From Pucara International

It’s been a while since we did a newsletter and that's because it’s been the “quiet time” of the year animal wise. That being said Jude and I endured 6 days without power in the worst snow storms Oregon has had in fifty years, so the locals here say. Two foot of snow over your way apparently is not much but here no one, and I mean no one, was prepared for it including the county. One image you might want to visualize is me and our workers cracking ice on the pond and then bucketing enough water every four hours for 450 animals to drink, and sometimes getting that water on our ATV’s through four foot drifts of snow out to the outer barns for the alpacas, Christmas Day!!!! (The generator we hooked up to the well the day before the storms in anticipation was shorting!!!!) Trees were down all over the place, roads impassable and barns and outbuildings were collapsing everywhere. Our place was fine due to days on end of shoveling snow off roofs and grading laneways and local roads so our neighbors and us could get to the highway, two miles. A stark contrast to our fellow countrymen at home of which 210 perished in the worst bushfires for a century in Australia.

Nothing much goes on between late November and early March animal wise. We stop birthing and don’t breed again until April. But it doesn’t mean we are not busy. It’s inside work and maintenance time for machinery, the barns and all our gear. Its also a time when we get a lot of projects done in the office. The most important to you guys is a new marketing initiative. We have brought on another alpaca breeder, Adrian Stewart from Mulberry Alpacas, a British citizen along with his wife and kids who we have helped immigrate into the US. Adrian has a lot of internet and marketing experience from his many years in that field in the UK. Of course the idea is to lift sales. It’s an exercise in patience for me. We are revamping a whole lot of things that takes oodles of time. We are obviously flying in the face of the recession because whilst everyone I know has reduced expenditure we are lifting it trying to get a wider share of the market. We think its working. Our first seminar for the year is filling up quickly and we are getting more enquiry. We’ll see if it gets us sales but generally once people get to the farm and meet us we get the rewards. I can assure you however the alpaca industry is suffering like every other industry. Personally I see that as an opportunity. I have to because we have no other source of income. So whilst many breeders have stopped spending, stopped marketing, in some cases stopped breeding and a few are liquidating herds we are flying in the face of it. When it turns we’ll have even stronger market share.

 I worked coming out of college at a stockbroker in the Melbourne Stock Exchange. They trained me as a floor trader at first. I watched many of our clients have life savings shrink during some hard years in the 70’s. What I like about alpacas is that each year the portfolio grows whatever happens (unless you stop breeding!) It’s a little like insurance. Whilst the price may have come down you have more to compensate for it!

What is it now, just a little more than two years before the first barn came together? Well, the good news is that we have some very nice cria that are making their way into Tim’s and our show teams. We said it would take time and this is probably a little quicker than we thought. There are probably about 8-10 cria that are suitable for showing at the big shows. This strengthens the brand and will produce sales. In fact there may be a couple that might be worthy of putting in an auction. We’ll see how they grow out over the next couple of months. We are doing everything we can to try and defy this economic slump in the country so this all helps. We are seeing glimmers of hope here and there in the alpaca industry but it looks like we have a long time to go before this country can climb out of the black hole we have all dug for ourselves. I was always told by my more than stoic mother, hard work makes good luck…..we are trying to prove that.

BARN MEETINGS

Please get along to these meetings. We want to see you all again and talk about the Barns and the future. Jude and I are over for the Futurity show in Louisville and will come straight up to Tim’s for meetings at his place.

Barn 3 Tuesday, April 21, 7pm

Barn 2 Wednesday, April 22, 7pm

NEW ACCOUNTING

Jude and Tim are organizing a new invoicing system that will hopefully be a lot simpler for the barn members. A little confusion last go-around so look out for emails from us to detail the new procedure.

From Beachwood Creek

SO…WHERE ARE WE?

It takes a while for breeding decisions to gain traction and produce the desired results. I am happy to say that this year, Anita and I have a strong huacaya show team for 2009. We’ll be taking 4 juvenile males; 1 juvenile female and one yearling female in white, fawn and medium brown halter classes. We’ll keep you posted on any ribbons we bring home.

If you look at the Events page on my site, you’ll see the list of shows we plan to attend this year. Please feel free to attend.

We all know that the economy is in the dumper so there is really no benefit to anyone in re-hashing the events that have lead to our current state of affairs. You’d have to be living under a rock not to know what’s been happening…frankly, I’d prefer to concentrate on the positive.

In anticipation of our April meeting, I thought it would be helpful to summarize where I believe each Barn is at this point in time.

One of the aspects of livestock husbandry is of course production. We have been caring for and breeding alpacas together now for two years and we have amassed value through this effort.

You all have access to the herd sheets and past news letters posted on Al’s web site. But, how does all of that information relate to the individual projects from a predicted equity value perspective? Since the economy is slow and doesn’t look like it will get much better soon, the burning question is; where are we?

If you recall, we made some initial assumptions as to what we believed would happen in terms of the herd growth, related costs and potential cash flow based on the timing; mortality; male-female birth ratios; value of animal sales.

I looked back at the assumptions we initially made and compared the actual results to them. I am happy to report that although we have no control over the economy, we did do a good job of controlling costs as they are tracking well behind plan. The result is each of the barns is at or above breakeven from an assumed baseline value of $15,000 for each female.

Below, I have summarized the performance in each Barn to date and arrived at a net equity measure based on two values: baseline value of $15,000 per female and a reasonable upper end value of $22,000- $23,000 per female. I use these figures because they are representative of recent sale prices.

Remember, each of the Barns has a different dynamic driven by head count, birth rates, genetic mix of the original herds, etc.

Coincidentally, the average cost paid by all barns for their foundations stock was $22,000-$23,000 per female. So, while the demand is soft right now, I believe the original cost is fairly representative of market for comparable animals.

Below is a summary by Barn of this analysis. Be assured, we will review this information in detail at the April meeting.

Barn 1

Barn 1 has a jump on No.’s 2 & 3 in that it started in August 2006 with the acquisition of 15 bred females. We originally said we would attempt to sell alpacas in 2008. We had one insured female die in June and sold two females and a male at the end of the year. Based on market conditions, we did pretty well selling an older female for $15,000 and a three year old bred female for $23,000. From a cost perspective, Barn 1 costs are tracking about $30,000 better than forecast.

As of now, Barn 1 has 24 females and 22 males. If we assume the value of each female is between 15,000 and our original average cost of $22,000, the vale of all females in our herd is between $360,000 and $530,000(assume no value for males for this discussion).

Taken against the accumulated after tax costs including the original purchase price of the animals, I estimate we are at about breakeven equity at the lower end value of $15,000/female.

However, significant equity exists if we are able to get the value/female we have in the recent sales.

Barn 2

In December 2006, we started with 14 females, 10 of which were pregnant at the time. We predicted that by the end of 2008, we would have between 18-20 females (depending on outcome) and 14 males. As of the end of December, we have 24 females and 9 males. You’ll recall, we had a high ratio of males from our 2007 birthing season so we pushed breedings on a few of the maidens in the fall of 2007. I am happy we did that because it really made a difference for us and closed the gap.
We predicted that in the 2008, we would have sold a few of the males and unfortunately, the soft economy has not been our friend.
Based on the size of the herd, the carrying costs incurred for 2007 and 2008 are about $25,000 better than originally predicted.
If we assume the value of each female is between $15,000 and our original average cost of $23,000, the vale of all females in our herd is between $360,000 and $550,000 (assume no value for males for this discussion).
Taken against the accumulated after tax costs including the original purchase price of the animals, I estimate we have equity at the lower end value of $15,000/female at a minimum.
 

Barn 3

In December 2006, we started with 25 bred/breeding females. We predicted that by the end of 2008, we would have 43 females and 14 males. However, mortality and still birth issues set us back in 2007 and as a result we have 36 females and 17 males. The female/male birth ratio was significantly better in 2008 than in 2007.

Here again, the carrying costs incurred for 2007 and 2008 are about $118,000 better than originally predicted, mostly due to application of breed-back credit and measures we have taken to limit the use of fee based vet services.

If we assume the value of each female is between $15,000 and our original average cost of $23,000, the value of all females in our herd is between $540,000 and $830,000.

Taken against the accumulated after costs including the original purchase price of the animals, I estimate we are a click above break-even at the lower end value of $15,000/female (assume no value for males for this discussion).