Now Available – a recent update on
the Industry and it’s history – please e-mail us and
we will gladly send you a copy. mailto:info@canadianllama.com
LLAMAS - Yesterday, Today and Tomorrow
- FROM AN INVESTMENT PERSPECTIVE-©
by Kent Govett
The Canadian Llama Company
LLAMAS
I remember during the late 80's when I was first beginning to
raise llamas, it was great fun to mention the topic when out at dinner or a
cocktail party! There would immediately be smiles, chuckles and even fits of
laughter as people would exclaim "your raise WHAT????" What followed,
of course, was the usual questions as to whether "they spit don't
they?" and "what do you use them for? "Answering
these and satisfying the inevitable curiosity that followed would ordinarily
take up a large portion of the evening and everyone would go home with more
knowledge about these wonderful creatures!
Today, when I mention the same topic I invariably get a smile
and "OH are you ever lucky" accompanied by an envious look! You see,
llamas are much more widely known now and many people have had the opportunity
to see them on farms, at fairs, in parades or shows and perhaps out in the
woods packing for their owners or pulling them in a cart. All of this
popularity has come about hand in hand with the growth in the number of people
now raising llamas for a lifestyle or for profit. The lifestyle aspect is
covered in a separate article; this one will focus on the investment aspect of
raising llamas.
In all of the price examples I put forward, I have to concede
that there is a broad range above and below each of the dollar figures I have
suggested. Unlike other livestock such as cattle, where there is an established
"price per pound", it is much more difficult to place a fixed price
on a llama. Each has his/her own characteristics, color, personality and
suitability for the intended use and as such, may be worth a lot more (or a lot
less) to the intended purchaser. The prices given, though, do represent a
guideline and by applying a different price to the formulas presented you can
calculate a similar result - just the total dollar numbers will have changed.
Yesterday
Over a decade ago, almost every female llama sold within a
narrow price range. There were not many farms raising them and it was basically
necessary to get on the "list" in order to have the opportunity to
purchase a female when one came available. Pretty much all the Canadian females
sold here those days went for around $20,000.They all were quite similar in the
style of the "classic" llama and there were not many of the heavy
fibred "woollies" around. A llama was a llama and we were happy to
get one!
In the late eighties and early nineties, as the industry grew
and the number of animals became more prevalent, the price range evolved into a
three tiered structure similar to what we have today. There also developed
distinct "styles" of llamas which, unto this point, had not been in
existence in any numbers.
Today
The price structure today is made up of several levels. The price will depend on the type or style of
llama we are to look at and his/her fibre coverage,
quality of fibre, conformation, bloodline (pedigree)
suitability for use (packing/cart pulling, showing, breeding etc.) and the
promotion of his/her parents done by the farm he/she is being sold from. The
"classic" style llama has light or medium wool coverage, and is large
and athletic with adult females probably selling in the $4,000 range. A female
of this type could cost more if she is bred, and if so, how close she is to
having her baby (cria) will affect her price. The quality of the male she is
bred to and his "fame" are also
considerations. Yearling or weanling females of this style would sell for under
$2,000. Males that are trained to pack or pull carts will often sell for
several thousand dollars while we sell untrained pet quality companion animals
can be had for as little as $300!
Recently, we have noted a lot of interest in the use of llamas
for driving (cart pulling) as well as increased use as pack animals. This is
creating an increased demand for the athletic llama who
has both large size and stamina. The prices both for use and as breeding stock
for this type of animal can be expected to increase in the future. Animals that
meet the criteria of the driving portion of the industry should expect to see
their prices rise in the future both for the end use animals and particularly
for breeding stock. As this demand is very recent, the prices for this type of
male have not yet stabilized and continue to rise.
Another segment of the industry, features a style of llama that
has become popular – that of the heavy wooled llama. This
type of llama has abundant fibre on the body, legs
and head. He is quite different in appearance than his medium and light wool
brothers, but usually does not make for as suitable a working llama due to his
heavy fibre coat. Depending on the pregnancy
status/type of male bred to/expected due date etc., this
style of female llama can sell for $10,000 or more. Many have sold in the +
$30,000 range and the high selling female at an auction in 1996 topped $60,000!
The male llama of stud quality within this style of heavy wool
animal has been proven to be very valuable in the past. We personally have sold
several males at prices over $25,000 and parted with one of our Champions for
$65,000!
Diversity of choice both in the quantity of llamas available,
the varied bloodlines now evident and the diversity of "look" and
suitability for "work" offers new llama breeders a wide range of
choices and prices never before available. This gives the prospective new
breeder a unique opportunity to enter the industry from the perspective that
best suits his needs.
Tomorrow
With the use of a crystal ball one could predict with certainty
what the future will hold. Since I don't have one of those, we need to look at
other livestock industries, their history and development to see what we can
learn from them. There is no doubt in my mind that the demand for llamas will
continue to grow for any one of the reasons I have touched on previously. Llamas
continue to offer the lifestyle and investment opportunities to people from all
walks of life and will continue to offer "enrichment" to their new
owners.
As interest rates remain low and the returns from conventional
investments are modest, the attraction to raise llamas in a tax sheltered
fashion with high rates of return will remain one of the strong aspects of the
industry. With the advent of more selection, and increase in the diversity of
uses and realistic prices - llamas will continue to become an even more popular
animal.
FROM AN
INVESTMENT PERSPECTIVE
There are basically two methods of investing in llamas.
1.If you own land and raise llamas for the lifestyle and the
investment they provide - you would be an ACTIVE investor.
2.Ifyou own llamas that are managed by someone else on their land and
you do so strictly for the investment revenue - you are a PASSIVE investor.
Since the PASSIVE investor may have an almost limitless variety
of agisting arrangements with the person actually looking after his animals, I
shall concentrate on projections for ACTIVE investing - but would be happy to
discuss with you the logistics of an agisted
arrangement based on your own financial goals if you care to inquire.
ACTIVE :If you take the hands on approach and have the property,
you will be able to take advantage of some attractive tax advantages Revenue
If you can qualify for farming status, you will be allowed to
deduct expenses for the cost of the care, feed, veterinary costs, etc. to some
degree or another. The amount you may deduct from your other income will be a
function of your involvement as indicated above and may allow for full or only
partial (restricted) farm losses. In certain cases these losses can be carried
back or forward a number of years.
One of the basic concepts of any investment is the concept of
"compounding". If you were to purchase a G.I.C. for example, the
interest accrued would be added back to the principal as time went on and you
would earn interest on that original principal - plus the accrued interest.
Whereas you are required to pay income tax on interest received from Canadian
Corporations you may allow your "interest" (new baby llamas) to grow
tax deferred until they are sold. The most profitable scenario is of course
where this growth in the herd is retained to breed more llamas and the
compounding is greatly enhanced!
Llamas are considered "specified animals" under the
income tax regulations when registered as breeding stock through the Canadian
Livestock Records Corporation which records animals registered under the Animal
Pedigree Act. As such, specified animals are valued at their original purchase
price less 30% per year depreciation on a diminishing basis. You cannot receive
a depreciation deduction for a G.I.C. Therefore, the revenue from any animals
you choose to sell may be partially offset by the depreciation you take on the
original breeding stock!
An owner may also take advantage of an adjustment to income made
according to a Mandatory Inventory Adjustment (MIA) formula during loss years. This
is too complex to put into words here, but the net result is that breeding
inventory purchased in any one year may be partially written off the first year
and the balance in the second or subsequent year or years, depending on your
tax position (and your accountant's advice.)
With the Active method the llama investor not only obtains
certain tax advantages but also the compounding effect of the growth of his
herd, the value of which is sheltered until such time as he begins to sell
animals. Another important benefit of this type of investment is the wonderful
lifestyle for the family that has this type of "huggable" investment.(Sure beats clipping meager dividend coupons or hugging
your banker!)
Having said all the above, each person's situation is truly
unique from a tax standpoint and you should consult with your Accountant to
determine how you fit into this picture. Should you not have an Accountant, or
if he is not familiar with the Llama Industry, we would be happy to supply you
with the name of a person who does have experience with the tax implications
and you may contact him directly.
Exhibit
"A"
ACTIVE INVESTOR - Selling all offspring - none are retained
& bred
Assumptions:
You purchase 6 - yearling females @ $2,500 ea. = $15,000 and 1 -
breeding quality male @ $5,000= $20,000 (you could, of course start off with
bred females at a higher cost and they would begin to give you your return
faster or you could purchase a lesser quality male which would lower the
initial investment - which I don't advise -but will comment on that later)
We will assume the active investor has his own property and
facilities so will not add in a cost for that. The housing requirements are not
elaborate anyway, so that cost would be minimal.
Breeding success: all 6 yearlings are bred by the time they are
2 years old. Over the next 5 years, out of the possible 30 live births, only 25
are actually born (to be on the conservative side) and the overall normal ratio
of50% females and 50% males are born.
Cost of maintaining each llama is $600/year with an inflation
factor of 6% added annually
Male offspring produced are sold for $1,000 each (some pets,
some better quality) and female offspring are sold for$5,000 each(less than the
value of their mothers in order to be conservative)
|
|
Expenses |
Income |
Profit/Loss |
|
End of year one - llamas are bred |
$4,200 |
0 |
4,200 |
|
End of year two - 5 llamas born/sold |
$4,452 |
$15,000 |
$10,548 |
|
End of year three-""" |
$4,719 |
$15,000 |
$10,281 |
|
End of year four -""" |
$5,002 |
$15,000 |
$ 9,998 |
|
End of year five -""" |
$5,302 |
$15,000 |
$ 9,698 |
|
End of year six -""" |
$5,620 |
$15,000 |
$ 9,380 |
|
Totals |
$29,295 |
$75,000 |
$45,705 |
As you can see, you have made a $45,705 return on your initial
$66,000 investment AND you still own your initial investment herd which is
continuing to produce for you! The 6 year time frame is just one selected to
show you how it works - you can continue the numbers for yourself.
Obviously the longer you continue, the more offspring and sales
you will have!
How would the quality of my herd impact my investment? I have
not factored in a very real possibility that is present because of the Quality
male -you have the distinct probability that sometime or another you will
produce some quality breeding male offspring (remember how much more than
$1,000 they are worth?) and you will produce some higher quality females that
will sell for far more than the$5,000each we have factored in! This is why I
believe you should not reduce your initial investment by purchasing a less than
breeding quality male! If you want to invest less - buy fewer females instead
or if you can afford to - buy better quality females as well as the good male
and your increased production of the higher priced animals will follow. Good
quality stock will significantly increase that return shown above!
I have not indicated revenue derived from sales of the fibre produced - but that is also probable. Add to this the
fact that you are gaining the tax benefits of depreciating your breeding stock,
possibly deducting their cost from other income and maybe even writing off the
cost of their food and maintenance etc. and you can see that LLAMAS ARE A VERY
GOOD INVESTMENT!
Exhibit
"B"
ACTIVE INVESTOR - Selling only the males and retaining females
to breed
Assumptions:
Same purchase of 6 yearling females and 1 quality breeding male
as in Exhibit "A"
Same breeding success ratio
Same cost of maintenance per animal, as herd grows - so does
maintenance cost (it actually won't cost as much as shown since the young
females retained in the herd don't cost as much to feed as the adults - but we
wanted to be real conservative)
Only this time, we just sell the males (again assuming they are
only pet quality and worth only $1,000 a piece - but this time we retain all
our female offspring to breed them when they are old enough and breed their
female offspring when they are old enough etc. etc. etc. THIS IS THE
COMPOUNDING ASPECT OF A LLAMA INVESTMENT !
|
|
Expenses |
Income |
Profit/Loss |
|
End of year one - llamas are bred |
$4,200 |
0 |
-$4,200 |
|
End of year two - 5 llamas born/ males sold |
$6,042 |
$ 2,500 |
-$3,542 |
|
End of year three- 5""" |
$8,088 |
$ 2,500 |
-$5,588 |
|
End of year four -7.5 born (trust me on this) |
11,245 |
$ 3,750 |
-$7,495 |
|
End of year five -10""males sold etc. |
15,707 |
$ 5,000 |
-$10,707 |
|
End of year six -12.5 born"" |
21,654 |
$ 6,250 |
-$15,404 |
|
Totals |
$66,936 |
$20,000 |
-$46,936 |
WHOOPS!a (loss) - what
kind of investment is this anyway!!
A great one! - because if you look at
the size of your herd you will see that 20 new females have been added and even
if you said they were only worth $5,000 a piece as in Exhibit "A" -
your herd now is now worth $100,000 more! After deducting what it cost you to
feed all the additional critters and let them accumulate - you will see you
have made a significant return on your original investment! If you forecast
even farther forward into year 7 through 10 - you will find that you could
expect about 63 more females to be added to your herd!
NOW THAT'S LLAMA COMPOUNDING!
Just as in Exhibit "A" - it is most probable that you
would have generated a few high quality males which you would have sold for big
dollars! Even if you only had a couple of this type born in your 20 male
production they would more than pay for the keep of all the rest of the herd! Probably,
as well, you would have had a few excellent females born and, again, would have
realized more return than the amount we are using for our calculations!
I will stress it again - good quality stock will significantly
increase your returns!
As before, I have not factored in the value of the fibre you produce - but now that you have 27 llamas and not
just the original 7 - this could be of more significance.
There is one thing not added into the equation above and that is
that when you are growing your herd and compounding your investment, at some
point it will be necessary to purchase another male to breed to the female
offspring of the first one. This will be an additional investment, but you have
several females to sell if you want to, so you could do that and use the
revenue generated to acquire another breeding male. You might also just
purchase some outside services in this instance, or trade some services from
your male with another breeder and eliminate the need to purchase a second
male.
Don't forget that you also have the tax advantage of having this
herd value grow in a tax sheltered fashion and only will add to your taxable
income when animals are sold, so you have the opportunity to add to your wealth
in an untaxed fashion.
Add to this the fact that you are gaining the tax benefits of
depreciating your breeding stock, possibly deducting their cost from other
income and perhaps even writing off the cost of their food and maintenance etc.
and you can see that once again
LLAMAS ARE A VERY GOOD INVESTMENT!
REAL LIFE?
If you have read along through to this point you are both:
A .Interested in the investment opportunity afforded with llamas.
B .Skeptical of the returns forecast in the exhibits.
I am pleased that you are "A" - and as far as
"B" goes, let me share my personal history. This is not forecast or
"pie in the sky", the following are the simple facts of our financial
experiences.
We purchased our first female llama in October of 1988 as a
weanling. We waited for her to grow old enough to breed (just as we proposed in
the Exhibits) and then waited for what seemed like forever for her first
offspring. The rest is history. Caught by the "llama bug", we could
not have just one and began turning our self directed RSP's
into breeding stock. To the date of this writing (Summer
of 1997), we have achieved the following results:
The value of our herd has grown to an amount in excess to the
amount we have invested in breeding stock, even including recent purchases AND
we have achieved income from sales of llamas close to double the dollar amount
of what we invested in breeding stock as well! This does not take into account the costs of
running a farming operation such as feed, maintenance, wages, advertising,
travel and many other costs associated with running a business. On the other
hand, the results also do not take
into account any tax deductions/refunds and other sheltering
benefits inherent in this type of farming occupation, nor do they take into
account revenue from stud services, fibre sales,
boarding fees or income from sales of managed animals.
SO - at this point you have read through "Yesterday, Today
and Tomorrow" and learned what it could mean for you as an Investor in the
Llama Industry. You undoubtedly have many questions, but now it's up to you -
I invite you to contact us for more information
I invite you to visit our facility and our herd
I invite you to join us in the Llama Industry TODAY and also for
TOMORROW!
Thanks for your interest, we look
forward to hearing from you!
Now Available – a recent update on
the Industry and it’s history – please e-mail us and
we will gladly send you a copy. mailto:info@canadianllama.com
Kent Govett
The Canadian Llama Company
Ph.(604) 883-2870
Fax. (604) 883-2870
Toll Free:1 - 888 - 552-6274
Website:http://www.canadianllama.com
©Kent Govett - March 1997
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