Reviewing Cow-Calf Share and Cash Lease Agreements
The trend in cattle prices over the last year has been dramatically toward the upside. Prices have risen higher and faster than many market analysts thought possible for 2023. 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 "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
The average market value of bred cows and cow salvage values are significantly higher than they were just a year ago. This dramatic change in market value is impacting what is “fair” in terms of the amount of cash lease that would be expected to go to cow owners, or the 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 2022. The dramatic increase in interest rates over the last two years is also impacting what is a “fair” share and cash lease rate as well. The change in cow value as well as increasing interest rates means the person owning the cows may need to get a larger cash lease payment or percentage of the calf crop to reflect more accurately what is “fair” compared to where things were just two years ago.
For the upcoming 2024-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. For cow share or lease agreements to be successful long term, it must work for all parties involved.
Interviews with the authors of BeefWatch newsletter articles become available throughout the month of publication and are accessible at https://go.unl.edu/podcast. You can subscribe to the BeefWatch newsletter here: http://go.unl.edu/Beefwatch_subscribe