Investment Potential

Introduction

Why do people in so many countries call alpacas the world's finest livestock investment? Quite simply, it offers an extremely high return on initial investment and requires a relatively low level of maintenance for the herd. Around the world, alpacas are in strong demand, and people pay high prices for them. They are scarce, unique, and the textiles produced from their fleeces are known in the fashion centers of New York, Paris, Milan, and Tokyo. Most alpaca ranchers can expect profitability from fleece and offspring sales with only a small herd on a small acreage.

Investment Benefits

Fleece sales are an excellent source of revenue for the starting rancher. At market, this top quality fiber equates to high dollars as each ounce brings $2 to $5 considering that each animal produces five to eight pounds of fleece per year. Wool co-ops for the commercial processing of alpaca fleece are currently being organized. Many breeders sell their alpaca fiber to local artisans for handspinning and weaving.

While alpaca fleece brings a good portion of revenue to cover initial investment and provide some profitability, the alpaca industry thrives on the profitability in sales of top quality breeding stock. Sales of high quality male and female alpacas demand premium prices. Female alpacas reach maturity between 14 and 18 months of age producing approximately one baby per year during a reproductive life of about 20 years. Male alpacas have a longer maturing period, usually lasting around 2 years.

The characteristics that determine the value of an alpaca include:

• Age
• Sex
• Color
• Bloodlines, heritage
• Fleece density, uniformity and fineness
• Texture
• Amount of fleece individual produces
• Animal's demeanor and conformity

Typically, female alpacas bring a higher market price than males due mostly to their vital role in herd growth. However, males of herdsire quality command the highest individual prices.

Alpaca Prices

The range of value for females has remained fairly consistent during the two decades that alpacas have been available to the public in North America: generally between $12,000 and $25,000. Females with unique attributes have been known to sell for $50,000 or more. Proven, top-quality herd sires typically sell for $20,000-$50,000, and the highest quality males with unique characteristics or exceptional offspring on the ground have sold for prices greatly in excess of these. (The current world record, set at a private sale in the fall of 2005 is $600,000US for a huacaya herdsire.)

Alpaca Compounding

Alpaca compounding is another term defining the growth of your alpaca herd. Basically, it works the same as compounding interest on any financial investment. The following graph is provided as an example of how this takes place in an alpaca herd over a ten-year period. The initial investment for this example is two males and five pregnant females, and assumes an 80% reproduction rate and offspring consisting of half males and half females. Alpaca livestock investments are separated from any other investment opportunities because of this exceptional rate of appreciation.

Click on the graph to see a bigger version

This graph effectively communicates the growth potential of alpaca compounding. However, most breeders will sell some of their annual offspring rather than hold on to all of them as this example illustrates. Keeping only a few of the offspring per year will surely slow the herd’s growth, but it will permit the investor to recover his start-up costs and generate profit faster than with fleece sales alone.

The following are some typical startup costs to give you some idea of what to expect. Unlike other investments, alpaca ranching has an inventory that you must maintain in order for your investment to produce at its maximum potential. Most of this inventory is little things needed to take care of the livestock, such as, shears, lead ropes, halter and other miscellaneous items. The largest inventory items include a barn, fencing, feed, insurance and a veterinarian reserve.

Typical Startup Costs:

Tax Benefits for the Alpaca Rancher
Another advantage of Alpaca breeding is tax-deferred earnings. By holding annual offspring, you allow your herd to grow in size and value while avoiding the need to pay income tax until you decide to sell them. Also, if you are raising these gentle creatures yourself, and doing so actively for profit, all of the expenses associated with the upkeep of the herd can be written off against your income. You can include all of the expenses accumulated as well as depreciation of barns, fences and breeding stock.