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Leasing cattle provides another option for beginning ranchers

Cassidy Woolsey Published on 25 November 2014
Herding cattle

Getting started in the beef industry can be a difficult and costly process. Without the capital required, aspiring producers often find themselves buried in debt.

But with the help of already established producers, a cow-calf share or cash-lease agreement could be another option.

Leasing cattle essentially allows the starting producer to gain a herd of cattle while sharing the revenue and costs involved in the enterprise. Both parties can benefit; the beginner avoids the starting expenses while the owner can continue in the beef business without the extra time, cost and labor.

Aaron Berger, extension educator for the University of Nebraska – Lincoln, says that today’s high cattle prices make it even harder for those wanting to start in the beef business.

But with the current environment and the increasing average age of ranchers, leasing cattle can provide a smooth transition from those looking to retire to those launching their ranching career.

“When done right, this method not only benefits the person starting but it allows for the person who owns the cow herd to phase out over time while still getting a portion of the income,” Berger says. “It is a transition into the business over time, which can, from a cash flow and capital outlay, be an attractive option.”

There are two approaches to leasing cattle: cow-calf share or cash lease. The most common method, cow-calf share, divides the revenue of the calf crop based on the inputs each person contributes to the production of the calves, while cash leases allows the lessee to have the use of the cattle for one year with an annual agreed payment.

Berger says both approaches give a starting producer the advantage to gain access to a cow herd without having to go out and borrow the money. But whether or not it makes sense for that person depends on the share arrangement, their input costs and whether they can make a profit with a share or cash lease.

Leasing cattle could give a head start

Brady Cross, a commercial cow-calf producer in Harrisburg, Nebraska, says leasing cattle has been a good system for him and his operation. However, his approach was a little different.

Cross started leasing cattle three years ago on a cow-calf share basis. He had already taken out a loan for his own cow herd but decided to lease another herd from a distant relative to generate some extra revenue.

Since he already had the expenses with his own cow herd, adding leased cows has helped him generate enough money in tough times as well as pay off his debts faster.

“I think leasing cattle is a great deal,” he says. “If you take out a loan to get your own cattle, the leased cattle help make your payment every year because you’re not having to dump that extra money into them. I personally think if you have your own cattle plus some leased cattle that is the way to go to get started in the cattle business.”

Cross believes leasing cattle made his start in the business a little easier. He says beginning producers often have to start from scratch, renting or buying both land and cattle. But by having leased cattle, the beginning producer can receive a portion of the calf-crop revenue without having to pay off loans for that cow herd.

John Dhuyvetter, extension livestock specialist at North Dakota State University, says a producer probably benefits more from owning cattle rather than leasing. But in a situation where the producer doesn’t have a lot of equity, it could be a good option to consider.

“It gets difficult sometimes to make it work with these high cattle prices,” Dhuyvetter says. “If cows were cheap, it would be easy, but since they are worth a lot, it takes an awfully big loan to buy many – and there is the risk that they may go down in value.”

Typically a lease agreement ranges anywhere between two to 10 years, he says. The end goal is usually to obtain heifers or gain enough capital to start a personal operation. However, agreements and goals may vary depending on the people involved.

A fair and honest agreement

Dhuyvetter says the most critical part of leasing cattle is the integrity of each person involved. It is important that both parties decide on a fair percentage of the revenue and how they will pay for supplies and service costs. If a reasonable agreement is not made, it is most likely the lease won’t last long, he says.

At the start of the lease, minor and major details should be discussed to avoid any problems in the future, Dhuyvetter says. Some examples of different factors to take into consideration are:

  • How will the cattle be identified?
  • Who is responsible for what?
  • When will the calves be marketed?
  • Who will do the marketing?
  • How are costs divided?
  • Where will the cattle be located?
  • Can the owner come check them?
  • How long will the contract last?

A written document provides protection

Both Dhuyvetter and Berger stress the importance of writing the agreement down, especially if the leasee and the owner haven’t worked together before.

Berger says a written document not only provides clarification on different terms and expectations, but it also provides legal documentation in the worst-case scenario.

The document should include each person’s obligations and expected results, Berger says. It should also include an exit plan in case one person needs to get out of the agreement and how that will be handled.

Dhuyvetter suggests getting some outside help when drafting an agreement. He says looking at sample leases, visiting an attorney or asking a local extension agent for help are all tools to provide legal protection.

Some universities and extension offices have resources available to help calculate a fair agreement. The University of Nebraska – Lincoln has an Excel spreadsheet called the Cow-calf Share Lease Cow-Q-Lator, available for both parties to record their inputs and see how much each person is contributing. The spreadsheet can be found on the university's website.

Leasing cattle isn’t for everyone, Dhuyvetter says. A producer looking to lease needs to do some math and look to see if the steps are in place, he says.

1. Ask yourself: Do I have access to resources or land available to put those cows?

2. Find a cow herd that fits your resource base in terms of calving and type of cattle. Where you live depends on the type of cattle you should lease.

3. Find someone you know that would possibly lease their cow herd or put an advertisement in the paper letting producers know you are looking to lease.

With these steps in place, the leasee and the owner can work together to draft a plan that fits their goals and expectations. Open communication can result in a successful lease agreement and hopefully a successful start or phase- out of the business.

“If you aren’t in the circumstance to buy cows and you have access to land or can get access to land through the lease agreement, I think it is a good thing to consider,” Dhuyvetter says. “It can be a good option for beginning producers to acquire a cow herd without acquiring debt and often times a win-win for both parties.”  end mark

PHOTO
Leasing cattle can be an easier start for younger ranchers moving into the industry. Photo courtesy of Lynn Jaynes.

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