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Get started by leasing cows
Because of its capital requirements, ranching isn't always the easiest business for younger men and women looking to run their own cattle. However, you can lease farmland, machinery, and other big-ticket pieces of a crop farm -- why not lease calves?
"Leasing land is common. Why not cattle?" says University of Missouri (MU) Extension agribusiness specialist Mary Sobba.
Doing so has benefits for both the owner of the stock and the leasing party; obviously, the lessee gains from avoiding the often steep initial costs of buying stock, while the lessor can keep a stake in the business without the labor of raising the calves. And in the last couple of years, a few new dynamics are in play too, says North Dakota State University (NDSU) Extension livestock specialist John Dhuyvetter.
"With high-cost breeding stock and larger herd sizes, interest in leasing cows is being explored,” he says. “The cattle industry is smaller than in the past and smaller than it probably should be. Widespread drought has been a major driver of this trend, coupled with higher feed prices and profitability in the farming sector. Older existing ranchers may be less inclined to rebuild or expand, creating opportunities for young ranchers as forage conditions improve."
So, what's the best structure for a cattle-leasing agreement? Just like with crop land leases, there are options. In the past, most have been share leases, with an "equitable split of calves that is in proportion to contributed costs," according to an NDSU report. And, like crop leases, what's equitable likely represents different inputs on both sides of the agreement.
"For example, the owner contributes cow ownership costs (interest on investment, normal death loss, depreciation) and the operator provides all the operating costs (feed, yardage, care, and health)," according to an NDSU report.
Cash leasing is an option that's growing in prevalence. Dhuyvetter says it's not much different than a crop cash leasing agreement, only the lessee pays the owner a cash payment per animal, usually for a two- to three-year time frame, paying for animal care and other inputs, then gleaning the income from the animals once marketed.
"The possibilities for a win-win situation exist," Dhuyvetter says. "The young rancher gets started in the business using someone else’s cows while conserving his borrowing ability for other needs. Provided costs can be controlled and the income of cattle is great enough, sufficient revenue is generated to leave a return to his labor and management. The retiring or absentee cow owner earns a retirement income, continues to have some involvement, and creates alternatives to phase-out.”"
Another option, MU's Sobba says, is a cash-share agreement in which the owner leases an operator a set of bred cows or heifers, the operator manages and calves them, then keeps a share of the calf crop upon returning the cows to the owner at the end of the lease period.
Sobba also recommends taking a lot of nuts-and-bolts, operational-type factors into consideration when putting together a lease deal. That includes things like fence repair, bull expense, cow culling and selling, calf sales, and replacement females. And, leases should include provisions for how to deal with things like death loss, varying calving percentages, and drought planning.
Dhuyvetter recommends taking the following steps when reaching a lease agreement, according to an NDSU report:
Plan and budget to explore equitability and feasibility.
Make sure the person you’re working with is a good fit.
Put the terms of the lease, including termination date and procedure, in writing.
Specify how animals will be identified (include brand) and annually inventoried.
Leave bull ownership to the operator, and keep breeding dates standard.
Allow the operator to cull as needed up to a limit, with culling income as part of the owner’s return.
Develop or purchase replacements externally from the lease.
Create a separate contract for leased land, machinery, or special services, as calf backgrouding.
The owner accepts a normal death loss with compensation for excess.
Provide for notification when issues arise and also opportunities for inspection.
"Communication of expectations is critical," Dhuyvetter adds. "For the most part, the devil is in the details, and to be successful, the lease should address cow care, animal identification, death loss, culling, replacement, marketing, etc., in addition to terms and rates."