Cow-calf share leases can be a useful way to connect cattle owners with operators who can provide feed and labor. Coming up with a share percentage that is fair to both parties can be very challenging. Many of the “rules of thumb” that producers have relied on are outdated and don’t reflect changes in economic conditions and input costs.
To help producers and cattle owners evaluate share arrangements, SDSU Extension has developed a Share Lease Comparison tool. The tool relies on the principle that income from the calf crop should be shared in the same proportion as the inputs supplied by each party.
For the purposes of using this tool, “owner” refers to the party who owns the cows and “operator” refers to the party supplying all or some of the other inputs (labor, facilities, etc.). The exact percentage supplied by the operator can be changed for any input to allow flexibility in cases where the cow owner also supplies other inputs (i.e. facilities, pasture, etc.). The cowherd is usually, but not necessarily, 100% owned by the owner. Ownership of the bulls is entered separately to allow for situations where the cows and the bulls are not owned by the same party.
These values determine the contributions of the party that owns the cows and/or bulls. Accurate estimates of breeding animal values plus cull and replacement values combined with replacement or culling percentage determines the breeding herd depreciation expense. Interest rate is used to determine an annual cost for the breeding herd investment.
Cash Production Expenses
Most of these expenses are self-explanatory, with some defaults provided. Pasture expense and winter feed costs are calculated using two values for each expense:
- Pasture costs: Average acres per cow × cost per acre, entered separately
- Winter feed costs: Number of days × cost per day
These refer to facility depreciation and labor expense. Estimated default values are provided, but these can be over-ridden if desired.
Clicking on the calculate button produces the output report, which contains the following information:
- Indirect Expenses
The left side of the report shows all the indirect expense borne by each party along with the gross income.
- Total Expenses, Return on Assets, & Operating Margin
The right side of the report shows the total expenses (direct cash costs plus all indirect expenses), the return on assets for the cow owner, and the operating margin for each party. Please note that the operating margin is the gross income minus all direct cash costs, so any indirect expenses such as labor, management, and depreciation are not included.
- Equitable Percentage
The final section shows the equitable percentage of the calf crop for each party. These values are used in the profit analysis and operating margin calculations. Keep in mind these percentages are only for the calf crop, it is assumed that all income for culled breeding livestock would go to the owner of those animals.
Clicking anywhere outside of the report takes the user back to the input screen. All the previously entered values are still there, so that the user can experiment with different values and assumptions.
Source: Warren Rusche, iGrow