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A Call to Train Young Farmers and Ranchers
Declining numbers of farmers and ranchers and the increasing age of those who remain in the business are fueling the call to bring in and train young farmers and ranchers.
Declining numbers of farmers and ranchers and the increasing age of those who
remain in the business are fueling the call to bring in and train young farmers
and ranchers.
That has resulted in the development of programs to facilitate and promote
arrangements between retiring and aspiring young farmers. But even with such
programs, including government-backed loans to new farmers, this is problematic
because the competition from expanding farms for land can be fierce.
"Finding opportunities for new players amid the consolidation into much larger
but fewer farms driven by recent profitability, new technology and risk
protection policies is challenging," says John Dhuyvetter, area Extension
livestock specialist at North Dakota State University's North Central Research
Extension Center near Minot. "The reality is that getting started is as
difficult as ever, with the exception of the next generation of families
currently established with large, successful operations."
With soaring land prices, the high cost of equipment and breeding stock, and
escalating operating costs, startup operations will have a limited opportunity
to own high-capital-cost assets. When ownership isn't possible, leasing will be
more likely. Leasing agricultural land is common, and for most farmers and
ranchers, the majority of acreage they operate is leased. However, most cattle
assets traditionally are owned or lender-financed.
Leasing cattle may be an option. Leasing allows a rancher to gain a herd of
stock cows and generate income when investing and borrowing to buy cows may not
be feasible or desired. A cow owner who leases cows to someone else eliminates
the responsibility for caring for the herd while retaining an income-earning
asset.
"With high-cost breeding stock and larger herd sizes, interest in leasing cows
is being explored," Dhuyvetter says. "The cattle industry is smaller than in the
past and smaller than it probably should be. Widespread drought has been a major
driver of this trend, coupled with higher feed prices and profitability in the
farming sector. Older existing ranchers may be less inclined to rebuild or
expand, creating opportunities for young ranchers as forage conditions improve."
Historically, most cow leases were on a share basis. Financial experts recommend
an equitable split of calves that is in proportion to contributed costs. For
example, the owner contributes cow ownership costs (interest on investment,
normal death loss, depreciation) and the operator provides all the operating
costs (feed, yardage, care and health). A budgeting spreadsheet is available
through the NDSU Extension Service at
http://www.ag.ndsu.edu/livestockeconomics/Budgets. This spreadsheet can help
document costs and calculate contributions.
More recently, cow owners seem to be using cash cow leases. Under these leases,
the operator agrees to pay the owner an annual cash payment per cow for a set
period (usually one to three years). The operator is expected to provide all
care and inputs, and he or she earns the calves produced to market them in a way
that returns the best profit possible.
"The possibilities for a win-win situation exist," Dhuyvetter says. "The young
rancher gets started in the business using someone else's cows while conserving
his borrowing ability for other needs. Provided costs can be controlled and the
income of cattle great enough, sufficient revenue is generated to leave a return
to his labor and management. The retiring or absentee cow owner earns a
retirement income, continues to have some involvement and creates alternatives
to phaseout."
However, such leases can turn into a lose-lose situation because of factors such
as improper cow management, poor production, high death loss, excessive costs
and low market prices, he warns. Other problems can include inequitable leases
in which the operator or owner feels unfairly treated.
"Communication of expectations is critical," Dhuyvetter says. "For the most
part, the devil is in the details, and to be successful, the lease should
address cow care, animal identification, death loss, culling, replacement,
marketing, etc., in addition to terms and rates."
While a cow lease may be whatever two parties agree on and will be unique to a
particular situation, here are some suggestions for developing a successful
lease agreement:
* Plan and budget to explore equitability and feasibility.
* Make sure the person you're working with is a good fit.
* Put the terms of the lease, including termination date and procedure, in
writing.
* Specify how animals will be identified (include brand) and annually
inventoried.
* Leave bull ownership to the operator and keep breeding dates standard.
* Allow the operator to cull as needed up to a limit, with culling income as
part of the owner's return.
* Develop or purchase replacements externally from the lease.
* Create a separate contract for leased land, machinery or special services, as
calf backgrouding.
* The owner accepts a normal death loss with compensation for excess.
* Provide for notification when issues arise and opportunities for inspection.
