country. I predict this will continue for many years to come.

As each country establishes its market and herds begin to mature, the breeders in these countries will search for improved genetics. Breeding stock from the better herds will be supplying their needs for many years to come. This is no different than any other livestock business. Just as breeders from around the world beat a path to Accoyo, they will search out the best animals wherever they find them.

THE CURRENT MARKET

The alpaca market today has never been better. When our nation suffered the tragedy of 9/11 many thought that the market for alpacas would suffer. Instead people yearned for the safety of the farm began moving to the country, and the market has boomed. Next the stock market nose-dived; with the Dow Jones average losing over 4000 points. Instead of a softening in the alpaca business people seemed to choose livestock over financial stock and the alpaca market stayed strong, actually gaining momentum.

The Alpaca Owners and Breeders Association (AOBA) recently reported that, in the past 12 months, 30,000 people requested Farm and Ranch Guides. One out of every 30 of the people that requested guides signed up to be AOBA members, this resulted in more than 1000 new members; a greater than 33% increase in AOBA memberships. This fact staggers me. I remember back to our first alpaca meeting, in 1988, at Shanty Creek, Michigan, where we agreed on the bylaws for AOBA. There were 38 of us present.

If each of these new AOBA members were to buy between 5 and 10 alpacas in the next few years that would mean that AOBAs one year marketing effort resulted in 1000 additional members and would create sales of between 5 and 10 thousand animals. When we started the Alpaca Registry in the late 1980s there were only about 600 alpacas in the United States and less than 100 breeders.

AOBAs marketing campaign is complimented by the I Love Alpacas advertising co-op, which actually spends almost 2 times ($500,000.00 annually) more on television advertising than the association. Jerry Forstner, of Magical Farms, created the co-op and over 100 breeders pay $5,000 per year to fund I Love Alpacas. The best thing about I Love Alpacas is that it benefits the entire industry. When the co-op began advertising, AOBA immediately experienced an increase in visits to their website and membership applications.

As if all of the advertising by AOBA and I Love Alpacas were not enough, in 2003, President George Bush, decided to give the alpaca business a boost by passing the Jobs and Growth Reconciliation Act. I must admit that had I set down to construct a tax act to benefit the alpaca business I may not have been as bold as to suggest one as good as what congress passed. For full details check Alpaca Taxes 2003.

The new rules have added several powerful incentives for people who buy alpacas for their business. They are: 1) The 179 deduction has been raised from $25,000 to $100,000, and 2) The bill raised the 30% bonus depreciation to 50% in the first year of purchase. These benefits are for assets placed in service after May 5, 2003, and they expire in December 2004.

The fact is that Uncle Sam will pay for a portion of the cost of acquiring your herd, assuming you are currently paying income tax and plan to continue paying income tax over the next six years. You can write 100% of your original purchase price off, up to a maximum of $100,000, in the year of purchase, the balance can be written off over 5 years.

If you were to buy ten females for $150,000, pay $50,000 down, and take advantage of IRS code section 179 and the 50% bonus depreciation, insure the animals and finance the balance over 4 years, the government would give you a tax refund of $60,987. This assumes you are in a 45% tax bracket (state and federal).

If you would like Northwest Alpacas to compute the after tax cost of your prospective alpaca purchase according to the 2003 tax law, please email Fred Kraft at fred@alpacas.com. He will be glad to do a six-year projection that calculates the after-tax cost of your alpacas.

While alpacas have always been a good write off, most people do not decide to purchase alpacas solely for the tax benefits. But, the net effect of the tax act has been to spur the market forward. In short it is hard not to be excited about todays alpaca market.

THE FUTURE OF THE ALPACA MARKET

When my father and I purchased our first alpacas, I became a fulltime student of the llama business. I had been involved in marketing prior to becoming an alpaca owner and I was looking for a frame of reference for the alpaca market. The llama industry had started 15 years earlier and the people who were interested in buying llamas were essentially the same people who would be interested in buying alpacas.

I remember obtaining a market research survey from the International Llama Association. I took the questionnaire and changed the word llama to alpaca in all the questions and then sent the survey to all the people who owned alpacas. The results came back almost identical to those for the llama survey.

From that point on I used the demographics from that survey to form my marketing strategies. The market information that the AOBA Marketing Committee uses today is not that different than what I found 15 years ago, with the exception of one major change; the introduction of the Internet as the primary source of information for new buyers.

THE LLAMA MARKET AS AN INDICATOR

Today as we look at our alpaca future I still believe that a good indicator of how we will do is the llama market. Llamas have been a business in the United States for 34 years, alpacas for 19 years. There are approximately 500,000 llamas in the United States and there are 46,701 alpacas.

I think the llama market today is an indicator of where we, in the alpaca business, may be in 15 years or 2018. Thus the name of this article. I have excerpted the results of two recent llama auctions from the autumn, 2003 issue of, Llama Life II magazine for your review. The first sale, The Friends and Feathers Final Festival sale, involved over 200 animals and the sale average was close to $16,000 per llama.

FRIENDS AND FEATHERS SALE AVERAGES

11 Buyers paid $30,000 or more on a single lot.
Those 11 buyers bought 60 lots representing 63% of total sales.
Total 60 lots $2,021,650.00 30% of lots 63% of sales avg. = $33,694.00

18 buyers paid $20,000 or more on a single lot (includes 11 buyers listed above)
Those 18 buyers bought 98 lots representing 77%of total sales.
Total 98 lots $2,474,900.00 49% of lots 77% of sales avg. = $25,254.00

42 other buyers bought the remaining 104 lots representing 23% of total sales.
Total of 102 lots $732,150.00 51% of lots 23% of sales avg. = $7,040.00

Total Sales Reported: $3,207,050.00

*LlII statistics based on sales figures reported on the Feather and Friends website.

The Final Fiesta Sale featured a male who sold for $220,000, a female that went for $110,000 and a significant number of other llamas that sold for $50 to $60,000.00. The event also produced many sales at between $10 and $23,000.00 per animal. It was interesting to me that the sale price of the llama female exceeded the record of any alpaca female to date. The highest price that I am aware of was a Greg Mecklems sale. She went for $101,000 but had a female cria at foot. Mike Tierney sold a female by herself at the last AOBA sale for $80,000.

The second sale, Berry Picking, was a lower key affair and the sale average for 120 lots was $4,445.54.

Recently, I spoke with Tim Vincent of Celebrity Sales who has been the llama auctioneer of record for many years. Celebrity also conducts many of the most successful alpaca sales including the annual AOBA auction. Tim purchased his first llamas from my father in the 1970s and I have know him every since. He tells me that the llama market has been steadily going up for the last several years. The average sale price for the Celebrity Sales Llama Sale is currently around $7,000 per animal.

I think llamas have benefited from the interest in the alpaca market, says Tim, who points out that the llama industry has never marketed itself, closed their registry or formed advertising co-ops like the alpaca industry. If the llama folks would have done half the public relations and marketing work that the alpaca people do, the market would still be as high for llamas as it is for alpacas, says Tim, You have to take your hat off to the alpaca industry on that score.

If the worst-case future of the alpaca business unfolds in a parallel fashion to the llama market, our future will be very good with a high priced market for elite animals and solid sale prices on the lower end. How good, I began to wonder?

My curiosity finally got the better of me and I decided to do a little figuring. I know, I know; there is an old saying that says figures lie and liars figure but I couldn't resist doing some futuristic calculations anyway. First I went to the www.alpacas.com website and clicked on herd calculator. Next I selected 5 females as the beginning herd size, 14 months as the average age of the first breeding, 50% female and 50% male births and a 95% live birth ratio. These females would cost you about $17,500 each in today's market. Finally, I clicked on calculate.

Well those 5 females turned into 91 females in 10 years. The next step was to calculate how many animals would result from breeding these 91 females for another 5 years. To do this I entered 30 females into the calculator using the same assumptions as above. (I couldn't put in 91 because the calculator doesn't go that high.) This resulted in 139 females which I multiplied by 3 a total of 417 which I added to the 91 from the first 10 years for a total of 508 females after 15 years of breeding and holding all the offspring. I think by now you can see where I am going with this projection.

We just need a little math to wrap this thought process up. If you were to use the three recent llama sale averages you would get a figure for the value of your alpacas in 15 years based on today's llama prices from a similar industry and market which has been in existence for 15 years more than the alpaca industry.

1. Final Fiesta Llama Sale $8,128,000.00
   $16,000 average sale
   x 508 alpacas
    
2. Celebrity Llama Sale $3,556,000.00
   $7,000 average sale
   x 508 alpacas
    
3. Berry Picking Llama Sale $2,202,180.00
   $4,335 average sale
   x 508 alpacas

So based on my calculations the $87,500 initial investment would grow a lot, even if the market price of the alpacas declined a whole bunch. Now I realize that we didn't do any deducting for expenses and labor but I think you get the idea.

The above exercise is not in anyway intended to be a rigorous financial analysis. And I always advise people that one of the best ways to mitigate the market risk of alpacas is to constantly buy and sell in the current market place so that the average cost of your herd will also reflect the current market.

If you would like Northwest Alpacas to help you create a detailed business plan that accounts for all the cost and expense of alpaca ownership click here. If you want to project the size of your herd over time and with different assumptions click here.

I personally believe that the alpaca market will actually exceed the record made by llamas for the following reasons:

1. The Alpaca Registry is closed to the registration of alpacas with unregistered parents. This means that imports cannot be registered.
2. The alpaca industries marketing strategy is sound and well financed.
3. The alpaca market is expanding and will continue as the baby boomers retire, people yearn to live in the peaceful countryside, and more women seek their own business opportunities.
4. The alpaca show ring is becoming more and more popular.
5. As breeders pursue genetic improvement strategies and compete to create superior animals, the market for these animals will remain strong and the prices high.
6. We are nowhere near saturating the market place for alpacas. As a comparison of market share, consider that there are 6 million horses in the United States and only 46,701 alpacas.
7. The international market for alpacas will continue to expand and present export opportunities for U.S. breeders.

As I told you earlier my prediction of a strong market for at least 5 years has always underestimated the market for alpacas. Today, as the eternal optimist that I have become, I may be over estimating the marketplace. The truth is no one has a crystal ball but, one thing is sure, alpacas are not a passing fad. Alpacas are here to stay!

Since the beginning of their existence, more than 2,000,000 years ago, Camelids have moved from North America to Asia and South America. They actually became extinct on the North America continent only to turn into Guanacos and Vicuna in South America. Then, 6,000 years ago, the Guanacos and Vicuna became llamas and alpacas, domesticated by the Quechuas ancestors. The herds were vast before the scourge of the Spaniards and receded to almost nothing 500 years later only to be reborn in the United States, Australia, England, France and Japan. Soon there will be herds in a hundred countries strong and growing. Time has proven that llamas and alpacas are survivors, cherished for their warm fleece and continually creating value for their owners in return for their care.

Source: The Alpaca Library, Northwest Alpacas
For Questions or comments: info@alpacas.com

WHY BUY ALPACAS?

ALPACAS are known as ‘The Worlds Finest Livestock Investment’ for good reason.

For an investment to be valuable it must possess certain qualities that make it desirable.

Around the world, alpacas are in strong demand, and people consistently pay high prices for them. They are scarce or rare and they produce one of the world’s finest natural fibers! The textiles produced from their fiber are well known to the fashion centers of Paris, Milan, and Tokyo. Alpaca fiber is softer, stronger and warmer than your average sheep’s wool.

In the U.S. a cottage industry exists for the alpaca’s luxury fiber. Hand-spinners, knitters, weavers and fiber artists readily make use of the elite specialty fiber for the high quality end products they produce. Besides the current high value of the alpaca and its fiber, a ‘breeding market’ exists to improve the North American Alpaca. This improvement of the breeding stock is what continues to drive the value of the alpaca higher and higher.

Livestock, or animals raised for profit, was a viable investment long before financial stocks were sold on the New York Stock Exchange. Today, wealth from livestock ownership is not as common, but tending to a graceful herd of alpacas can be an exciting way to earn a substantial cash flow and contribute toward living a rewarding lifestyle!

A major investment benefit of owning alpacas is based on the concept of compounding. Savings accounts earn interest, which if left in the account adds to the principal which in turn builds additional interest, thereby compounding the investor’s return. ‘Alpaca Compounding’ takes place because alpacas reproduce and have babies! As you retain the offspring of your initial alpaca investment and rebreed that offspring you experience a multiplication of your initial investment, which means an increase of value!

Tax-deferred wealth building is another ‘Alpaca advantage’. As your herd grows, you postpone paying income tax on its increasing value until such a time as you choose to sell the offspring.

Livestock breeding is a business and ownership of livestock for breeding purposes qualifies for some tremendous tax advantages. As an economic stimulus the ‘Section 179 Deduction’ of the Internal Revenue Code was increased from $24,000 in 2002 to over $100,000 through 2007. This means you can depreciate a business asset as a business expense item the first year the capital asset is acquired up to a maximum of $105,000 of the assets value. This means substantial tax savings for the alpaca owners and breeders! If you are in a 50% tax bracket the government will reduce your taxes by 50% of the cost of the alpacas up to $105,000. Consultation with your tax advisor is recommended.

How about insuring your investment against loss? Alpacas are insurable for their full value for approximately 3.25 % of their estimated value! There are several insurance underwriters who insure livestock as a normal course of business.

One of the biggest reasons an alpaca buyer cites for the purchasing of these unique animals is the gentle and pleasant personality of the alpaca. They are truly a wonderful animal and a joy to watch and be around!

Bottom line: Alpacas are both PROFITABLE and ENJOYABLE!

Alpaca Economic Values

The Incan Empire was famous for its advanced civilization as well as fabulous wealth in gold and silver. The alpaca was a highly cherished treasure by the Inca. The cashmere like fleece of the alpaca was reserved for making garments for the royalty and government officials only. The Spanish conquistadors plundered their wealth and altered the whole European economic system. To the conquerors, the land and the ‘heathen’ people and their way of life was for the taking. They plundered the gold and silver, but decimated the people and their way of life. They almost wiped out the alpaca in the conquest. The fiber that was so highly prized went into obscurity for many years.

In the mid 1800’s Titus Salt became one of England’s most prominent businessmen. He began his enterprise with his father as a woolstapler (buying, processing and selling wool). He discovered an odd lot of 300 bales of alpaca fiber from Peru, and experimented with it, recognizing some wonderful traits in the fiber from his years of experience with wool. In short, Titus developed a lucrative semi-monopoly with alpaca fiber and devoted his business to buying, processing and producing high quality alpaca material used for ‘fancy’ garment fashions. He built one of the largest, most advanced mills in the world, six stories high with over 800,000 square feet. He employed over 3200 people and produced 18 miles of alpaca fabric each day! With his wealth gained from the alpaca fiber, he built a town around his mill that housed 5000 people, complete with a hospital, bath, wash, and alms houses and a 14 acre recreational landscaped park!

The Alpaca market today is steadily growing. There is a commercial fiber market that is in demand world wide. Currently this market is fed by South American Alpacas. Considered a Rare Specialty Fiber, the world production of alpaca is 4,000 tons, compared to 5,000 tons for cashmere, 8,500 tons for Angora or a whopping 1,851,000 tons of sheep’s wool. The genetic progenitor of the alpaca is the wild vicuna which is the finest commercially recognized fiber in the world with only 50 tons per year. (Their fiber is so rare and luxurious that it can cost as much as $25,000 for a designer overcoat.) There are approximately 3 million alpaca in Peru, Bolivia and Chile. Many of these animals have not been bred with careful selection for breed improvement. During the Spanish Conquest the careful maintaining of pure bred alpacas (which were very closely related to the wild vicuna) was lost and many alpacas were allowed to cross breed with the llama which led to a coarsening of their fiber. A ‘breeders market’ exists today in the United States and several other countries to both improve the fiber quality and numbers of this already rare luxury fiber animal, to ultimately produce higher valued alpaca fiber (based on fineness) for the commercial world market demand.  Don Julio Barreda, one of Peru’s most important alpaca breeders is a man who has dedicated his life selectively breeding alpacas to produce a consistently high quality alpaca that is free of llama traits. He said in a speech given in 1999 regarding North American alpaca breeders, “With all the advantages you possess, I think you are about to create one or several very special types, and you will have outstanding characteristics due to your methodology applied in their rearing. In that way North America could produce the finest alpaca wool in the world.”  The alpaca has been an animal with an enduring economic value among diverse cultures, and is still proving to be a viably strong investment with impressive returns in today’s market.