Economics of Owning vs. Share-Leasing of Beef Cows
in
Carrington Area Farm Business Management
Program
Introduction
As economic demands cause
beef cow-calf producers to expand their herds there is continued interest in
the economic feasibility of leasing beef cows on a share arrangement. Beef producers today are seeking ways of
capturing economic returns while holding down the total dollars of investment
in capital items, including breeding stock.
In order for beef producers to
really understand any possible share arrangement they must know their
actual costs of production and be able to compare those numbers to the
estimated numbers from a possible share arrangement.
Procedure
Data for this study was
compiled through the Carrington Area Farm Business Management Program in
conjunction with the North Dakota Farm Business Management Education
Program. The Carrington program is one
of 14 programs in the state wide
The minimum number of
producers involved in the study, in any one year was nineteen with a maximum of
twenty-seven. The total number of owned
cows involved over the four year period was 11,352 head while the total
share-lease cows numbered 1,188 head as measured on a twelve month basis. The average owned herd consisted of 124.7
cows while the share lease herds averaged one-half of that number at 62.5
head. In all instances where there was a
share-lease herd located on the farm or ranch, there was also an owned herd
maintained under the same production practices.
In addition to the 19 share-lease herds there were a total of 91 owned
herds in the four-year study.
While all costs were gathered
on a 12-month basis, the income side of the enterprise, except for the sale of
cull animals or breeding stock, was terminated at weaning when the calves were
physically separated and sold or transferred to a backgrounding or feeding
enterprise. While producers were
encouraged to weigh all calves at weaning, it must be acknowledged that some
producers did not weigh all calves when they were weaned and transferred to
other enterprises. For these calves
weights were estimated using the sale weights of herd mates or similar type
calves. All replacement stock were held in separate enterprises and their costs and
returns are not included with the beef cow-calf data contained within this
study.
The share arrangements varied
from 70-30 to 50-50 for the operator and breeding stock owners
respectively. The simplest arrangement
was a 70-30 split with the operator supplying all feed and breeding bulls while
the owner was responsible for supplying the replacement cows. Other arrangements varied the split of the
weaned calves and also brought such items as pasture, other feeds, and breeding
bulls into the equation.
Results and Discussion
The cows in the owned herds
weaned calves with an average weight of 548 pounds, as shown in Table 1, or
fifty pounds more that the average for the share-lease cows. A key item that of pounds weaned per exposed
female was recorded at 495 pounds for the owned herds while the share-lease
herds averaged 48 pounds less at 447 pounds.
Calving, weaning, and calf death loss percentages were very similar for
the two types of herds but the share-lease herds had a 5.5% greater culling
rate, averaging 19.8% versus 14.3% for the owned herds.
The total value produced per
cow showed a distinct advantage of $27.54 for the owned herds with a total of
$456.15 per cow. The change in value
produced is not proportional to the pounds produced per cow because the lighter
weight calves do tend to have a higher per pound value. A key item for producers to understand is
that of net inventory change which is listed at -$35.71 per cow for the owned
herds. This is the average annual drop
in the value of each cow due to such items as cull sales and the non-reimbursed
share of death loss in the breeding herd.
With the share lease herd the farm operator would typically experience
no loss in value as this cost would be borne by the breeding stock owner. Thus gross return, after net inventory
change, favors the share-lease herd by $16.76 with a total of $442.93.
Direct operator expenses
including feed costs totaled $140.92 for the share-lease herds or $58.22 less
than the owned herds. This was due to
the owners, under some share arrangements, providing a share of the feed or
pasture for the share-lease herds. Vet
and livestock supplies were combined under one heading to reflect the mingling
of these costs by producers. Lease costs
per cow, at $173.36 for the share-lease herds, reflect the value of the calves
returned to the owners as their share of the calf crop. This amounted to an average of 39.1% of the
total calf crop value.
Overhead costs were the
highest for the owned herds at $69.57 per cow or an increase of $26.24 over the
share-lease herds. Interest on the
breeding stock is included under the heading non-operating interest costs and
this reflects an increase of $13.49 per cow for the owned herds when compared
to the share-lease herds. Even without
this additional interest cost, owned herds reflected a higher overhead cost
amounting to an additional $12.75 per head.
The operator’s share of net
income per cow favored the owned herds at $90.64 versus $11.46 for the
share-lease cows. When considering the
lease costs per cow, this would equate to a 61% share lease for the operator
and a 39% share for the breeding stock owner and would include a portion of the
feed and breeding bulls being supplied by the breeding stock owner. In both scenarios the net income generated
would be the consideration for the operator’s labor and management and would
also be available for any principal payments associated with the particular
enterprise.
Summary
In considering the
implications of a share-lease arrangement a producer must be very aware of
where the industry is in relation to the 10-12 year cattle cycle. The years 1999-2002 would certainly be
considered to be leading into the upper end of the current cattle cycle. Producers need to be keenly aware of their
level of production and of the price structure they are most likely to be
operating in when they are weaning share-lease calves. If a planned share-lease arrangement is only
moderately profitable at the high end of the cycle an individual producer needs
to look at what the implications are as prices retreat on the downside of the
cycle.
It should be noted that
share-lease arrangements can be a method of marketing excess forages and range
that might otherwise be under utilized.
Again, knowing the cost of producing forages and maintaining rangelands
is critical to accessing the potential profitability of any share-lease
arrangement. A general statement often
made about share-lease arrangements is that the breeding stock owner and the
cow-calf operator should share profits in proportion to their investment and
risk in the enterprise. There is no
single share-lease arrangement that will fit all producers in all
circumstances. Each producer is challenged
to know his costs of production and to then relate that information to the
potential outcome and profitability of a particular share-lease arrangement.
References
Metzger, S.S. 2002. Carrington Area Farm Financial and
Carrington Area Farm Business Management Program,
Metzger, S.S. 2001. Carrington Area Farm Financial and
Carrington Area Farm Business Management Program,
Metzger, S.S. 2000. Carrington Area Farm Financial and
Carrington Area Farm Business Management Program,
Metzger, S.S. 1999. Carrington Area Farm Financial and
Carrington Area Farm Business Management Program,