AgDM newsletter article, May 2005
Beef cowherds have always been a popular enterprise for small and medium sized farms in the Midwest. In recent years they have even been profitable! Since owning cattle involves a relatively high capital investment, many cow-calf enterprises are managed jointly by two or more people. One party may own the breeding herd while another party supplies the labor to take care of them. Feed, health and other costs can be shared in a variety of ways - there are no hard and fast rules to follow.
Under joint agreements the question always arises as to how income should be shared. The basic principle is that the calves or the income from the sale of the calves should be shared in the same proportion as total costs of production. Noncash costs for contributions such as unpaid labor and owned pastureland should be included along with out-of-pocket costs. Besides labor, a management charge should be included to reflect both day-to-day and long-term decision making. A rule of thumb of 10 percent of all other costs can be used to value management.
Livestock share lease
Terms of a traditional livestock share lease call for the tenant to provide labor, machinery, half the livestock, half of the harvested or purchased feed, and half of the seed, fertilizer, health, marketing and miscellaneous costs. Income is typically divided equally as well. Often cropland is included in the lease, as well, with costs shared according to traditional crop share lease provisions. If we add up the costs contributed by each party using the typical budget values in Example 1, we see that, indeed, the totals for the tenant and landlord are almost equal. Sales from cull cows and bulls are split equally, as well as the calf income, and both parties help purchase or contribute replacement heifers and bulls.
Some landowners prefer to provide all the livestock and land, but not pay any other expenses. Their contributions would consist of the breeding livestock, pasture, land for hay and stalk grazing, and corrals and fences. Example 2 shows that these costs add up to about 40 percent of the total, so calf income would be divided 40 percent to the owner and 60 percent to the operator.
Another variation is for an investor to provide only the livestock, which represents about 15 percent of the total costs. At the other extreme, someone who contributes only labor to care for the herd on someone else's property would earn about 20 to 25 percent of the revenue or calf crop. Many other combinations are possible, and can be evaluated by simply adding the estimated costs of each party's contribution and converting it to a percentage of the total. Naturally, actual costs should be substituted for typical costs whenever possible. If calves will be carried to a heavier weight, additional costs for feed, health, and labor would need to be incorporated.
Income from culled breeding stock
The breeding herd should be treated as a capital asset, just like land, machinery or buildings. Ownership records of each individual animal should be carefully maintained, for tax records. The income received from selling cull cows, bulls and heifers should go to the owner(s) of the livestock, regardless of how the calves are shared. Likewise, the owner of the herd should provide replacement bulls and heifers. These may be purchased from outside or drawn from the herd owner's share of the calf crop.
When a good working relationship exists between the parties, all management decisions may be made by mutual agreement. The person providing the labor is usually responsible for day-to-day management decisions about feeding, breeding and treating health problems. However, larger decisions such as buying or selling livestock or setting the general feeding, breeding and health programs should be discussed well in advance.
Written agreements help avoid disagreements later on. A sample cow-calf share lease agreement is available from the Manitoba Agriculture and Food Agency, at:http://www.gov.mb.ca/agriculture/financial/farm/pdf/cowcalfshareleaseagreement.pdf.
To access additional information about beef cow sharing agreements, including a decision aid spreadsheet to help evaluate the contributions of each party, go to the Farm Economics Current Issues Web site at http://www.extension.iastate.edu/feci/cow-share/.
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