Even if you know your production economics inside out, custom feeding or pasturing cows or calves can be tricky from the business angle. A simple contract can clarify your responsibilities as a feeder and those of your clients.
Grant Palmer and Bob Gwyer, business development specialists with Manitoba Agriculture Food and Rural Initiatives (MAFRI), suggest taking a look through the general “custom cattle feeding agreement” on the MAFRI website as a starting point.
“The terms and conditions will give you an idea of things to think about and flag areas to consider,” Gwyer says. It’s recommended that you discuss options with your lawyer to develop a contract that accurately reflects the arrangements and relationship between yourself and owners of the cattle.
“If you find that you’re wanting to add more and more things into a contract because you think they could become issues, maybe that’s a red flag that you shouldn’t do business with that custom feeder or cattle owner,” Palmer adds. Once an agreement has been signed with a client, follow through by making sure any amendments are in writing.
Here are some of the main points that should be discussed and put down in writing.
Term of the agreement
The length of time the agreement will be in effect should be established as clearly as possible up front, Gwyer says. It’s generally understood that the longer the days on feed, for whatever reason, the more it will cost. Make sure there are clauses in the agreement to address how alterations and amendments will be made, a dispute mechanism, and conditions of early termination.
Describe the cattle and delivery
A description of the cattle to be delivered should include the animal identification numbers, sex, breed, age and brand/mark.
There should be a clause to the effect that you, as the feeder, reserve the right to refuse poor doers and sickly animals, Gwyer explains. It’s a good idea to use a standard form to acknowledge acceptance of each delivery and the type of cattle received.
Outline who is responsible for the cost of transporting the cattle to and from the place where they will be fed and specify the terms of any cost-sharing arrangements.
Who pays what
Feeding costs can be charged out based on a rate per pound of gain, a rate per pound of feed, or a flat fee per animal per day. Pasture costs are usually calculated per animal per day or per animal for the season, however, per pound of gain is becoming more common for custom pasturing yearling cattle. Yardage and bedding are usually billed out on a fee per animal per day.
A per animal chute fee covers your time in processing the cattle on arrival. The owner is responsible for the cost of the supplies, such as vaccinations, drugs, implants and eartags. Also indicate whether there will be additional charges for services, such as branding, dehorning and castrating animals.
Medicine and veterinary services can be billed out on a dollar-per-animal basis or according to the actual cost of the treatments and/or service call. Custom calving services are most often set at a rate per live calf. The cost of veterinary care, drugs, vitamin shots, milk replacer, electrolyte and other sundries can be the responsibility of the owner or shared.
The cost for other services the owner requests or you offer to provide, such as weighing or marketing, should be laid out in the contract.
Monthly billing is recommended. The invoice should state when payment is due and the rate of interest on unpaid balances.
It’s a common practice for feeders to request an initial deposit of a stated amount per animal from the owner. This is held and applied against the final invoice. The final bill covers all of the outstanding fees that need to be paid in full prior to releasing the cattle to the owner.
Also consider how any government payments that apply to your situation will be split. Then there’s the matter of how to deal with quarantine and/or destruction orders. Though it seems like a remote possibility, it’s better dealt with up front than after the fact.
The death loss policy is something a lot of owners get tough on because it helps to ensure the likelihood that the care will be better, Gwyer says.
The sample contract suggests that the owner is responsible for the first agreed-upon percentage. After that, and up to another agreed-upon percentage, the loss is split 50-50. Beyond that, the feeder would be responsible to compensate the owner based on the value of the animal at the time of delivery to the premise and also to forfeit all outstanding monthly feed costs on the animal(s).
This section includes a brief clause that you will provide all feed and medication required for the proper care of the cattle on a day-to-day basis.
State the legal land description of where the cattle will be kept and clarify whether the cattle will be segregated or commingled.
Gwyer adds that it’s also important to owners to include a clause that you won’t move the cattle from the premise without their consent in writing. There should be a general statement to the effect that the feeder has no right at any time, in any manner, to sell or dispose of the cattle, mortgage, charge, encumber, pledge or grant security on the cattle.
Feeders are generally required to give the owner or his/her representative the right to inspect the cattle without notice.
The sample contract for reference is available at www.gov.mb.ca/agriculture/livestock/beef/baa04s00.html.