“The future ain’t what it used to be!” This quote by the late Yogi Berra rightly applies to the cattle business today. Market movement to the downside in the last two years has dramatically changed financial circumstances for cattle producers. These changes in market value are having an impact on beef cow share and cash lease agreements in determining what is “fair” to both cow owners and those who are leasing the cows.
For a cow owner, the following are the four major drivers that determine what is a fair in terms of a cash lease or percentage of the calf crop the cow owner should receive. Those factors are:
• Average cow herd value
• Cow salvage value
• Replacement rate
• Expected rate of return (interest rate) on cow value
Average market value of bred cows and cow salvage values are drastically less than they were two years ago. This dramatic change in market value is impacting what is “fair” in terms of the amount of cash lease that would go to cow owners or percentage of the calf crop a cow owner should receive. This change is due to the current market value of a bred cow versus what the bred cow value was in the fall of 2015. This drastic change in cow value means the person owning the cows may need to expect a smaller cash lease payment or percentage of the calf crop to more accurately reflect what a “fair” lease agreement is.
For the upcoming 2017 year, cow-calf share leases or cash leases should be reviewed. The lease should accurately reflect what each person will contribute to the production of weaned calves and what their compensation should be either in cash or in a percentage of the calf crop.
The UNL Beef website has several resources that can help both cow owners and those leasing cows in determining what a “fair” lease arrangement should be. Two resources are: the Beef Cow Share Lease Agreements Extension Circular 841, and a video explaining the use of the Cow-Calf Share Lease Cow-Q-Lator, an Excel based spreadsheet.
Annually reviewing cow-calf share or cash cow lease agreements is prudent under current rapidly fluctuating market conditions. In order for cow share or lease agreements to be successful long term, the lease must work for all parties involved.