Sharefarming cattle can give options

01-05-2009 | Graham Butcher

Arrangements between farmers for sharing recourses to produce and finish stock to their mutual advantage come in various forms.

Some may be valid and actually work, some may just end in the breaking of a friendship.

The resources we are talking about are land, capital and management skills and it is an enticing idea that a couple of farmers could join forces and mix their unique resources to produce a better outcome, one plus one equals three, so to speak. I'm going to use the beef industry to illustrate some ideas.

In its simplest form, two farmers may agree to take the calves off one farm and finish them on the other.

The calf producer will likely have limited land resources to finish his calves and the finisher will likely not have land suitable to winter cows but needs grazing pressure from another class of stock to keep pasture quality over the spring and summer. Sounds like a match made in heaven, but I can't think of any reason that this sort of arrangement should be set up, none at all.

The calf producer should simply sell his calves and the calf finisher should buy them. There is no need to have a complex agreement to divide the value of the finished product.

There is no additional gain to be made by setting up such an agreement; the calves are not going to grow any bigger.

It's clear cut and simple for one farmer to bank the reward for his efforts when he sells his calves and it's clear and simple that this is also the point that the next farmer begins his effort to extract more profit. No arguments, no small claim courts, just profit in respective bank accounts.

What about something a bit more complex? Farmer Joe can run cows from April to October without any difficulty. From October onwards he can't do them well enough because of the nature of his country or because of competing stock classes.

Weaning weights are low and in-calf rates can be a problem. Farmer Charlie has a different problem. His winter is tight, cows will simply not fit in but come October there is feed to control and the wintered stock cannot do an adequate job. Most years, expensive trading stock is bought in. Feed is controlled but little profit is made.

Over the years, I've often heard a comment about how good it would be to have 100 cows on deck from November to March.

In this case farmers Joe and Charlie might be able to come to an arrangement where cows are transferred from Joe to Charlie just before calving or in early November and taken back after an early weaning in March. There should be fewer empty cows, calves will be heavier and Charlie's sheep enterprises will benefit from some parasite vacuuming and low cost pasture quality control. So we have created advantages from joining resources.

The only issue is just how many farmer Joes are there?

There's plenty of farmer Charlies. We have created an advantage but have also incurred some costs in freight and Tb testing as well.

While this concept is also enticing, each party must look closely at their own overall programmes to see if there are other and better solutions to feeding Joe's cows better in spring and controlling Charlie's spring pasture in a more profitable way. An arrangement like this could work but the set of conditions required are probably not that common.

We can go a step further. A group of farmer Charlies (these are the ones that would like 100 cows on November to March) could form a company to purchase a block that is only capable of wintering cows and growing carbon.

A company buys the land and shares are issued depending on the number of cows each shareholder can run. The company would not borrow; individual shareholders would pay cash for shares either from surpluses or from borrowings.

Company income would need to be sufficient to run the place (rates, development, repairs and maintenance etc) and a per cow rental charged.

Shares could be traded at market value but other shareholders would have the first option to buy out retiring shareholders.

Farmers would own their own cows and have control over their breeding programmes. The company exists only to winter in-calf cows. Company rules would need a good sort out but the concept is quite simple. If there's a few duck ponds, venison in the gullies and a hut or two then another dimension is added.

Could this work financially?

Lets say eight farmers have 100 in-calf cows to winter. Cows are transferred to the winter block in April and are transferred back to the shareholders' farms just prior to calving.

There would need to be a different rental for first calvers and second calvers onwards. Bulls are run year round on the shareholders' farms.

Freight is paid by shareholders and cow losses lie where they fall. A person, not necessarily a shareholder, could be paid to manage the block under an agreed programme.

This surplus will need adjusting for each shareholder depending on how the cows and calves impact on their existing operations-there will be plusses and minuses, but pasture management would be a big plus.

Also, the shareholders may decide to share management duties on the wintering block and not pay a salary. Also, there may be opportunities to generate income on the winter block during the summer.

The purchase price of the cow wintering block is critical. While setting up such an agreement at a purchase price of $4000/ha needs close attention, anything over $4000/ha will need closer attention. Interestingly, the breakeven value for land is about $5800/ha.

Then you need to take into account the growth in value, or otherwise, of the company's assets and the value of having a business association with like-minded and motivated farmers.

• Graham Butcher is a farm advisor based in Gore.

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