If a young producer has livestock but wants to increase the number of cows to make the most of the available feed, renting cows could be an option. Cash lease rates are determined in the same way as stock contracts by determining the value of contributions and the return on investment. The net yield of livestock (estimated production yields minus costs) is the highest a farmer can afford to pay rent. The operator would retain 100% of calf sales and all income from leased cows would go to the owner. With this example, the fixed costs would be spread over more cattle and hopefully help the young producer be more profitable. In addition, USDA ERS reports that the annual number of hours per cow will decrease by 50% if the number of cows increases from 20 to 60 animals. Therefore, determining the optimal number of cows needed to maximize efficiency per hour worked is a valuable undertaking that new growers should consider. The basic economic concept of renting a herd of meat cows is that the two commercial parties (the “cow owner” and the “working farmer”) should share the calf`s income in the same proportion as the cost of production. That seems pretty logical.
There are do`s and don`ts in setting up a cattle cow lease. First, the lease should go from weaning in a year to weaning the following year. The annual lease is expected to end on the day the calves are weaned. At this stage, the calf harvest is either sold or shared between the two business partners. Each partner is responsible for their share of calf harvest after weaning. Remember that the owner of the cow receives the income from the whining cow. Leasing contracts often end because of disgruntled partners. A poorly designed lease or no written commercial lease can lead to all sorts of legal and financial problems. We often rely on “rules of thumb” as mental shortcuts to make business decisions. Sometimes these policies work quite well, but they can also lead to losses, especially if conditions change. Stock leases are a good example. An old rule of thumb for cow share leases was a 70:30 split where the operator kept 70%.
However, due to significantly higher grazing costs as well as increased labor costs, it is not uncommon for fair distributions to approach 80:20. In addition, agreements should include a start and end date (usually october to October or just before the weaning period), as well as a separate agreement to take into account back or heifer development companies. For more information about share leases and sample spreadsheets, see Farm Lease 101. Recently, I have received several requests regarding the rental of meat cows. Some came from owners who were interested in renting their cows. Others came from people who wanted to rent cows. The question from each of them was: What is a fair meat cow lease for my unique situation? As soon as the full production costs are determined, you assign each cost element to one of the two rental partners. In a few cases, costs are shared. Written agreements help to avoid subsequent disagreements. They also provide a file for creators and tax heirs.
A cow-calf farm represents a significant investment in livestock, pasture and transshipment facilities. A sharing agreement should be concluded for a period of at least five years or more. However, the details can be reviewed annually. 4. Number of cows: Is there a “minimum number” of cows guaranteed by the owner in multi-year share agreements? How is the exchange managed? A contract for renting or sharing meat cows allows both business partners to share the production costs and therefore the income of the cow herd. The beauty of a stock lease is that production costs can be shared in different ways, provided that the calf harvest is shared in the same proportion as the cost is shared. This, in turn, suggests that there should be no joint lease agreement for the rental of meat cows across the industry. But that`s what I encounter. Each lease can and must be adapted to the respective business situation. 2.
Start/End Date: Typical stock contracts run from October to October, but must be explicitly documented in writing, regardless of the case. This schedule should also include a date on which the owner must assume responsibility for the calves. This special budget is used to allocate each production effort to each trading partner. Each production resource should be valued at its fair market price. Figure 1 shows my example of a cow rental budget. The numbers are my estimates; Your numbers will probably be different. Getting into the livestock sector can be difficult for budding farmers due to the amount of capital investment required in advance. You probably can`t borrow enough money to buy everything you need for a farm, because the four-legged chair of cattle production includes livestock, feed, equipment, and labor. Often, labor is the most important asset that novice breeders can bring to the table. This work can be very valuable for a livestock owner looking for support on the farm or if they want to retire from the livestock industry in the next few years. This transition can take place in certain ways: cow shares or leases. It takes the right owner and the right operator to set up a cow sharing agreement, and no two agreements are exactly the same because of the different contributions of each party.
The main thing to consider when entering into an agreement is that they are not always profitable for one of the parties based on market conditions. However, you won`t know until you put the pencil on paper. In the case of joint agreements, the question also arises as to how the income should be divided. The basic principle is that calves or income from the sale of calves should be divided in the same proportion as the total cost of production. Non-monetary costs of contributions such as unpaid work and own pasture should be included with expenses. In addition to work, a management fee should be included to reflect both day-to-day and long-term decision-making. Often, a rule of thumb of 10% of all other costs is used to assess management`s contribution. All agreements must be concluded in writing and agreed upon by both parties. Also make sure that all expenses are covered and that emergency or natural disaster situations are discussed. It may also be a good idea to ask a lawyer or financial advisor to review the agreements before the parties sign the document to make sure nothing is missing. Agreements should be reviewed annually.
There is no single beef rental agreement that suits everyone – every rental situation is different. Still, the meat cow industry tends to have a stock lease that it tries to have for everyone. This fit-all lease is often not fair to one or both business partners. All agreements must be concluded in writing. “While many trade deals have been made on handshakes for the benefit of both sides, there are many examples of verbal agreements that have failed because the parties couldn`t agree exactly what was agreed,” Krantz says. “Having things in writing is a long way to eliminate these problems.” The only way I know of to determine a fair lease for cattle cows is to first create a budget that is appropriate for the “herd of rented cows.” In this tailor-made budget, we first identify all the resources consumed by this herd of cows over the entire rental year. Create your spreadsheet and list these resources in the first column. Next, determine the total cost of production by adding the opportunity cost to the direct cost. Opportunity costs include the unpaid family and the work, management and equity of the operator of both parties. To determine a cow-calf budget for your farm, enter your numbers in the Feed Cow Sharing Agreement Analysis decision tool.
Xls File Use this decision tool to estimate costs and yields for each party in a meat cow inventory agreement An example of a cow-calf lease is available from the Central North Farm Management Extension Committee at www.aglease101.org/Doclib/docs/NCFMEC-06.pdf. 3. Raised cows: The cow should be guaranteed to be pregnant upon arrival if she uses a start date in October. 10. Crawling feeding: Crawling calf feeding is a common practice for some, while other breeders prefer to abandon this management system. This decision should also be part of the agreement. When used, the creep cost is usually divided into the same percentage as the value of the calf. .
