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Cow share agreements work in succession planning

Business Basics: Create a win-win while rebuilding the U.S. beef cow herd. Share your cattle with next-gen farmers.

April 22, 2024

4 Min Read
A young farmer in a barn with cattle
SHARING IS CARING: Young farmers are eager to get into farming, but high costs often prohibit them from entering the business. A cow share lease agreement could be the answer for both the next generation and farmers easing into retirement. Igor Barilo/Getty Images

by Wesley Tucker

Share arrangements, or share crop farming, dates back to biblical times. But today, that practice has value in the cattle industry as part of a succession plan.

Several years of ongoing drought and market conditions have reduced our nation’s beef cow herd to only 28.2 million head, the lowest level since 1951. As a result, young producers looking to grow their herds are facing rapidly rising breeding cow prices.

Combined with high prices for land and equipment, it becomes nearly impossible for a young producer to get started or expand. By partnering with someone looking to slow down in the cattle business, a win-win can be created for both parties.

Anytime someone has more assets — such as land or breeding stock — than they can utilize, and others can’t afford to purchase those items to start farming, conditions are perfect for a share arrangement. Each party benefits from what the other has to offer.

Walk through the lease process

A shared lease agreement allows both parties — the owner and the operator — to contribute a portion of the inputs, and the calf crop is shared based upon the portion of total costs each party contributes.

Although the process may sound complicated, it’s actually simple. Here are three basic steps to a shared lease agreement:

Related:Can you afford to hire help for your cattle farm?

1. Calculate all the input costs that will go into the operation. It is very important to include all inputs — including the main items such as land, breeding stock, machinery, labor, fuel, vet supplies, etc. But be sure to also include the other items like insurance, charge for management, repairs on machinery, maintenance of fences, interest, etc.

A value must be placed on each item to determine its portion of contribution to the total costs.

2. Track contributions. Start with a blank sheet of paper and make two columns, one for your contribution and one for theirs.

The hardest part is assigning a value to each item. Past farm records can be a good resource for starting the process. Collecting current budgets from places such as University of Missouri Extension can be helpful.

3. Calculate the split. If the owner provides 60% of the inputs and the operator contributes 40%, then the owner will receive 60% of the calf crop and the operator 40%.

Dive into details

There are many details in a cow rental agreement that can be initially overlooked.

A producer who was in a share arrangement and getting ready to wean calves called and asked what they should do about keeping heifers and selling open cows. I asked what they had agreed upon last year when they started, long before the calves were born. The response didn’t surprise me: “We didn’t think of it until now.”

It’s very important to discuss these details when entering into a share agreement:

  • Who provides breeding female replacements? Are they raised inside or outside the lease?

  • Who’s responsible for machinery repairs or replacement if it’s damaged?

  • Who provides the bull for next year’s calf crop?

  • What happens if drought forces us to change our plans?

That’s one reason to complete a written lease and incorporate as many of these “hidden” items as possible ahead of time. Writing it down doesn’t mean you don’t trust me, but rather, it’s a way to make sure we don’t forget things.

According to the 2022 Census of Agriculture, 38% of farmers are already 65 or older. Some would like to slow down but are afraid to even think of selling part of the cow herd or their farm. After all, these are among some of their greatest life achievements. Plus, they don’t want to give a big chunk of their life’s work back to Uncle Sam in taxes.

But by utilizing a share arrangement, they don’t have to sell off their legacy. They can remain active in cattle production, while also helping the next generation get started — a win-win all around.

Resource for rental arrangements

A useful tool to help make this process easier can be found at aglease101.org, created by the North Central Farm Management Committee.

The website contains a free 36-page printable guide titled “Beef Cow Rental Arrangements for Your Farm.” It also offers a free spreadsheet to enter your own information and calculate a fair agreement.

Using the spreadsheet makes it easy to see the impact as market conditions change. For instance, how does it affect the shares if hay prices double or the price of cows increases by $1,000? What if interest rates continue to rise or fertilizer prices go down? The spreadsheet does the work, and you can instantly see the impact on what each shareholder should receive.

Tucker is a University of Missouri Extension ag business specialist, succession planner and national conference speaker. He can be reached at [email protected] or 417-326-4916.

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