Cow-Calf Cash Lease Agreements

The leasing of cows through cash or an action agreement offers benefits to both the cow owner and the herd operator. However, if market conditions are fluctuating, the economic provisions included in the lease can quickly fluctuate towards non-profitability for either party. If the cow owner provides other inputs in the lease or shares beyond the cows, these must also be verified. Sometimes, cow owners can provide imputs such as bulls, pastures or facilities, as well as a share of veterinary costs as part of the action agreement. In addition to securing pasture for the next grazing season, it is also time to review and discuss cow and calf action contracts. My father started the cattle market with cows on shares with my grandfather. Although I have not followed this path myself, I see the benefits of this type of agreement. The older generation can begin to get out of the work demands of ranching, while the younger generation can reduce in advance the burden of its debt and its capital needs through a cow-calf equity agreement. “While a cow lease should be a relatively long contract – for example. Three years ago – it should be reviewed and renegotiated annually to reflect changes in the market value of cows and calves,” says Aaron Berger, an extension educator at Nebraska-Lincoln University (UNL).

A UNL table entitled “Cow-Calf Share Share Cow-Q-Lator” is available online to assist in calculation and decision-making. “This table takes into account the contributions of all parties to the cow calf business and then calculates a fair cash lease value and a fair share plan,” Berger explains. We often rely on “thumb rules” as mental shortcuts to guide business decisions. Sometimes these guidelines work quite well, but they can also lead to losses, especially if conditions change. Stock rental is a great example. An old rule of thumb for cow share leases was a 70:30 split, with the operator maintaining 70%. However, due to the dramatic increase in grazing costs and rising labour costs, it is not uncommon for equitable distributions to increase to 80:20. In addition, agreements should have a start and end date (usually From Oct. to weaning date, i.e. a weaning period) as well as a separate agreement for consideration of substantive development or dyeing companies.

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