Shared expenses for cattle

[gthag]

What would be a fair business arrangement with the following scenario?

I buy a load of 350# heifers and "John" receives, processes and provides all labor as well as pasture for the cattle with them sold at 550-600#.

My main question is a fair way to share feed and medicine cost IF John and I equally share profit/loss for the heifers.

 

[Jalopy]

I would think a split of somewhere between 60/40 and 70/30 in John"s favor would be optimal. As I read it he is providing labor, management and land and your portion of the of the equation is capital for the purchase of the cattle. I would suggest that other expenses also be split at the same percentage. The risk (death loss and vet expense) would be split the same way also. There will be others that have different opinions I am sure but this could be a starting point for the discussion. JMO- Good Luck- JLP

 

[1982vett]

If you are only going to be the banker.....should be self explanatory.

 

[mitch16]

How many cattle are on a load???

 

[msscamp]

What would be a fair business arrangement with the following scenario?

I buy a load of 350# heifers and "John" receives, processes and provides all labor as well as pasture for the cattle with them sold at 550-600#.

My main question is a fair way to share feed and medicine cost IF John and I equally share profit/loss for the heifers.

"John" is receiving, processing, and providing all labor, as well as pasture. Cost of feed and any medications needed - as well as their cost - is the responsibility of the owner.

 

[rockridgecattle]

I would research what is done in your area or ask the local sale barn. Here we have guys who custom feed which is what John would do. The buyer pays for the feed, meds, tags mineral, etc. The custom operator supplies the labour.
Then John would get so many cents on a pound at sale time. He would be allowed x number of deaths in the lot, providing you provide good quality cattle. There is an agreement drawn up before the animals arrive on the yard.
That is what happens out here. I however do not know what the price is that is paid to the custom operators

 

[Angus Cowman]

When I sold my calves this yr I had plenty of grass so I made a deal with the buyer he paid all expenses I provided the labor and grass for $10.50 pr hd pr month or a percentage of that amount if one died not a real money maker for me but a safer deal than him paying me on the gain

on gain we would have weighed the group of calves and I would have gotten $.33 per lb and that was me supplyimg the feed and him supplying the meds but it wouldn't take long to lose money if I had a couple of sicks or a mortality would have probably been alright since they were my calves not salebarn cattle and tehy didn't have any stress from being moved around

If I was "John" I would go with the $10.50 per month especially if these will be sale barn calves

 

[Limomike]

"John" is receiving, processing, and providing all labor, as well as pasture. Cost of feed and any medications needed - as well as their cost - is the responsibility of the owner.

Well said Msscamp. That is exactly the right thing to do.

 

[gthag]

So everyone agrees that the buyer should be responsible for feed, minerals, meds if John supplies labor and ground.

What do you think is a fair split on gain?

 

[simcross]

My biggest concern is how well do you both get along with each other.
350 lb calves sometimes get sick and when they do they sometimes go down hill fast. How well can you each deal with death loss, if he is out working with them every day getting the sick ones in doctoring them. If you are sitting at your desk counting your money will he get pissed.

How well can you deal with death loss if it happens will you still think he is doing all he can or will you get antsy thinking maybe he isn' doing enough.

You are going to tell me the calves will be vaccinated for every thing wormed and poured and so one but that does not always keep some from getting sick.

My advise is to strongly think about it long and hard

 

[Angus Cowman]

When I sold my calves this yr I had plenty of grass so I made a deal with the buyer he paid all expenses I provided the labor and grass for $10.50 pr hd pr month or a percentage of that amount if one died not a real money maker for me but a safer deal than him paying me on the gain

on gain we would have weighed the group of calves and I would have gotten $.33 per lb and that was me supplyimg the feed and him supplying the meds but it wouldn't take long to lose money if I had a couple of sicks or a mortality would have probably been alright since they were my calves not salebarn cattle and tehy didn't have any stress from being moved around

If I was "John" I would go with the $10.50 per month especially if these will be sale barn calves

Those are sale barn prices. Set what prices you want when you sale em off the farm. My freezer beef goes for 1.20 per pound live weight. Also, the customer pays the slaughter house kill fee. My commercial bulls I sell for 1.00 per pound or market price +50 dollars which ever is greater (thus far 1.00 per pound has been greater). Weaning age heifers I sale for 1.00 per pound also. Registered bulls and registered heifers as yearlings go from 1200-1400 for heifers and 1400-2500 for breeding bulls.

Baxter what are you talking about??
I wasn't selling these calves he had already bought them from me and I was grazing them on contract for those amounts

 

[gthag]

I'm well aware about potential death loss in this scenario.

We're friends and both aware there's no guarantee on the deal. My main concern is to have everything on paper beforehand. Back to my question, any thoughts on what the market is now on how to split weight gain/profit when we sell? Thanks again.

 

[HerefordSire]

I'm well aware about potential death loss in this scenario.

We're friends and both aware there's no guarantee on the deal. My main concern is to have everything on paper beforehand. Back to my question, any thoughts on what the market is now on how to split weight gain/profit when we sell? Thanks again.

In my opinion, the volume makes all the difference. For example, if you are buying 10,000 head, figure the lowest amount of money to keep your friend happy then add 100 dollars and you keep the rest. If the volume is 10 head, he will probably need to take about 99.9% of all profit and if there is a loss, which is likely with these low numbers, then you will more than likely have to absorb it.

 

[gthag]

probably 100-110 head.

 

[HerefordSire]

probably 100-110 head.

If I am understanding this correctly, your friend will have no risk?

 

[gthag]

Yes- he would have no risk, other than the risk of his labor/time yielding nothing.

 

[msscamp]

So everyone agrees that the buyer should be responsible for feed, minerals, meds if John supplies labor and ground.

What do you think is a fair split on gain?

This is not my area of expertise, but I would venture to say a 50-50 split. Reason being is that "John" has invested his pasture, as well as his time, and labor in feeding them when the pasture is no longer viable. Half of the equation is having the funds to buy the calves, and the other half is having the knowledge and experience to keep them alive, healthy, and gaining.

 

[HerefordSire]

Yes- he would have no risk, other than the risk of his labor/time yielding nothing.

Based upon the price spread and quantity previously disclosed, we are conversing about $25K potential gross revenue if you and your friend are successful. The way I would manage this since you are really the one with the risk, is guarantee your friend minimum wage to be paid later when the cattle are sold. This removes all of your friend's potential 'free' labor...in other words, he doesn't have the pressure of receiving a big goose egg. In addition to a minimum wage guarantee (contract labor) to be paid when the cattle are sold, provide him with incentives. For example, if the cattle weigh on the high end of the weight range you supplied, then he gets 30% cut after all expenses including his wages. If he beats your high end by 10%, he gets a 40% cut after all expenses. If the cattle weigh on the low end of your range, then get gets a 5% cut after all expenses. After implementing a similar plan like this, how much do you think those cattle will weight when they are liquidated?