Silver Thunder Alpacas presents:
Alpaca Financial Information

Financial and Lifestyle Rewards

People are drawn to the amazing alpaca for two reasons: Financial investment or lifestyle upgrade. Or both. There are a lot of places you can invest your money to try and grow it. Alpaca breeding is one of them. And it’s generally just a whole lot more fun. You can’t run your fingers through the luscious softness on the side of the neck of your stock portfolio. But you can stand in the shelter that you built with your own hands as you watch the sun rise through the mist on a frosty spring morning, alpacas milling about you, while you vaguely remember once upon a long time ago seeing a sun something like that through your car’s windshield as you waded through six-lanes-wide stopped traffic on the morning commute. Such are the lifestyle rewards that go beyond the financial.

But the cool part is that, even though it’s more fun, you really can make money at it. As with any investment, there’s risk involved. It’s certainly not a sure thing. But the potential is strong. It’s a growing industry. There have been alpacas in the country for 20 years now, and the numbers go up every year. More animals, more breeders, more farms, higher prices.

Desirable Females Bring the Highest Prices

A female alpaca, because she’s breeding stock that can make more little alpacas, can sell from $8,000 to $40,000 depending on the qualities of her fleece, conformation, demeanor, mothering skills and parentage. You can buy an animal with lower qualities for a lower price and “breed her up” to produce offspring that can sell for a higher price. We also remind folks that when they buy that $15,000 to $20,000 female alpaca, they are usually getting two or three alpacas in that purchase price, as the girl will be sold pregnant and can come with a breed-back included that will produce a third animal.

Boys On the Side

Boys usually sell for less. A “fiber boy” who is not herdsire quality will go from $1,000 to $2,000. With higher qualities of fiber and conformation come higher prices: From $4,000 to $10,000 for a Junior Herdsire with the potential to become a future breeder. If you have one with OUTSTANDING qualities the price goes higher. If they’ve put babies on the ground the price goes up even more. Excellent proven alpaca herdsires can sell for $20,000 to $50,000. Don’t think of this as common. An alpaca of this quality is hard to come by, hence the high price. Only the best males are used in breeding, the top 10%, as we are all trying to improve the quality of our own herd specifically and the North American alpaca herd in general. So most males will not fetch huge prices. Nevertheless, top-of-the-line ultra-elite herdsires can sell for hundreds of thousands of dollars. In the year 2000 the top-selling male in the country went for $200,000. In 2004, the highest selling herdsire auctioned for $500,000. In 2005 it was $600,000. In 2006 it was $750,000 for half interest. These astronomical numbers are not normal, certainly not readily available to most folks and should not be expected, but they do show that the alpaca market is growing and that smart people are getting involved because they can make a return on that investment.

Growing Demand

Alpacas were first imported into the US in 1984. There were only a few owners in those early years, less than two hundred. In the year 2000 there were two thousand alpaca farms and ranches in the United States. Now, in 2006, there are more than four thousand. More people create higher demand for quality animals. More demand creates higher prices. The demand stays high because more and more people are looking to change their way of life. Maybe they’ve sold a business to make that change. Or maybe they’ve bought property with their retirement earnings and are looking for “something to do with this acreage I’ve got.” But they hear about alpacas and they come looking. And they buy, just as we did.

Controlled Risk

You control your own rate of growth. And your rate of risk, too. You can chase this as far as your comfort zone allows. On the low end, you can buy just one animal and pay someone to raise it for you (called agisting or boarding). That’s how we started when we just owned a small tract home with no room for livestock, yet still wanted to get involved in the alpaca business. Or you can start with a couple of fiber boys and learn how to care for them before taking on more animals. Some might just want a few carefully chosen females to create babies that can be sold each year, thereby keeping their herd size consistent. Others might keep the majority of the crias born each year and steadily increase the number of alpacas on their land with the goal of achieving a large herd at some specific point in the future. And there are those who want to go big and purchase a large herd right off the bat. It’s all very tailorable to one’s personal goals and comfort level.

Tax Benefits are Attractive

These are immensely helpful to the alpaca breeder because you now run an agricultural business. Even if you only have two animals, the IRS considers you a working farm if you can show a profit in at least three out of every seven years. And since you are a farm, you are able to file Schedule F and claim any and all expenses that accrue each year. In fact expenses generated by an alpaca operation can be used to lower any income from other sources (such as a job) by deducting them right off the top. This can be REAL handy at tax time.

Expenses include anything you spend on the farm: Breeding stock (alpacas), feed, hay, seed, fertilizer, equipment (buckets, tools, tack, fence panels, scales, chutes), hardware (nails, wire, rope, water hydrants, pipe), vehicles (trucks, tractors, trailers), farm implements, fuel, fencing, barns, shelters, work clothes (up to $4,000 per couple), repairs and maintenance, breeding fees, vet costs, show fees, travel expenses, insurance, office supplies (including computers), advertising and promotional costs.

In addition to the write-offs from these direct expenses, there are extra tax incentives in current law that allow large-expense items (“capital expenditures” in tax lingo) to be taken all at once in the current year rather than depreciated over succeeding years. Called “Section 179 Deductions”, these can assist in the write-off of very large expenses (such as the purchase of alpacas or barns or vehicles) that are used in the business. Up to $108,000 in a single year. That’s a really big deduction. Very useful if you have a lot of income to offset.

But you have options. If you don’t need the big write-off this year, but wish to save those expenses towards write-offs in future years, you can choose to depreciate some of those big expenses. Depreciable property can include such things as agricultural structures (barns, sheds, shelters), fencing, farm machinery, equipment, vehicles and water wells. For instance, the purchase of an alpaca can be depreciated over five years if you’d like. (It’s nice to have the choice: Depreciate or not.) But here’s the beauty of it: After five years of depreciation that alpaca still has it’s value. It can still breed for another ten or fifteen years. Compare that with a car, where once depreciated as an asset, it no longer holds much value. The car is worn out and broken, but that alpaca, just coming into it’s prime, is still chugging on like the energizer bunny.

Alpacas are a Tax-Deferred Investment

A tax professional might call this “compounding your investment via tax deferment to increase asset valuation” or some such thing. Actually it’s a really good thing. It means that you can breed female alpacas to make more little alpacas and the government won’t ask you to pay any new taxes. You can grow the herd for years if you want and there won’t be any taxation on it even though the herd continues to grow in value and be worth more each year. You won’t have to pay anything for the increased value of your herd until such time as you actually sell an animal from it. Then, when an animal is sold, taxes are paid on the income generated by that sale just as they would with any other business transaction. Less all eligible deductions and farm expenses for that year, of course. (See above for description of the many tax deductions available.) Here’s the good part: Any gains are taxed at the lower capital gains rate.

Big fat tax disclaimer: Please remember that we are not tax accountants, so be sure to check with your tax professional to see how these many tax benefits can be applied to advantage in your own personal situation.

An Investment That Grows

When your stock splits, you have twice as much of it that’s still worth the same amount. But when your pregnant alpaca gives birth to a beautiful female cria, you’ve just doubled your original investment. Doubled your income potential. Doubled your fun.

An Insurable Investment

You can’t insure your stock portfolio against loss, but you can with livestock. We recommend that anyone buying an alpaca get it insured with full theft and mortality insurance. It’s a way of lessening the risk. Costs you 3% of the animals value to gain some peace of mind. Once you’ve sold enough animals to make back your original investment, you can scale back the insurance cost, either by lowering the claimed value of each animal or by selectively choosing which animals from your herd to insure.

Livestock are an Historical Measure of Wealth

Throughout most of the history of mankind, one measure of personal wealth has been the size of one’s livestock herd. Counting one’s animals has been a way of tracking personal accomplishment from the dawning of civilization all the way up through this very morning when our neighbor counted out his sixteen cows to see that all were well, as he does each and every morning.

 

Some Historical Perspective on Alpacas

It's not just a new fad. Alpacas have been around for thousands of years. They are thought to be perhaps the world's oldest domesticated animal, with records going back 6,000 years. The recent imports into the United States, going back just twenty years, are a mere drop in the bucket in comparison. So any discussion about the long term worth of these animals has to take into account their lengthy history in the world. Here are a couple of examples of how the existence of these soft, fuzzy and generally peaceful creatures has been the source of major economic change. Surprising as it seems, our lovable alpacas have been involved in violent clashes between cultures. And on the positive side, alpacas have also caused serendipitous life-changing events that created whole new careers.

Alpacas in Global Economic History

In South America, the early Incas considered their alpacas as reserved for Royalty. The fiber considered so special in its luxurious softness that only Kings and the Royal Family could wear it. The count of the King’s herd being a measure of his power and wealth, eventually the entire economy revolved around the alpacas. (Well, that and the fact that the Incas were really brutal and slaughtered any other tribe that got in their way. Oh, but I digress... back to the nice story about the alpacas.) Later cultural changes allowed each family to raise their own herd as their primary source of warm clothing and sustenance. With the coming of the Spaniards came strife and conflict as the Conquistadors attempted to subjugate the native people by destroying the Incan way of life and their entire economic system. It seems the plan was to strike at the heart of that economy by killing all the alpacas.

Beyond just conquering the native peoples there was an additional “benefit” to the Spanish explorers in exterminating the alpacas. Recognizing the qualities of softness and warmth in the alpaca fiber as a keen source of competition for their own herds of the then-newly-developed Merino Wool Sheep (the first soft wool in Europe), they were motivated to eliminate the alpacas for economic reasons: They wanted to corner the world’s fiber market. Their attempt to wipe out ALL the alpacas nearly succeeded. But the few remaining Indians retaliated by moving the even fewer remaining alpacas high up into the Andes Mountains to hide them and keep them out of reach of the marauding Spaniards. The herds that had once numbered in the millions were now decimated and counted only in the thousands, perhaps only hundreds. But the alpacas were saved. Grown back slowly over time by native families, alpaca herds in the Andes regions of South America now number in the millions again. More than three million are grazing in Peru, Bolivia and Chile. And large mills process the annual cut of alpaca fiber, producing high end clothing goods and forming a major component of the western South American economy.

But that's not the end of the alpaca's involvement in South American cultural clashes. In recent years (throughout the 1970's and 1980's) there were again deliberate attempts to assassinate the alpacas. This time by the Shining Path Guerillas in their insurgency against the established governments. As a way of forcing locals to take their side, the guerillas made it part of their terror campaign to destroy alpaca herds in small mountain villages. (A larger part was trying to kill civic leaders or any other brave soul who stood up to them.) While these intimidation and extortion attempts succeeded for a while, eventual backlash against such brutality led to dissatisfaction with the group and the rebellion has since been effectively quelled. The alpacas were saved once again.

Alpacas in European Industrialization

And now for a happy story. In the mid 1800’s, at the heart of the industrial revolution, the man who eventually became known as Sir Titus Salt made a huge impact in the alpaca world by importing Peruvian alpaca fiber to England and establishing an alpaca textile manufacturing empire. It’s a very interesting story, worth investigating on one’s own, but the short version is: He built an entire city based on the alpaca and their wonderful fiber. Saltaire was his model community built on the River Aire in West Yorkshire in central England to showcase his massive textile mills and house all their workers. He developed specialized machinery and processes for blending alpaca with cotton and other fibers, forming a smooth and lustrous fabric that became all the rage in the Victorian culture of his day. Creating this unique niche for himself brought him to the forefront of the competitive textiles trade and eventually earned him fame (including knighthood and a baronet) and a huge fortune.

You can read his story for yourself. His original biography was written by his close friend Reverend Robert Balgarnie in 1877, ten months after the death of Sir Titus. "Balgarnie's Salt" is downloadable on the web for free as a PDF file. Did I mention that it's FREE. (A paperback book with modern commentary added is also available for purchase at the same web link):
http://www.saltairevillage.info/saltaire

It's a cool story. Would make a great movie. My favorite part is where he happens upon some bales of alpaca fiber by accident in the wharves of Liverpool, takes some home for testing, and sets in motion the magical events that would change his entire life.

Here are some links to Saltaire and to Sir Titus Salt:

Brief History of Sir Titus Salt
History of Saltaire
Timeline of Sir Titus and Saltaire
General info on Saltaire: Scroll down for short timeline of Sir Titus and Saltaire
County site about modern day Saltaire
Contemporary Saltaire Village Website:
Interesting Artistic Note: The David Hockney Museum is located in Saltaire, as he was a native of the nearby town of Bradbury (where Sir Titus was once mayor). See links in above site.

 

We'd love to have you come visit the alpacas of Silver Thunder.

Please feel free to call or email and we'll be glad to arrange a visit at a time that suits you best. C'mon over. You'll have a great time.

Thanks again for visiting,
Chuck and Nancy

Silver Thunder Alpacas
Making great alpacas in Greeneville, Tennessee
Pure Bred and Hand Fed!

 

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Proud to be an American.

 

This page last updated 2/1/07