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Economic Information
  1. Dairy Cow Leasing Arrangements
  2. Federal Order Price Forecasts
  3. Looking for Federal Milk Order Reform and Price Information
  4. CME Daily Dairy Report
  5. Fact Sheet #16: What Determines Your Milk Check? Part 1 (pdf)
  6. Fact Sheet #17: What Determines Your Milk Check? Part 2 (pdf)

Cow-Lease Arrangement Example


The cow-lease arrangement is one method by which producers can join forces or give a junior partner a chance to gain equity. Whether adding a formal partner or 'farming' your cows out to another dairy, you are forming a partnership that needs to be equitable for both parties. In the case of the junior partner, the senior partner can hire the younger partner for a fair wage, incorporate his animals into the new herd and pay a monthly rent for the use of these animal. 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 worksheet below is an example that can help you determine a fair lease rate for cows. It assumes the owner, or in this example junior partner, will get the 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. Individual arrangements will vary. For this example, the worksheet assumptions are 1.] all costs except cow ownership are the responsibility of the leasee and 2.] calves born during the lease are the property of the leasee.

The cow-lease payment worksheet 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 or her investment and risk.

Cow-leasing Payment Worksheet
Example
Your Farm
1. Animal Depreciation, per head

a. Initial value of animal (freshening heifer)

$1,325
_____

b. Salvage value of animal (cull value)

$525
_____

c. Loss in value [A - B]

$800
_____

d. Average life in herd, months

36
_____

e. Depreciation cost [C÷D] per month

$22.22
_____
2. Death Loss

f. Expected death loss per year

2.5%
_____

g. Average animal value [(A + B) ÷ 2]

$925
_____

h. Death loss cost [(G x F) ÷ 12 months]

$1.93
_____
3. Time use of money invested

i. Expected return on investment

15%
_____

j. Return on investment [(G x I) ÷ 12 months]

$11.56
_____
4. Minimum charge for lease rate per cow per month

k. Cow-lease rate =[E+H+J]     

$35.71
_____

l. Daily cow-lease rate =[E+H+J] ÷ 30 days

$1.19
_____


Animal Sciences Extension Service CAFSNR NDSU