Most farms and ranches lease a portion of the land they operate. Leasing capital assets is a method of lending or transferring capital while also sharing in some of the risk. Leasing breeding stock may be used to gradually transfer ownership of a herd, reduce labor while staying invested, and as an alternative to lender financing.
The past few years have seen large increases in capital requirements for land, equipment, and farm resources. With the recent increases in capital requirements of farms and ranches, leasing cows may be an option to owning high-cost capital assets.
As in all good lease relationships, the owner (cow owner, lessor) and operator (lessee, care taker) should have reciprocal trust and confidence in each other. The owner will want to visit the operator’s location and check references. The operator should have assurance that the owner will be reasonable and honor the contract. Above all, excellent communication between parties is vital to the success of the lease arrangement.
Items to consider when developing a lease:
- Include only cows and bulls.
- Develop separate leases for pasture, hay land, or equipment.
- Death loss.
- Cull cows.
- Lease termination.
- Annual review.
For more detailed information, refer to the North Central Farm Management Extension Committee publication: Beef Cow Rental Arrangements for Your Farm.
Source: Jack Davis, CPA