In the last few years, the stock market has been unstable, and it has been experiencing wide swings on a daily basis. Investors are not sure from day to day whether or not their profit will hold yet again another year. Stock market investors are getting nervous and no wonder, as many "new" investors are close to retirement age. It is estimated that with the growth of investment in 401K's and similar plans, over 48% of our total population are invested in the stock market.
Most investment counselors advise these investors to hang on and things will
come around again (and indeed they probably will), but be sure to
diversify your investments....always. Alpaca breeders believe in the
strength of another market, the Alpaca Livestock Market. The stock
market and the alpaca market are alike in the following ways: (1) They
are subject to capital gains taxes, if held a required amount of time,
and (2) They can both be traded as tax-free exchanges. They are,
however, different in many more ways: Alpacas, (1) Are insurable, (2)
Are tax depreciable over a five-year period, (3) Make their owners
eligible for a section 179 deduction, a small business deduction for
capital assets and, (4) Offer a lifestyle which is both peaceful and
profitable. The Stock Market, doesn't offer any of these benefits! If
you breed and raise your alpacas on your own property, your land is
usually taxed at much less as a farm than it would be ordinarily,
stocks don't lessen your land tax burden. If your stock splits on the
market, you have more stock that is worth the same amount of money as
before. If your alpaca dam has a cria (baby), you have two alpacas that
can be worth twice as much. Through careful breeding, you can increase
the value of the offspring of your starter stock. There is nothing you
can do personally to make a stock go up in value. When you own your own
alpaca herd, you are in control.
As always, we advise potential alpaca purchasers to consult with their own tax consultant on any investment considerations.
THE NUMBERS GAME
Approximately 99% of the world's 3 million alpacas are in Peru, Chile and Bolivia. The world market has been expanding dramatically and today one can find herds in Australia, Europe, Canada, and most recently in South Africa. In the U.S. we have alpaca ranches in almost every state and the national herd is growing by about 30% a year, according to the Alpaca Registry. AOBA (Alpaca Owners and Breeders Association) estimates that the number of alpacas will double in another five years. The scarcity of alpacas is based on their slow rate of reproduction! Usually females give birth to one baby at a time with a gestation period of 11 months. Because of this slow reproductive rate, it will take a long time to drive the price of breeding stock down and top animals will always bring top dollars. Importation of alpacas from South America is difficult, expensive due to quarantine restrictions, and the Alpaca Registry has been closed to new imports since December 31, 1998. Unregistered alpacas are available, but their resale value is only consistent with pet quality pricing.
Alpaca stock prices are holding very well in today's market. A female can sell from $12,500 to $40,000....and more. At auction, the all time top selling herdsire recently sold for over $500,000, with a $25,000 to $200,000 range being more common for productive males. Only the best males are used and this policy is vastly improving the overall quality of the U.S. herd. Stud fees range from $1,000 to $5,000 and going up.
While selling stock is the main income and profit line in alpaca ranching today, the future profitability lies in their silky, durable, water-resistant and highly insulating fleece...high quality, luxurious fabric which is often used by top designers and design houses. Fleece pricing, depending on color and quality, sells from $2 to $8 per ounce in the U.S., primarily to fiber artists, but certainly the fiber co-ops are viable destinations for clips as well. Each alpaca can produce five to eight pounds of fleece per year, enough for several sweaters. The end products of alpaca fiber are expensive and rightly so as they can last a lifetime. A man's sweater, for example, can be made out of one pound of yarn worth about $40. It might cost $100 in labor to spin and weave or knit the sweater, and the sweater can be sold for $400. A top designer might charge in excess of $3,000 for a man's suit.
As an alpaca investor, you can either be active, i.e. you are hands on with the alpacas residing on your own land, or you can be passive, i.e. you can agist (board) your animals at someone else's ranch where they take care of your investment as it grows. As an active investor/breeder you can depreciate a male or female alpaca used for breeding purposes over a 5-year period. Breeding stock is considered a capitol asset. Income derived from the sale of capitol assets is usually taxed at a lower rate than that of income derived from other sources, such as regular earnings. Any expenses a breeder incurs, such as feed bills, veterinary bills, and any other costs associated with the raising of your alpacas are deductible. The active breeder has the ability to depreciate tangible property, such as barns and fences and breeding stock.
An alpaca ranch may also generate taxable losses that may be used to offset taxable income from other sources. A good way to look at your alpaca investment is as tax-deferred wealth building. A passive or active breeder can purchase several alpacas and allow the herd to grow without paying income taxes on the increased value of the herd. The passive investor who agists his animals will have different tax advantages from the active rancher, but they are still quite attractive...the main difference being that you will hold all of your expenses incurred in the raising of your herd to be used as deductions against your profit until such time as you sell the alpacas.
It is suggested that you get a copy of the IRS publication #225, The Farmers Tax Guide, for further information on taxes and livestock. And again, a consultation with your accountant or tax advisor is advisable when purchasing alpacas, as with any major investment you might be considering.
Potential Sources of Income
- Sale of your own alpacas
- Breeding and stud service
- Sale of fiber and/or ready made garments - sweaters, hats, scarves, mittens, hats, etc.
- Agisting (boarding) other owners' alpacas & pertinent services
- Marketing and selling other owners' alpacas for commission
- Alpaca by-products, such as black gold (alpaca poop!)
- Alpacas are easy care, sturdy animals with delightful natures.
- People usually purchase alpacas for either one or both of these two reasons:
- Financial Investment
- Lifestyle Investment
- The worldwide demand for alpacas and their fiber has been strong and has continued to increase yearly - the demand for these animals exceeds the supply.
- As with most investments, there are potential risks, such as an injury or illness leading to death. These are limited risks, and since there is livestock insurance policies available, it is always recommend that the new investor utilizes this insurance until they have made back their original investment on each animal.
- In order to create the optimum herd growth possible, it is recommend that the first-time buyer purchase as many quality, bred females as their budget and marketing plan will allow.
- Breeding alpacas and nurturing these gracious animals can be as enjoyable as the profits they can create for the breeder. You will hear a lot of alpaca breeders say that they would rather raise alpacas than anything else they have ever done before.