Who Buys Alpacas?
Alpaca breeders come from many walks of life. Increasingly, alpacas are becoming an important source of income for many people. Entire families are full-time alpaca breeders. Young couples with children might own three or four alpacas and enjoy caring for them. Retired couples, who have raised their kids, sold their business, and retired to the country, are often owners. The family whose members include a hand-spinner might own two or three animals for fiber production. Several breeders are veterinarians who have found the ownership of alpacas to be more rewarding than practicing veterinary medicine. Many herds are owned by families where one spouse has a city job, and the alpaca business is managed by the other on their acreage in the suburbs or the country. A large number of breeders are working couples who tend to their herd in the evening after work. There are even city dwellers who have discovered the option of boarding (or "agisting") alpacas, thereby giving them an operational alpaca operation while still retaining an urban career. For all owners, alpacas offer a great way to diversify their financial portfolio with a commodity that is both rare and in demand worldwide.

There are few large ranches with over 500 alpacas, small ranches of only two or three alpacas, and everything in between. The average alpaca herd consists of about ten to twenty alpacas. Most herds start out small and grow to the size that fits the breeder's ranch and financial goals.

Almost all breeders are in business for the long haul; they believe in the future of the industry. With the relatively small number of alpacas currently available, there will be an extended and steady demand for breeding stock to continue meeting the needs of our growing industry for many years.

It is important to recognize that alpaca ownership has inherent risks, as do all livestock and financial assets. You should talk to breeders to familiarize yourself with the risks as well as the rewards of alpaca ownership
 

Alpaca Supply and Demand
The market for alpacas has been moderated by the effects of relatively slow herd growth. As of early 2004, the total population of registered alpacas in North America accounts for about 50,000 in the United States and about 15,000 in Canada.

Supply will continue to be limited in the near future for a number of reasons:

Alpacas reproduce slowly. A female generally breeds for the first time between 18-24 months of age, is pregnant for 11-12 months, and almost always only has one cria per year.

Many breeders retain their offspring to build their herds.

The limited size of the national herds in each country outside of South America will restrain growth to a small degree.

The U.S. alpaca registry is closed to further importation to protect our national herd, which will further moderate U.S. herd growth.

Meanwhile, demand for alpacas has increased dramatically every year since their introduction outside of South America (1984). Not only are there more breeders entering the alpaca market each year in established countries such as Canada, New Zealand, Australia and the U.S., but there are more countries worldwide also actively establishing alpaca herds. This growth is sure to continue as the alpaca gains international recognition.

Alpacas offer an outstanding choice for livestock ownership. They have long been known as the aristocrat of all ranch animals. Most of all, alpacas have a charismatic manner, they do very well on small acreage, and they produce a luxury product which is high in demand.
 

Alpaca Values
An alpaca rancher with a small herd on a small acreage can expect to harvest his animals' fleeces and sell their offspring profitably. The value of alpaca fleece and finished products made from that fleece is the economic underpinning of the future market for alpacas. Breeders outside of South America are beginning to organize fiber co-ops for the commercial processing of the fleece. Domestic fiber is often sold to cottage industries that revolve around hand spinning and weaving. Each animal will produce around three to ten pounds of fleece a year. Alpaca ranchers sell their fleece in a variety of ways including raw fiber, washed and carded fiber, yarns, and finished products, with lucrative margins. Profits or fiber production vary based on each farm's model for fiber sales.

The current alpaca industry is based on the sale quality breeding stock, which commands premium prices. Female alpacas usually begin breeding at between 15 months and 18 months of age, while most males can successfully impregnate (or "settle") a female at about three years. The females produce one baby per year (twins are uncommon) during a reproductive life about 10-12 years.

Factors that influence individual alpaca prices include color, conformation, fleece quality and quantity, age, and gender. Females sell for more money on average than males, but herd sire quality males have historically commanded the highest individual prices. Breeders often prefer one alpaca color to another, however the parents' color does not necessarily guarantee a cria of the same color. There are many accepted theories regarding alpaca color heritability, and more research is needed to further our understanding of this issue. Of more importance to most breeders is the overall physical soundness, or "conformation" of the animal. In addition to color, fleece, density, uniformity, fineness, luster and staple length will also affect value. Well-conformed alpacas with superior fleece characteristics sell for higher 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 in excess of $150,000. (The current world record, set at auction in 2002, is $265,000).

Many breeders start with several breeding age females and perhaps one male. Other new breeders may elect to start with several young animals or a breeding pair. There is an approach suitable for your level of interest and financial position. Alpacas are much like diamonds. The market pays a premium for the finest examples of the breed, and a beauty is also in the eye of the beholder.

Another benefit of owning alpacas relates to the concept of compounding. Savings accounts earn interest, which if left in the account, adds to the principal. The increased principal earns additional interest, thereby compounding the investor's return. Alpaca breeders also witness the effects of compounding over time. Alpacas reproduce almost every year, and about one-half of their babies are females. When you retain the off-spring in your herd, they begin producing babies. This is referred to as "alpaca compounding."

Tax-deferred wealth building is another "alpaca advantage". As your herd grows, you postpone paying income tax on its increasing value until such time as you begin selling the offspring. Most breeders elect to sell all or some of the annual offspring production for practical reasons, such as recovering their initial cash flow, acreage and building limitations, and time constraints.

Alpacas are also fully insurable against theft and mortality. Insurance can be purchased for your stock regardless of age. Average insurance rates are 3.25% of the value of the animal, or $325 for every $10,000 of insurance.
 

Hands-On Alpaca Ownership
There are essentially two ways to own alpacas. The first approach is to simply purchase the animals and begin raising them. The second approach is to purchase the animals and place them in the care of an established breeder. This arrangement for care and boarding of an animal on behalf of another is known as agistment. Under this method you, as owner, typically would still make the important decisions about care, breeding, sales, etc.

This discussion will focus on the owner-raised scenario. Many breeders will work with you to develop an analysis designed for your particular situation; however, you are encouraged to independently develop your own financial analysis utilizing professional support if necessary. Expenditure of funds warrants a full assessment of risks. The buyer needs to establish a comfort level that this is the right balance for their lifestyle.

Analyzing the feasibility of alpaca ownership requires making a set of assumptions. Determining the costs associated with raising the animals and how much they might sell for in the future are the basic elements used in projecting a return on the investment. The assumptions found here are estimates based on many breeders' experiences.

The hands-on method of raising alpacas, as either a part- or full-time business, requires that the alpaca breeder own a small ranch or acreage. The property would need to be properly fenced and have a small barn or shelter. Many new owners already have outbuildings suitable for alpacas. The alpaca owner is presumed to supply the day-to-day labor

Many new buyers start with a breeding pair or two females (and purchase stud services). The financial returns are similar at different ownership levels, so don't feel that you have to be a large ranch to participate.
 

Financial Observations (from AOBA)
The major tax advantages of alpaca ownership include the employment of depreciation, capital gains treatment, and if you are an active hands-on owner, the benefit of off-setting your ordinary income from other sources with expenses from your ranching business (See Tax Consequences of Owning Alpacas.)

The financial return using the agisted approach, should you elect to board your animals, is also very good. There are breeders who would be happy to discuss agisting alpacas on behalf of prospective owners.

Quality, color, gender of offspring, and strength of the overall industry could influence results positively or negatively.

It is important that you make a purchase decision using assumptions that reflect your personal tax and financial situation, as well as your own assessment of the alpaca industry.

Financing terms are available from some breeders and range from a few months to two years or more.

It is always wise to consider both the upside and the downside of any potential purchase, It is important to feel comfortable with a range of possible financial returns if your actual experiences differ from your assumptions.
 

Alpaca Purchase Contracts
Every purchaser should require a written contract when acquiring an alpaca. A typical contract will call for a veterinarian exam certifying the alpaca's health at the time of purchase. Other clauses might warrant that a breeding male will, in fact, settle females and that he is not sterile as a condition of birth. A contract for purchase of female alpaca will often warrant that she is anatomically complete and capable of producing live offspring.

Contracts will specify the financial terms involved and include small details such as who delivers the animals. It is important to know what happens if there is a future problem with the alpaca that you purchase. For instance, a young male could grow up to be sterile. This condition may not be known for one or two years after purchase. Most breeders will agree to replace the animal if this happens.

Contracts are important so that all the elements of a purchase can be accounted for. It is also important to deal with a breeder of good reputation, one who will provide follow-up care. You are making a large purchase when you buy alpacas and it's important that you feel good about it.

Many alpaca owners who have been involved in the alpaca lifestyle have found it both personally and financially rewarding. Please recognize, however, that owning alpacas involves significant financial risks, as does any business start-up. Your ultimate success will be determined by your own ability to market your animals: your fiber and finished goods: your employment of available resources within the alpaca industry: your communication skills: and your ability and willingness to provide top-notch customer service that results in a good reputation. Although this article discusses techniques that many people have used to make alpaca breeding a profitable business venture, it is, of course, impossible to guarantee the ultimate success of any business.