The Alpaca Bubble Burst And Backyard Farmers Are Picking Up The Pieces

Oct 27, 2015

Some alpacas that fail to produce enough fiber to cover the cost of their hay end up at Linda Hayes’s llama and alpaca rescue outside Carbondale, Colo. (Luke Runyon/Harvest Public Media)

Known for their calm temperaments and soft fleece, alpacas were at one time the next hot thing to backyard farmers. A decade ago, the market was frenetic, with some top of the line animals selling for hundreds of thousands of dollars.

But the bubble burst, leaving thousands of alpaca breeders with near-worthless herds. Today, craigslist posts across the country advertise “herd liquidations” and going-out-of-business deals on alpacas, some selling for as little as a dollar.

It’s just one more chapter in a long line of agricultural speculative bubbles that have roped in investors throughout history, enticing them to throw money at everything from emus to chinchillas to Berkshire hogs to Dutch tulips, only to find themselves in financial ruin after it bursts.

One day in 2006, while browsing the Internet, Terry Holtz’s wife, Dena, came across a photo of a cuddly creature with a slender neck and long eyelashes.

“She happened to see a picture of one,” Holtz said. “And she says, ‘Oh, they’re the most adorable animals.’”

At first he thought it was a llama, the alpaca’s South American cousin known for its ability to guard livestock and haul heavy gear into mountainous terrain. Alpacas tend to be smaller, furrier, more skittish and prone to herds than the llama. The trick in deciphering between the two is in the ears. A llama’s ears are longer, more banana-shaped than the alpaca’s.

Initially, Holtz was skeptical about alpacas as an investment. Yeah, they’re cute and fuzzy. But are they just fancy pets or are they more akin to other utilitarian livestock?

“What’s the bottom line here? Are they making money? Is there really a need for those animals?” Holtz says he asked. “The answer was, absolutely.”

Holtz was floored by the quality of the alpaca fleece, spun into fine yarn. The couple decided to buy a few alpacas, eventually building the herd to a few dozen at their ten-acre ranch, just south of the Colorado-Wyoming border, near the town of Wellington. They bought in at the height of the bubble, when it was commonplace for alpacas to sell for several thousand dollars. The couple started breeding and selling the offspring.

“Wow, all I have to do is sell seven of them?” Holtz said. “And I could make more than what I’m making at my regular job and I only sold seven alpacas and it wasn’t that hard to do.”

The Holtzes weren’t the only ones. Ever since imports of the animals began, alpacas have proliferated across the country, boosted by aggressive breeding programs. Back in the 1980s you’d really only find them in zoos. Now there’s close to 150,000 in the U.S.

Rarely slaughtered for meat in the U.S., the alpaca’s only real marketable product is wool. And the alpaca fiber market never took off the way many breeders were hoping it would. There’s little infrastructure devoted to large-scale processing of alpaca fiber. Today it’s mostly used in high-end, niche clothing, failing to make significant inroads into the mainstream garment industry.

Eventually, the inflated prices alpacas brought at auction started to slip.

“The sales slowed down,” Holtz said. “The cost of hay doubled.”

The value of their herd plummeted. That’s why after a decade in the alpaca breeding business, they’re selling out. Liquidating the herd. Their craigslist ad calls it a ‘super deal’: 30 alpacas for $3,000. That’s $100 a head.

When alpacas fail to produce enough fiber to cover the cost of their hay, they sometimes wear out their welcome. Some end up at Linda Hayes’s llama and alpaca rescue outside Carbondale, Colorado. She’s part of Southwest Llama Rescue, which finds new homes for abandoned or neglected llamas and alpacas. In the last six years since the bubble burst, Hayes has been inundated with alpacas.

“Most of my time rather than dealing with animals themselves is dealing with the phone calls and emails trying to put potential owners together with people that want to get rid of them,” Hayes said.

After the bubble burst, people began looking for a way out, Hayes says. Alpaca rescues have popped up across the country. Hayes gets calls every week.

“I’ve had a few that were crying,” Hayes said. “I mean, it’s sad. One lady just didn’t have the money, she was being evicted.”

In the mid-2000s the alpacas were pitched to older folks, mostly by alpaca breeding trade associations. The idea of being able to raise income-producing livestock on small acreage appealed to people looking to retire to a more bucolic lifestyle, Hayes says.

Even late night TV commercials, sandwiched between infomercials, touted the animals’ ability to pad a retiree’s income.

“I retired two years ago because of the alpacas,” says the man in the 2006 video. “And it’s just been a wonderful lifestyle.”

Even news organizations fell for the “alpaca as sound retirement investment” hook. At the height of the bubble, CBS News visited with a Pennsylvania woman who jumped at the chance to breed the animals, spending a reported $56,000 for her herd.

“It was absolutely a house of cards and there was never the slightest chance that it could survive and prosper,” said Rich Sexton, an agricultural economist at the University of California Davis.

Unless alpaca wool sweaters are the next hot Christmas item, there’s little demand for what the animals produce. And because of the aggressive breeding, there’s now an abundant supply of fiber. Some alpaca owners give it away to farmers to use as mulch or sell it in bulk for cheap. Plus, Peru already has a thriving alpaca fiber industry, where it’s produced on a much larger scale compared to the U.S.

“The fundamental fact is that in this country, an alpaca, as an asset, an income-producing asset, is worthless. It has no value at all,” Sexton said. “The product it produces, 6 to 8 pounds of alpaca fiber a year, is worth less than what it costs to feed, medicate, and house the animal.”

What makes the alpaca bubble unique is Sexton’s documentation of the phenomenon while it was happening. He teamed up with researcher Tina Saitone and wrote two papers on the bubble, one in 2005, when alpacas were selling for tens of thousands of dollars, and one in 2012, a couple of years after prices began their steep decline.

“Most likely there’s another [agricultural bubble] coming down the pike if people don’t have their eyes and ears open,” he said.

Some small remnants of the bubble still exist. Prize-winning alpacas can still sell for a couple of thousand bucks. There’s a smaller, but active, alpaca show circuit, where the animals are judged on their fleece quality and overall demeanor. But it’s not like it was in its heyday.

Alpaca rancher Terry Holtz says he’ll still work with the fiber even after he sells his herd. He bought equipment to felt the wool to make hats and sweaters. His goal now is to create demand for the fleece. For so long the community of people who raised alpacas was focused on breeding and selling, Holtz wants to help them transition to a more fleece-based industry.

Even though he says he loves his animals, if he had to do it all over again knowing then what he does now, Holtz wouldn’t have made that initial investment. His biggest lesson in the world of alpaca breeding? Take a step back before you decide to follow the herd.