Tuesday, January 5, 2010

The Market for Alpacas

My graduate work was in Economics. Economics is not a pure science as there needs to be a little interpretation to make sense of the graphs and numbers, which is probably why I still find it more fascinating than another other subject I have studied in my life. 

I predicted this recession, the foreclosure crisis and the fall of the real estate market well before it materialized last year.  Within my circle of friends I am considered Nostradamus when it comes to the financial markets.   So when people ask me about the Alpaca Market today and in the future, I thought I would do some research and pondering and come up with my predictions for the future of the industry. 

Many nay-sayers would tell you that the alpaca market is a speculative bubble.   A "speculative bubble" is defined by Webster's as "A rapid but often short-lived run-up in prices that is caused by irrational exuberance, rather than the basic underlying fundamentals of the market."  Tulips in the 1630s and internet stocks in the 1990s are examples of this.  Both these events were short lived and prices went up rapidly and when the bubble burst prices came down even more rapidly.

Let's break down this definition into two parts:  
  • A rapid but often short-lived run-up in prices:  Alpaca prices have been stable for 15+ years in the United States and only recently have seen a decrease in price.  There was never a run-up in prices and the decrease has been gradual and not rapid by any means.  I attribute this both to the economic downturn as well as panic selling by smaller breeders who were not well capitalized from the start.  
  • Caused by irrational exuberance, rather than the basic underlying fundamentals of the market: Exuberance is what all alpaca breeders feel every time a cria is born!  However, irrational exuberance would not describe me or any of my fellow quality breeders.  There is a solid underlying fundamental in the alpaca market in the form of fiber.  My fiber and yarn sales account for a large portion of my overall income and even more so in this economy.   If  alpaca breeding for investment and livelihood was irrational, then so is every livestock and agricultural model in the country. 
In the stock market, right before a bottom happens often seen is a "capitulation event" which is evidenced by steep price declines on abnormally high trading .  I believe that this has occurred in 3Q09  in the alpaca business.   It seemed that everyday, someone else was dispersing a herd, needing to sell due to ill health or downsizing for retirement.    I was like come on, lets call it the truth!  I read between the lines in those email and read "I am scared about the future and I really want to sell these animals at any price now!!"   Those emails have stopped (bottom predicted) and those folks are no longer in the alpaca business.  Many new people got into the business by buying those dispersed animals for a good price and many other breeders took the opportunity to increase their herds for a song.   I am glad that those folks sold out because I believe in Darwin's theory of evolution"  "Only the strong survive".   Many people fall in love with the cute faces of these animals but never treat it like a business.

My predictions:

  • Prices will continue to stabilize in 2Q and 3Q 2010 and will be more realistic for the average consumer.   
  • Sales of breeding stock will increase in 2010 year over year
  • Sales of breeding stock will increase in 2011 and eclipse 2009 and prior years due to lower entry points and more "average" folks getting involved
  • Local and regional organizations will find creative ways to make showing more affordable for the smaller farm or risk not getting the participation enjoyed in the past
  • Newer breeders coming into the business in 2010 and 2011 will treat it as a business and make the industry stronger for that
  • Breeders will come together in more cooperatives in order to propel the fiber industry forward. There is gold in that fleece and we need to mine it! 
  • Auctions will no longer feature the best of the industry and will become a clearing house for lower quality animals

Please let me know your thoughts!!!



Offbeat Acres said...

I completely agree with your post. We are new to the alpaca business, and started in 2008.

At that point, prices were starting to soften. It was a great time to get into the business. We knew that it would be foolhardy to build our business plan around breeding. So, our business model was built around selling our alpaca fiber, related products, and produce from our orchard. Things have been okay.

Yes, I hope to make money from the breeding end of the business. We love having crias around, and I enjoy the competition and camaraderie of the show circuit. But, breeding is not the sole focus of our business.

It's been two years in a terrible economy, and I still love this business. Yes, it's hard work, but I believe we will be successful.

Rose Mogerman said...

Offbeat Acres already proves my prediction that newer breeders will treat this as a business and propel the industry forward!

Hats off to you Offbeat Acres!