ECONOMICS SUPPLY AND DEMAND

Since their initial importation in 1984, the average cost of an alpaca has increased annually thereafter.  The supply and demand for the alpaca is strong and has held steady, because compared to many other animals, alpacas reproduce slowly.  A female alpaca has one offspring for every 11-12 months.  Many breeders retain some offspring to build the size of their herds, thus further limiting the available supply.  Importation is the other ingredient; having been closed in 1999, which will likely remain closed for some time if not indefinitely.  The Alpaca Registry Index (ARI) has restricted the registration of alpacas born outside of the United States.  ARI is the only recognized registry for alpacas in the United States, with strong support from alpaca breeders to remain so.  Unregistered alpacas do not sell for very much, which motivates as a major driving force to acquire and breed only alpacas that can be registered by ARI.  Female alpaca crias typically sell for $10,000.00, weanlings at $15,000.00, and adult pregnant females running from $15,000 to $35,000.00 for superior quality animals.  Through very low supply and a rising-strong demand, high prices are justified and rational.  Many ranchers have returns of 30 to 100 percent on their alpaca investments, and sometimes even more. 

Breeding fees (stud fees) have also been holding steady or climbing over time.  Today it is not uncommon to see $3,000.00.  Generally fees range from $1,500.00 to $7,000.00 based on the experience, quality, and the notoriety of the herdsire.  A Male alpaca, typically called a herdsire or a sire, can sell for anywhere from $5,000.00 for an unproven junior, all the way up into the hundreds of thousands of dollars.  For example, half interest of Legacy, a nationally well-known herdsire, sold for $750,000.00 in 2006.  A superb male can transmit his genetic combination hundreds of times or even thousands over the course of his lifetime, whereas a superb female can only transmit her genetic package maybe 16 times or so.  In addition to the fact that male genetics can be more widely propagated, profit can also be made from offering stud services with a male alpaca.  These factors warrant higher market prices for males.

It is likely that prices will not remain at their current levels forever.  Presently the alpaca market is focused on breeding stock until enough fiber can be produced to meet the supply requirements of a commercial fiber market.  So sometime in the future the market should transition into a fiber producing industry, but for now profits are tremendous as the race is on to produce a base of superior fiber producing animals to build the future United States (U.S.) herd upon.  At this time I would like to mention that commercial fiber markets focus on white alpaca fiber, because it is typically your best quality and is able to be dyed in any color.  Natural colored alpaca fleece is more limited in its commercial textile uses, but often more desirable for smaller-niche commercial operations that target the segment of the population that values the absence of chemical dyes.  In the U.S. at this time many breeders are somewhat focused on increasing the quality of colored alpacas, which is limiting the number of the pure white alpaca population, and will in my personal opinion, delay the transition to a commercial fiber oriented market.

Alpaca fiber is world renowned for its incredible characteristics.  Demand for alpaca fiber and yarn is also strong.  It has very favorable characteristics to include light-weight, soft, luster or shine, and good strength.  Apparel made from alpaca fleece is the ultimate in comfort and warmth.

TAXES

As far as taxes are concerned, alpacas are a great shelter.  Production Alpacas (registered breeding alpacas which are considered a capital asset) are depreciable (subtracted from earned income via Section 179) over a period of five years.  Income obtained from the sale of ‘capital asset’ alpacas can fall under the eligible rules for capital gains income, which is subjected to a lower tax rate than regular earnings.  However, the income obtained from a pet/fiber alpaca and any item purchased for resale are counted as regular earnings.  The cost of items required for running your business can also be subtracted from earned income.  Veterinary care, feed, and many other costs associated with raising your alpacas, and growing your infrastructure can be deducted as either a capital item or an expense.  These beneficial tax rules extended to alpaca breeders further serves to increase the attractiveness of this business.  An excellent IRS tax code reference is Farmer’s Tax Guide 225.

CAPITAL GROWTH

Alpacas reproduce nearly every year, whereas on average fifty percent (50%) of the offspring will be female.  When a breeder retains those female crias, they can reproduce anywhere from 2 ½ to 4 years.  This is known as alpaca compounding.  Below is a chart you will find at www.alpacas.com.  It is actually more than a chart, it’s a tool that you can plug and chug your own numbers into.  For the purposes of this chart, 80% reproduction rate and 50/50 male/female offspring ratio are used.  The particular fictitious breeder scenario depicted in the chart below started out with ten pregnant females and two males.  You can see that by year ten, this breeder could have up to 135 females and 131 males if they retained all of their offspring.