Common use of Types of Agreements Clause in Contracts

Types of Agreements. Depending on the situation, there are a number of ways to set up cow-share agreements. A Cash Lease can be quite a simple arrangement, or a very complex document. To remedy this, it is recommended that the livestock involved are separated into their own stand-alone part of the agreement. Land, facilities, machinery, feed and other inputs should be another unique arrangement. Natural disasters, extreme weather, or other unforeseen market circumstances can dramatically impact the long-term feasibility of an agreement. In the simplest form, cows and bulls can be leased for a flat fee per year. If the cattle owner relinquishes all management of the cows, self-employment tax on that income can be avoided. Use of pasture, crop residue, machinery, and facilities can all be separated into cash rental arrangements based on usage or an hourly rate. In the end, these items can be tied together into one final agreement, but flexibility and continual negotiations may be necessary in the long run. Equitable Share or profit-share agreements are popular and effective ways to manage risk and offer incentives to both parties. The key to these arrangements is establishing who is responsible for the contributions to the cattle enterprise. The owner and the operator need to be compensated for their time put in to the operation if the share in labor is unequal. Together, the two sides arrive at a percentage of contribution to the business that’s agreeable. Then, any revenue generated from calves, cull cows, excess hay, etc. is split by the same percentage. Incentives to cut costs or increase cow productivity can also be worked in to the agreement. It is extremely important that these agreements be detailed and well understood. A tank of diesel fuel, a repair bill, or a bottle of vaccine may seem trivial at first, but these small items can lead to discontent. As a result, flexibility is key, and these agreements will likely evolve over time as needs arise. Management arrangements seem logical for producers wanting to phase out to a younger generation. They also work very well for absentee cattle owners forced to move off the farm for other employment, or for those physically unable to care for their livestock. When turning the cows over to another caretaker, the labor often works for equity in the ▇▇▇▇▇▇▇ instead of an hourly wage. As an example, the manager can work for “10 cows per year” or “15% of the cow herd” on an annual basis. Over the course of the agreement, the manager gains complete control of the cows. It is important that both parties understand the difference between management and just doing chores. If the operator will eventually own the herd, breeding and general management decisions need to migrate to them as well. When management agreements are designed for simply an animal caretaker in the absence of the owner, incentives can bring “value” to both parties. For example, monetary bonuses can be paid for an above average calving or weaning percentage. The owner then has more healthy calves to sell. Operators that can implement artificial insemination or develop a successful premium market for the calves deserve extra compensation.