Todd,
Here's an example I got from DHM.
Below is what we actually did on our farm.
Regards,
Dave Forgey
Consider A Cow-Lease Arrangement
Dairy Herd Management / January 1996
Roger Palmer Dairy Management Consultant
Purina Mills, Inc.
Here's a familiar scenario: An established family farm, with 100 cows
and a net worth of $500,000, would like to have a young man who rents a
nearby farm, owns 40 cows and has a net worth of $30,000 join them. The
young man doesn't have the equity to build a new facility, yet would
like to work with the other family and grow into an ownership role.
One solution is to form a partnership. In today's dairy industry,
producers are combining resources, hoping to do together what neither
could accomplish alone. People who go into these agreements usually
have common interests, but may be at different stages of their careers
with varying assets.
The cow lease arrangement is one method by which producers can join
forces, giving the junior partner a chance to gain equity. This works
by having the senior partner hire the junior partner at a fair wage,
incorporate his animals into the new herd and pay a monthly rent for the
use of these animals. This allows the junior partner to build equity
which later can be used as collateral for a loan to purchase part of the
operation.
The work sheet below helps you determine a fair lease rate for cows. It
assumes the junior partner will get all calves and cull cow proceeds
from the leased cows. Often, the parties have a second agreement
covering the cost of raising heifer calves, with a payment rectification
at the end of each month.
The cow lease payment work sheet allows you to establish values for
animal depreciation, death loss and the opportunity cost of money. The
expected rate of return on investment should cover the cost of borrowed
money, plus the amount of profit needed by the junior partner to justify
his investment and risk.
Cow-Lease Payment work Sheet Example
1. Animal depreciation
A. Initial value of animal (springer heifer) $1250
B. Salvage value of animal (cull value) $550
C. Average loss in value (A-B) $700
D. Average life in herd 36 months
E. Monthly depreciation cost $19.44
per month
2. Death Loss
F. Expected death loss per year 2.5 percent
G. Average animal value (A+B/2) $900
H. Death loss cost (GxF/12 months) $1.88
per month
3. Time use of money invested
I. Expected return on investment
15%
J. Return on investment (GxI/12 months) $11.25 per month
4. Minimum charge for monthly lease rate
per cow per month
K. (E+H+J = the lease rate)
$32.57
Here's the program we used to get my partner involved before he became
part owner in our operation.
Lease Agreement for Dairy Cattle between
Forgey's River-View Farm Inc. hereafter called Lessee
and Scott or Darla Foerg hereafter called Lesser
Lesser agree to provide up to 30 head of Holstein cattle to be milked by
Lessee. Animals will be identified with Purple ear tags and will remain
the property of Lesser. Payment of $29 dollars per animal will be on a
monthly basis due by the 5th of the month following the month of
production. Beginning payments will start based on first day of saving
milk. Months will be divided into four segments. zero to five days no
payment. Six days to fifteen days $10 dollars. Sixteen days to twenty
seven days $20 dollars. Twenty eight days and more are considered a
full month. Calves born from said animals remain the property of
Lesser. If they remain on Lessee's farm for more than five days after
birth there will be a charge of $23 dollars per month feed charge due
the 5th of the month following the month raised. Payments will start on
the date of birth with Zero to five days at no charge. Six to fifteen
days at $8 dollars and Sixteen to twenty seven days at $16 dollars.
Twenty eight days and more are considered a full month.
Lesser will pay to Lessee any charges for semen used in inseminating
said animals, as well as any freight or commissions on there animals.
Lessee agrees to pay all regular veterinarian charges which would be
considered usual but any extraordinary veterinarian charges will be
agreed upon before work is done.
Forgey's River-View Farm Inc.
6032 W. Georgetown Rd.
Logansport, IN 46947
574-652-2461
forgraze@carlnet.org
