by Joann Pipkin

Maybe you’re ready to retire, but can’t bear the thought of culling the herd and losing the genetics you spent decades investing in. Or maybe drought is pushing you to cut herd numbers, but deciding which cows must go presents an even bigger challenge.

There is another option to help you step out of the crisis management cycle so many cattlemen seem to be facing — cattle leasing.

Jennifer Lutes, University of Missouri Extension field specialist in agricultural business, says cattle leasing could be a way to help producers reduce farm stocking rates and retain genetics.

“We’re leasing those genetics for somebody else to use,” she explains. “In the meantime, we’re reducing stocking rates on our farm, which is what the biggest recommendation has been to enable forage to recover or farmers to renovate pastures and prepare for future drought.”

Cattle leasing basics

According to Ag Lease 101, a website guided by Extension educators from the north-central region of the U.S., a cow lease agreement can help both the livestock owner and operator share production risk.

Here are six considerations to review before entering a lease agreement:

1. Terms. Starting and ending date should both be included in terms of the lease. Also, consider whether the lease is automatically renewable, as well as termination notice and grounds for termination.

Related:Cow share agreements work in succession planning

2. Share vs. cash lease. Leasing beef cows on a share basis can have advantages. Still, other items to be reviewed are costs, including resources contributed and shared by each party; cattle quality; means to value inputs and products; and death loss.

Typically, for a cash lease, the cow owner might furnish a set of bred cows or heifers to the operator for a set period for a predetermined lease price. In this case, the operator receives the livestock, cares for and manages them, keeps the calf crop and returns the cows to the owner at the end of the lease.

3. Equitable share arrangements. In this scenario, the percent of profits each party receives is based on his or her contributions to the enterprise. Here, differences in individual farms and items furnished might appear similar but might vary greatly. Disparity could be based on quality of cattle furnished, labor, pasture and equipment.

4. Costs. Farm records are key to knowing what items should be included in a cattle lease agreement. Costs can be included for the whole herd or on a per-cow basis. Be sure to include machinery and equipment, feed, minerals and supplements — as well as other expenses, such as animal health and veterinary needs, fuel, utilities and labor.

Related:11 Things That Need To Be In A Cow Lease/Share Agreement

5. Contributions of each party. Annual contributions can be determined for production inputs, with costs allocated to the party who supplies each input.

6. Income. Production value is shared in the same proportion as costs are contributed. This might or might not be the same as sales.

Learn more about cattle lease agreements at aglease101.org.

Talk about the future

With cattle leasing, it’s generally a cash lease, where the operator pays cash to lease the cows, but it could be more of a shared lease idea, Lutes explains.

“This is where we start talking about transferring the farm,” she adds. “And with that shared lease, we really must sit down with the owner and the operator and talk.”

Communication is imperative regardless of the type of lease involved, she adds. Open dialogue should include the goals of the lease, which must also be compatible between the parties involved.

“We can’t have someone thinking one thing and taking a cow herd in a direction if the owner wants it to go the other way,” Lutes says.

Lease must-haves

Regardless of whether a shared or cash lease is agreed upon, Lutes says putting the specifics in writing is a must.

Other items that apply to cattle leases include animal identification so that both parties can track those in the agreement from others. Also, including expectations for body condition score at each stage of production, as well as expectations in case of death loss, can help alleviate disagreements between those involved.

“Transparency is going to be important in these kinds of agreements,” Lutes notes. “Sharing financial records, when and how, probably needs to happen.”

Finally, Lutes says including limitations on the part of the operator can help keep a clear picture of expectations in place. This includes whether the operator can mix lease cows with his or her herd or move them to a different pasture.

“I always recommend having an attorney read over any agreement,” Lutes concludes. “There’s risk involved. I recommend building some of that risk into the calculations for the lease agreement. Then, take advantage of available insurance to make sure assets are insured.”

Pipkin writes from Republic, Mo.