Seedstock vs Commercial

At the Snowmass 2010 auction, they do it again with a record breaking sale for an alpaca male. Matrix sold for a whopping $675,000. Total proceeds of the sale were $2.1 million.

Doing my research before jumping into the alpaca business 8 years ago, I was curious to see why the alpaca industry did not follow the same model as most other livestock. Alpacas seemed to have no "commercial" animals. In most livestock models, there are 2 types of animals; seedstock and commercial. Seedstock animals will always sell for a premium price because the will advance the breed. One recent example is "Missy the cow", who sold for a record breaking $1.2 million at auction in Canada last November. Missy is considered an advancement because of her milk production, conformation and overall advancement over her lineage. Most commercial cows that are sold/bred for milk or meat can be picked up for a few hundred dollars. Other examples of this can be found in all livestock industries, horses, pigs, goats and more. Typically in any livestock industry, there is a "pyramid" distribution with seedstock at the top. Seedstock typically accounts for 15 - 20% of the overall population.

So why, you may ask has that not yet happened in alpacas? My theory stems from the fact that most alpaca breeders are not from livestock backgrounds and often breed on cuteness or emotion instead of cold hard facts like EPD (expected progeny differences). EPD is an estimate of the genetic merit of an alpaca for a single trait. This could be fiber quality, birthing ease, cria weight and many more.

I believe as the national herd becomes larger, we will see a clear delineation between commercial and seedstock animals and BOTH have their rightful place in this industry. Seedstock animals will go on to advance the industry in terms of fiber production and conformation and commercial animals will advance the industry in terms of a viable commercial fiber product.

I don't think there is anything new or amazing in my blog post here, just maybe a reality check to all those folks who think their entire herd is made up of seedstock. I think many folks need to stop being "barn blind" and realize that as they look out at their herd - only 20% of them can possibly be seedstock - unless they are the luckiest breeders on earth!

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!!!






 

Wondering Where to Put Your Money? Go Back to Basics - ABC News

I found this video on line. It was on ABC back in October when the recession started to happen and the housing/mortgage market started to fall apart. Talks about alternative investments such as stamp and fine wine and ALPACAS!!

It is a good little PR item about alpacas. They are featured toward the end at time (-0:45).


Wondering Where to Put Your Money? Go Back to Basics - ABC News

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Herding Money??

Katie Couric had a great segment on Alpacas last night on CBS. Click here to read more.

Synopsis - more and more people are trading in their stocks and bonds for tangible, less traditional investments - like ALPACAS!

Alpaca Market and the Economy

I am sitting here (at midnight) reading the financial news after watching CNBC in the barn for part of the day . . .it is a crazy time for America. Banks failing, bailout plans and possibly a recession not seen in my generations lifetime.

My stocks are down, my real estate is devalued and I see small alpaca farms bailing out of the industry. Here is my take on it all . . . alpacas are valuable investments. They reproduce other valuable investments that can be sold or traded. They produce the most wonderful fiber that is such a pleasure to spin into yarn and then knit, weave or crochet.

Coming into a major election and the holiday season, the trends I see are that people are nesting. . .and they are continuing to purchase yarn and other alpaca items. I am selling more items then I did at this time last year even in this atmosphere of uncertainty.

So my advice to all is to ride it out, and look for other ways to add value to your business. Work with the fiber, buy yarn and other products from the co-op and resell it and above all keep advertising.

I am more positive than ever about the alpaca industry and will continue to help promote and educate about the "finest livestock investment" in the world. I love these funny little creatures!!

Btw - I am working on my economics masters and from all the signs 3 years ago in the financial and housing markets this was bound to happen and will be healthier for the country and economy in the long run.

Nite Nite --- sweet dreams!

Rose