UNIVERSITY OF MISSOURI EXTENSION
SOUTHWEST REGION NEWS SERVICE
Contact: Wesley Tucker, agriculture and rural development specialist
Headquartered in Hickory County
Tel: (417) 745-6767
E-mail: tuckerw@missouri.edu

First person column …
Establishing Cow and Machinery Lease Agreements Becoming Popular, Requires Caution

Leasing cattle and machinery is becoming more popular in today’s market environment.

Young producers starting out may find it impossible to borrow enough capital to purchase land, machinery and breeding stock.

On the other hand, an established producer may be looking to retire or reduce their involvement in the operation but doesn’t want to sell the farm assets. One reason for this may be the income tax liability of such a large sale of land, machinery and breeding stock.

A lease agreement may be an opportunity to achieve the goal of both individuals.

But as with any contract, careful consideration should be taken to ensure all the details are clearly defined to prevent problems and conflicts later.

Cows and/or machinery can be leased in a variety of ways but one common method is called a shared lease agreement.

A shared lease agreement is where both parties (the owner and the operator) contribute a portion of the inputs and the calf crop is shared based on the portion of total costs each party contributes.

The first step is to calculate all the input costs that will go into the operation and decide who will be contributing each item.

It is very important to include all of the inputs including the main items such as land, breeding stock, machinery, labor, vet supplies and supplements. But also include the smaller inputs like management, fuel, repairs on machinery, maintenance of fences and record keeping.

A value must be placed on each item to determine its portion of contribution to the total costs.

It is also very important to discuss items ahead of time, like who will be responsible for providing breeding stock replacements? Who’s responsible for machinery repairs or replacement if it’s damaged? Who provides the bull expense?

There are many items that are often initially overlooked. That is one reason it is extremely important to complete a written lease to incorporate as many of these “hidden” items as possible ahead of time.

Although the process may sound complicated, it is actually very simple. The most difficult part is creating the budget of total expenses.

Past farm records can be a good resource for starting the process. Collecting current budgets from places like University of Missouri Extension can also be helpful.

Once the budget is created, simply calculate the split. If the owner is providing 75 percent of the inputs and the operator is contributing 25 percent, then the owner will receive 75 percent of the calf crop and the operator 25 percent.

In father-child partnerships the individuals often struggle with what is an equitable agreement.

Often times, when a father and child begin planning they expect it will be a 50-50 split. By using a lease agreement form to add up all the inputs they can calculate what each party is truly contributing.

In reality, if the owner is providing the land, breeding stock, and machinery, a 75-25 split will probably be more equitable.

However, sometimes to help pass the farm to the next generation the owner may agree to a split that favors the operator. 

The following websites contain excellent resources for those considering a livestock lease agreement. Included in the resources are fill in forms and spreadsheets to calculate your individual split of contributions.

http://www.oznet.ksu.edu/library/agec2/mf2163.pdf

http://www.ext.nodak.edu/extpubs/agecon/farmmgt/ec1086w.htm

http://osuextra.okstate.edu/pdfs/F-571web.pdf

University of Missouri Extension is your one-stop source for practical education on almost anything. Extension programs focus on the high-priority needs of people throughout the state. Each county extension center, with oversight by locally elected and appointed citizens, is your local link to these unbiased resources and programs.
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Wesley Tucker can be reached in the Hickory County Extension Center at (417) 745-6767. He is an active cow/calf producer and has worked with MU Extension for five years. He received a bachelor’s in agricultural economics and masters in agricultural economics, University of Missouri. In his position as a agriculture and rural development specialist he provides educational programs dealing with farm management issues like pasture leasing, fence laws, profitable beef production, grazing economics, stockpiling fescue, managed grazing, forage production, fescue toxicosis, beef price forecasting, livestock marketing, leasing beef cows, estate planning, financial statements, record keeping and management skills for farm women.