At the end of February, a very important event took place… The Snowmass Auction in Phoenix AZ. Most of us breeders use this event as a barometer about the price of alpacas for the year ahead. Based on the results of this event, the future looks bright, solid and prices are coming back up.

Two years ago, February 2008, the auction sales price for quality alpacas was the lowest in our industries history. There wasn’t even a Snowmass auction in 2009. However, 2010 is a very different story.

One of the reasons… in their own words: “Double “O” Good Alpacas is thrilled to announce that we are the proud new owners of Snowmass Matrix! We purchased Matrix at the Snowmass Making of Champions-Genetic Advancement Sale on February 27, 2010 for a record-setting price of $675,000, the highest selling alpaca at an auction!”

As I listened in to the live auction over the computer, I noticed that several farms bid quite high for this amazing stud. As the bids went over the half a million dollar mark, the energy got franetic! Gasps were heard and the auctioneer could hardly keep up with the increase of the bids. The serious bidding farms just kept the prices going up and up. Finally it was all over and it seemed unbelievable to realize that the final bid was $675,000!… however, Double “O” Good Alpacas feels that his worth is “PRICELESS!”

The future looks bright not only for prepotent MATRIX, but for our whole alpaca industry.

Next time I’ll comment on the high prices paid for some of the alpaca females sold at the auction.

Do you have an opinion on the results of the Snowmass Auction of 2010?

Julie

PHOTO:
Holding the newly acquired MATRIX, are the proud new owners, Ernie and Barbara Kellogg from VA standing next to the sellers, Julie & Don Skinner of Snowmass Alpacas.

Have you wanted to start an alpaca herd or expand your present one?
Have you thought that the average prices for good quality pregnant females were just too high for you?
Have you talked about your dream to others only to have it disintegrate before it got started?

Benefits of Starter Packages:

• Multiple alpacas for a single reduced price
• A variety of bloodlines and colors to grow your herd
• A variety of age and experience levels of females
• Sometimes the seller will include a complimentary male companion, or one at a very low price
• Depending on the circumstances, the seller may take financing and boarding as part of the arrangement

Basically a breeder puts together two or more females at a discounted price if you buy them all. The combination gives you a variety to start or expand your herd. You could get an experienced dam along with a maiden, or possibly two or more different colors or bloodlines. Often due to the circumstances you are able to purchase multiple alpacas at a price equivalent to a single alpaca.

Five years ago we started our herd with 4 pregnant females. We chose to take advantage of starter packages of quality females at reduced prices from two experienced breeders. Their herd reduction became our gain. Our decision enabled us to get a head start on building our herd with experienced pregnant dams that were expecting within six months. One of the pregnant females came with a female cria at side. So our single price purchase was really a 3 in 1. I strongly believe that a start-up breeder benefits from purchasing experienced dams along with maidens. If you have never birthed a cria – the experienced dams will teach you. And that creates peace of mind like you wouldn’t believe.

Alpacas4Less.com selects good quality alpacas that are owned by breeders who find themselves in the need of downsizing for a variety of reasons. After I personally interview them about their herd history, breeding and birthing experience, the seller and I come to an agreement on the best price for the animals. We then put a group together to create a starter package and offer them to you, our preferred clients. The price to you represents a recent reduction of at least 40% off or more. Generally speaking this is less than the breeder sells them to their own clients.

If you are looking for a way to grow YOUR herd. I highly recommend looking into starter packages.

Julie

The answers to some of the most asked questions about alpaca ownership follow:

Tax Consequences of Owning Alpacas

Those considering entering the alpaca industry should engage an accountant for advice in setting up your books and determining the proper use of the concepts discussed in this article. A very helpful IRS publication, #225, entitled The Farmer’s Tax Guide, can be obtained from your local IRS office. The goal of this discussion of IRS rules is to provide the guidelines for discussion with your accountants and financial advisors so that you can be more conversant in the issues of taxation as they relate to raising alpacas.

Raising alpacas at your own ranch, in the hands-on fashion, can offer the rancher some very attractive tax advantages. If alpacas are actively raised for profit, all the expenses attributable to the endeavor can be written off against your income. Expenses would include feed, fertilizer, veterinarian care, etc., but also the depreciation of such tangible property as breeding stock, barns, and fences. These expenses can also help shelter current cash flow from tax.

The less active owner using the agisted ownership (boarding) approach may not enjoy all of the tax benefits discussed here but many of the advantages apply. For instance, the passive alpaca owner can depreciate breeding stock and expense the direct cost of maintaining the animals. The main difference between a hands-on or active rancher and a passive owner involves the passive owner’s ability to deduct losses against other income. The passive investor may only be able to deduct losses from investment against gain from the sale of animals and fleece. The active rancher can take the losses against other income.

Alpaca breeding allows for tax-deferred wealth building. An owner can purchase several alpacas and then allow the herd to grow over time without paying income tax on its increased size and value until he or she decides to sell an animal or sell the entire herd.

To qualify for the most favorable tax treatment as a rancher, you must establish that you are in business to make a profit and you are actively involved in you business. You cannot raise alpacas as a hobby rancher or passive investor and receive the same tax benefits as an active, hands-on, for-profit rancher. A ranching operation is presumed to be for-profit if it has reported a profit in three of the last five tax years, including the current year

If you fail the three years of profit test, you may still qualify as a “for-profit” enterprise if your intention is to be profitable. Some of the factors considered when assessing your intent are:

- You operate your ranch in a businesslike manner.
- The time and effort you spend on ranching indicates you intend to make it profitable.
- You depend on income from ranching for your livelihood.
- Your losses are due to circumstances beyond your control or are normal in the start-up phase of ranching.
- You change your methods of operation in an attempt to improve profitability.
- You make a profit from ranching in some years and how much profit you make.
- You or your advisors have the knowledge needed to carry on the ranching activity as a
successful business.
- You made a profit in similar activities in the past.
- You are not carrying on the ranching activity for personal pleasure or recreation.

You don’t have to qualify on each of these factors – the cumulative picture drawn by your answers will provide the determination. Once you’ve established that you are ranching alpacas with the intent to make a profit, you can deduct all qualifying expenses from your gross income.

If you are a passive investor, you are still allowed the tax benefits discussed below. The issue is whether you will be able to take the losses on a current basis. All the losses can be taken against profits or upon final disposition of the herd. The discussion from here forward presumes you are a cash basis taxpayer and you keep good records. Accrual basis taxpayers would also be allowed the same tax treatment, but their timing might be different.

First, the following items must be included in both a passive owner’s and a full time rancher’s gross income calculation:

* Income from the sale of livestock
* Income from sale of crops, i.e. fiber
* Rents
* Agriculture program payments
* Income from cooperatives
* Cancellation of debts
* Income from other sources, such as services
* Breeding fees

The following expenses may be deducted from this income. Please note, if you are agisting your animals, not all of these deductions may apply on a current basis:

* Vehicle mileage for all ranch business (IRS publishes current rate)
* Fees for the preparation of your income tax return ranch schedule
* Livestock feed
* Labor hired to run and maintain your ranch
* Ranch repairs and maintenance
* Interest
* Breeding fees
* Fertilizer
* Taxes and insurance
* Rent and lease costs
* Depreciation on animals used for breeding
* Depreciation of real property improvements such as barns and equipment
* Ranch or investment-related travel expenses
* Educational expenses, which improve your ranching or investment expertise
* Advertising
* Attorney fees
* Ranch fuel and oil
* Ranch publications
* AOBA (breed association) dues
* Miscellaneous chemicals, i.e., weed killer
* Veterinarian care
* Small tools
* Agistment fees

Please note: For hands-on ranchers, personal and business expenses must be allocated between ranch use and personal use; only the ranch use portion can be expensed for such expenses as a telephone, utilities, property taxes, accounting, etc.

Once active alpaca ranchers have determined their net income or loss, it is included on their tax return as an addition to or a deduction from their ordinary income. Losses can be carried back for three years and forward for 15 years. To deduct any loss, you must be at risk for an amount equal to or exceeding the losses claimed. The “at risk” rules mean that the deductible loss from an activity is limited to the amount you have at risk in the activity. You are generally at risk for:

- The amount of money you contribute to an activity
- The amount you borrow for use in the activity

The passive owner’s losses that are in excess of current income can be carried forward and taken against future income. In other words, the passive owner does not lose the deductibility of expenses, but the timing of the losses may be different.

All taxpayers must establish the cost basis of their assets for tax purposes. This basis is used to determine the gain or loss on sale of an asset and to figure depreciation. In determining basis, you must follow the uniform capitalization rules found in the IRS code. Animals raised for sale are generally exempt from the uniform capitalization rules, and there are other exceptions for certain ranch property. You need to become familiar with these rules.

Once you’ve established the cost basis of your various assets, you take a deduction for depreciation against your annual income. This process allows you to expense the historic cost of an asset to offset present income. The effect is to create non-taxable cash flow on a current basis. This benefit is especially attractive in an environment of higher taxes.

Alpacas in which you have cost basis can be written off over five, seven, or ten years if they are being held as breeding stock. There are several methods of writing them off, beginning with the straight-line method, which allows you to deduct one-fifth of their cost each year, except the first year, in which the code allows for only six months of write-off. There are also several accelerated schedules that allow for a larger percentage of the asset to be written off early. Alpaca babies produced by your females have no cost basis and cannot be written off, although they may qualify for capital gain treatment on sale.

Capital improvements to the active or hands-on alpaca breeder’s ranch can also be written off against income. Barns, fences, pond construction, driveways, and parking lots can be expensed over their useful life. Equipment such as tractors, pickups, trailer, and scales each have an appropriate schedule for write-off. The depreciation schedule for each asset class varies from three years to 40 years.

There is also a direct write-off (expense) method known as Section 179 that allows a substantial deduction each tax year for newly acquired items that are normally long-term depreciable assets. While this is subject to several limitations, it is widely utilized by small ranches to accelerate expense, if that is appropriate for your tax situation. Owners currently in high tax brackets who are changing their lifestyle in the next several years to a lower income level often use it.

The original cost basis of an asset is reduced by the annual amount of depreciation taken against the asset. Other costs add to basis, such as certain improvements or fees on sale. The changes to basis result in the adjusted cost basis of the asset. Upon sale, excess depreciation previously expensed must be recaptured at ordinary income rates. The recapture rules are a bit complex, as are most IRS rules, but the IRS Farmer’s Publication mentioned earlier explains them well.

When an asset is sold, for instance a female alpaca that was purchased for breeding purposes and held for several years, the gain or loss must be determined for tax purposes. If an alpaca was purchased for $20,000, depreciated for two and a half years, or say 50 percent of its value, and then resold for $20,000, there would be a gain for tax purposes of $10,000. In other words, your adjusted cost basis is deducted from your sale price to determine gain or loss.

Once you’ve determined the amount of a gain, you must classify it as either ordinary income or capital gain. The sale of breeding stock qualifies for capital gains treatment (excepting that portion of the gain which is subject to depreciation recapture rules). Any alpacas held for resale, such as newborn crias that you do not intend to use in your breeding program, would be classified as inventory and produce ordinary income on sale.

This discussion of tax issues omits a number of rules that could impact your taxes. Tax preference items, alternate minimum taxes, employment taxes, installment sales, additional depreciation, and other concepts of importance were not discussed. Whether we like it or not, this is a complicated world we live in: it often requires the assistance of professional accounting and legal assistance.

In summary, 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 the expenses from your ranching business. Wealth building by deferring taxes on the increased value of your herd is also a big plus.

When you give them a shower aim from the chest down

Alpacas love water – especially on a hot day. My females will stand in line to get their bellies hosed down. Then they wander off and find a cool place to roll, or lie in the mud, or bucket dance in their water pails.

 This regular ritual allows me to give each one a close inspection. I check for the changes in the udder, birth canal opening, body score and personalities. I also look at their toenails and any possible wounds or lesions. Because I control the flow of water, they let me get real close to them with no fear. If need be, I can catch one easily.

If you are going to give them a shower, keep the stream of water aimed at their feet and lower belly. This will prevent water from collecting in the fleece on their back and possibly generating a highly humid condition that could harm them.

Make sure that they always have shade throughout the day. This is especially important for the fully fleeced females in late term when the weather starts to turn warm. Even if you have just shorn your herd – they need access to shade in order to control their body temperature. And in humid parts of the country fans are a must to cool and circulate the air. (Alpaca Farm Girl from Fairhope Alpacas in Alabama shares some of her tips about keeping her alpacas cool over the summer – check out http://bit.ly/YVexP.)

Oh, remember the males! They love to have their bellies hosed too.

One of my “BIG BOYS” will rear up on his back legs – exposing his belly. When he brings his front feet down he does a “quick-step” and loves to splash me with mud as he rears up again. This dance continues as long as I aim the hose at his legs. I keep my distance with him because he also lunges quickly on those back legs towards the source of the water. (Allow time for changing clothes after this shower ritual … if you have a dancer like mine!)

Until next time.

As a species alpacas are more like cats than dogs and quite Intelligent.

When people meet alpacas for the first time – they observe gentle, curious animals with big doe-like eyes looking back at them. An initial question usually turns to their type of personality. My usual answer is that alpacas are more like cats than dogs.

Let me explain ten reasons why:

1. An alpaca will stand just outside your reach – until they get to know you.
2. An alpaca is curious about anything in the immediate surrounding – and will sniff it cautiously.
3. Alpacas learn their names and will come when you call them – or may not.
4. Alpacas like treats and can get comfortable eating out of your hand – their tricks are a bit limited.
5. Alpacas will run away if they get spooked – only to stop and turn around to see what it was that spooked them.
6. Alpacas are very intelligent and choose to return to the poop pile – usually in the same place – much like a cat uses a litter box. (My dogs have never made a pile and choose to use the whole back yard.)
7. Alpacas do not play fetch – like a dog. Instead they nibble with their split upper lip on the edges of “things”…
8. An alpaca female is very protective of her cria the first few days – then lets it explore the surroundings openly – probably glad for the break.
9. Alpacas take “cat naps” through out the day and night.
10. Alpacas hum to communicate much like a cat “meows”. It can be very quiet and comforting or…very persistent and annoying.

What are your experiences of “alpaca personality?” I invite you to give me your comments.