Sandy Johnson, extension beef specialist, Colby
Individuals may look to enter into a share or lease agreement for cows for several reasons. For example, a cow owner may wish to transfer ownership over time or to retain income without the labor of cow care. Advantages to the operator may include a way to get started in cow/calf production or to utilize available labor more fully. Trust between parties is the foundation of any agreement followed by clear communication.
There are multiple ways to set up these arrangements and include cash leases, management agreements or profit-sharing agreements. Cash leases are best developed by the enterprise. So, the cow enterprise has its own arrangements, as does one each for land, machinery or other inputs that are involved. Depending on the category, rental charges may be based on usage or an hourly rate.
A management agreement often occurs when an owner wants to gradually transfer the herd to another individual. Rather than receiving an hourly wage, a percentage of the herd is transferred to the new operator each year. Management decisions such as breeding or marketing goals need to shift to the new operator as well if the new operator will eventually own the entire herd.
A profit-sharing type of agreement is common and helps both parties manage risk and provides incentives. The key to this type of arrangement is understanding the value of the inputs each party will make to determine how to share the income.
While one might think that individuals who share common approaches or ideas toward running a cow-calf operation could easily set up an agreement, there are numerous details, some easier to address than others, that must be discussed to cover all the particulars. For example:
- Starting and ending dates of the agreement, terms to renew, terms for termination.
- Performance expectations such as body condition, pregnancy rate, weaning rate, and weaning weight.
- How are acts of nature handled? (drought, blizzard, operator health issue)
- How are calves priced if sold between parties?
- What are the logistics of dividing the calf crop (revenue based, equal number of steers and heifers or other)
- How are culls determined and who gets the income?
An equitable lease agreement starts with determining the costs to be included and the contribution of each party to the arrangement. A separate agreement for replacements, raised or purchased, is often recommended due to the added complexities. Detailed budget worksheets are available on AgManager.info and can serve as a starting place when discussing costs. All normal production costs (feed, vet costs, etc.), cost of the investment capital, labor costs and a management charge should be included. Spreadsheets, linked below, are also available that allow parties to enter their own costs and the proportion covered by each party as inputs, resulting in a calculated summary of costs for each party.
Given the current market and interest rates, the cow owner’s inputs have changed compared to 2-3 years ago, all of which might impact what a fair share is for 2024. Current market volatility creates additional challenges for all parties but should be addressed. Regular communication between parties during the year can better position the partners for adapting to unforeseen circumstances such as might arise from global impacts on our markets.
More detailed information on developing agreements can be found in the links provided below. Each can contribute insight into the considerations and ways to set up an equitable plan for both parties.
KSU-Beef Cow Lease Spreadsheet (Simple)
Beef Cow Rental Arrangements for your Farm -Ag Lease 101
Reviewing Cow-Calf Share and Cash Lease Agreements – UNL
Cow-Calf Share Lease Cow-Q-Lator – UNL
Beef Cow Joint Agreements – Iowa State
How to Set Up An Equitable Cow Lease Arrangement – Harlan Hughes
