– Dr. Kenny Burdine, Extension Professor, Livestock Marketing, University of Kentucky
As an Extension economist that focuses in the area of livestock marketing, I always learn a lot by working through questions I get from stakeholders. A couple times each year a farmer or Extension agent will reach out to me hoping to understand what type of arrangement is typical when multiple individuals partner on a cow herd. The reality is that these arrangements tend to be very complex, and each one is unique. Often, one of the individuals provides the majority of the labor and management, while the other owns the land, cattle and equipment. From there, these arrangements vary greatly as to which party provides what and who is responsible for which expenses. It can be difficult to set share agreements up in a way that is attractive to both parties and this article will briefly talk through some of the reasons why.
First, large profits have historically been pretty elusive in the cow-calf business. I am well aware that I am writing this during a time when calf prices are extremely high and that can be seen in the Southern Plains calf price chart above. But the profit levels being seen during 2024 are much higher than what most would describe as “typical”. As one can imagine, I tend to get more questions about share arrangements when calf prices are high. But, when we discuss applying the proposed arrangement to a lower, long-run average calf price, there is often not enough revenue for both parties to be happy given the individual contributions they are making.
Secondly, producers need to have a good feel for their costs in order to fully think through a share arrangement. The fairest way to set up a cow-share agreement is for each party to share in revenues at roughly the same proportion as their cost contribution. Fleshing this out is simply not possible without a good understanding of those costs. This becomes further complicated by the fact that a lot of those costs tend to be non-cash contributions. For example, one party may be contributing the bulk of the labor / management, and a value needs to be placed on that time. If one of the parties is going to be responsible for cutting, raking, and rolling the hay, values must be placed on non-cash costs like depreciation on equipment, in addition to the operator’s time and the variable costs of producing that hay. Similarly, if one party owns the land being used for pasture and / or hay production, a value should be placed on the use of that ground.
Finally, cow-calf operations are not static; they change over time. Depending on forage availability and market conditions, the size of a cowherd will change from year to year. When heifers are held back for replacement purposes, this effectively lowers revenues for the cow-calf operation in the short run. During times when the cowherd is being expanded, short-term revenue can be greatly impacted. If the cows themselves are owned in partnership, this may not be an issue. But if one party owns the “cowherd”, the arrangement needs to find a fair way to compensate the other party for their share of heifers that are not sold. This can likely be done by placing a value on all calves at weaning, whether they are sold or retained, but a question still remains about the cost of developing those heifers that are retained for breeding purposes.
These are just three of the more common hurdles cow-calf operators tend to encounter as they explore a share arrangement on a cowherd. My goal in walking through those was not to imply that share arrangements are not possible. There are examples of successful arrangements and I think they can be a good way for someone to get started in the cattle business. But due to the complexity of cow-calf operations and the cyclical nature of calf markets, it is imperative that all parties fully think through all aspects of these arrangements before entering into an agreement.