Wall Street prognoticators continually remind us to annually rebalance our portfolio and keep our investments diversified. The exercise is prudent, but how many livestock breeders do the same strategic planning for their blood stock portfolio? Below are a few key points used for the strategic planning undertaken yearly at WoodsEdge to insure a ROI (Return On Investment) consistent with our overall business plan.

ACQUISITION STRATEGIES

Review tax law changes and how they may impact your new acquisition strategies. The current depreciation rules, which are temporarily available, create one of the most advantageous times to build a breeding herd. Only in the late 80’s with ITC’s (investment tax credit) was there a more favorable time to add to your bloodstock portfolio! These new depreciation rules are so significant, one should take every opportunity to capitalize on them before they are gone! You can also now write off $112,000 in direct expenses utilizing the Section 179 deduction as long as you personally do not exceed $450,000 in total new acquisitions. Invest in the known before the unknown, is one of New York Times’ best selling author, Suze Orman’s Five Laws of Money. What does this mean for those investing in bloodstock? Invest in stock that has a track record—look for production records, shearing records, and bloodlines that will give you a rate of return! Ribbons are primarily an indicator of phenotype; proof of ROI is in the production records! Choose pedigreed stock from known bloodlines that have performance records!

CRIA COMPOUNDING

As we begun rebuilding the WoodsEdge alpaca herd, I went back through my files and dug out a chart I created in the late 80’s when we first started with alpacas. It was a simplistic way of calculating “cria compounding”. We did 10 year projections for each female, with a goal of producing a cria per year from each female. We calculated a 50/50 male/female ratio and a 10% loss average. With a weanling female we listed them on the chart in the year that they will first produce a cria. This exercise can help project herd numbers, facility expansion and both buying and selling strategies. Our reproductive management has always been focused on each female producing a cria per year; if that is too aggressive for you, create your chart with 8 crias over 10 years, or whatever is appropriate to your plan. 10% loss average is much higher than we have experienced, but I recommend you use a conservative number here. 0% loss over 10 years is unlikely!

DIVERSIFY

Diversify your portfolio! How many of you have all your “eggs in one basket” with one species? All markets are cyclical, with highs and lows moderated by the laws of supply and demand. The alpaca industry overall has done an absolutely stellar job of marketing alpacas, creating demand. Having said that, an individual farm may find demand for their bloodlines much more cyclical, with many factors beyond their control affecting marketability, from regional environmental issues to another farm’s pricing, or simply a run of all male crias! Creating multiple streams of income helps you prepare for these slow years and a downturn in profit. One of the best ways to protect yourself is to utilize the funds you’ve invested in your facility to generate another income stream. Raising a compatible species has worked so well at WoodsEdge over the last 31 years that I have become a huge proponent of diversifying bloodstock portfolios! In addition to providing multiple income streams, and thus providing protection from market fluctuation in one species, it has created numerous cross-selling opportunities with a much larger potential audience which has directly translated to a larger client basis!

CREATING YOUR NICHE

Review each herd member and do an ROI analysis. Are there herd members who do not strengthen your niche? Does each herd member contribute to your overall breeding portfolio? If not, they should be replaced! Ethically, poor performers need to be sold with full disclosure! Often times as you create and refine your niche, you will find great animals in your program that are not contributing to your niche. An objective analysis of what each animal contributes to your niche will also help give you the next step for building a stronger niche in the market. In my experience, building a strong niche is building wealth!

Finally, all of these exercises offer you a wonderful opportunity to teach your children about business and building wealth. For more information on how to get your children involved and learning about the “laws of money”, read my article “Building Wealth for your Children”.

©2007 WoodsEdge Wools Farm LLC