Sarah RothBusiness Management Specialist

Penn State University

Dairy Alliance is a Cooperative Extension initiative

Dairy HeiferContracting

Fundamentals

Presentation Overview

Advantages to

having contracts

Types of contracts

Contract contents

Advantages

• Clear description of each party’s responsibilities

• Form of protection in the unfortunate case of a lawsuit

Types of Contracts

Full Contract

Daily Charge (per head per day)

Per Pound of Gain

Feed Plus Yardage

Sell/Buy Back

Full Contract

Producer pays set $$$$ for animals to be raised for a specific length of time

Varying contract periods• Calendar time (months)• Animal development• Growth stages• Breeding status

Rewards grower for returning heifers meeting the contract’s spec’s in a timely manner

Daily Charge(per head per day)

Producer pays a set $$$$ per day for each animal at the grower’s

More time at the grower’s = more $$$$

! Rewards the grower for low growth rates and keeping heifers longer than necessary

Per Pound of Gain

Producers pay set $$$$ for each pound of weight gain animals have while under the grower’s care

Animal handling on a regular basis required

! Rewards grower for raising fat heifers

Feed plus Yardage

Producer pays for feed plus an additional set fee to cover all other expenses

Feed becomes a variable expense

! May encourage the use of low quality feeds

Sell/Buy Back

Producer sells heifers to grower with option to re-purchase prior to calving

Grower assumes ownership

Producer has no liability

! Grower has complete control over raising methods

Contract Contents

Contract Contents

Time Period Billing and Payment Responsibilities Amendments,

renegotiations, and renewal

Termination

Time Period

• Determine age at which heifers will come and go from your operation

• Dictated by:– Skills– Facilities– Feeds available– Producer needs

Billing and Payment

Payment Calculation

• Explain how charges are calculated

To pay the following fees as billed within 30 days of billing date:

a. $15 per head admission fee for each heifer admitted into this program. This is a one time only fee for each heifer.

b. To pay $1.00 per lb. of body weight gain for heifers weighting up to 500 lbs.

c. To pay $0.80 per lb. of body weight gain for heifers weighing between 501 and 900 lbs.

d. To pay $0.85 per lb. of body weight gain for heifers weighing between 901 and 1300 lbs.

e. To pay $2.50 per day of care for dry cows. All dry cows must be picked up within two weeks of projected due date, or within three days after notification by _____ (Heifer Grower Business) that birth is impending.

Example:

To pay the following fees as billed within 30 days of billing date:

a. $15 per head admission fee for each heifer admitted into this program. This is a one time only fee for each heifer.

b. To pay $1.00 per lb. of body weight gain for heifers weighting up to 500 lbs.

c. To pay $0.80 per lb. of body weight gain for heifers weighing between 501 and 900 lbs.

d. To pay $0.85 per lb. of body weight gain for heifers weighing between 901 and 1300 lbs.

e. To pay $2.50 per day of care for dry cows. All dry cows must be picked up within two weeks of projected due date, or within three days after notification by _____ (Heifer Grower Business) that birth is impending.

Example:

Billing and Payment

Payment Method & Timing

• How & when payments will be made?– Cash– Check– Barter– Weekly– Monthly– Half up front, half at completion

• Analyze expected costs and cash flow

Billing and Payment

Non-payment

• Period without penalty?

• Penalty charge incorporated in fee structure?

• Assume ownership in lieu of payment?

Billing and Payment

Last payment

• Determine a procedure– Hold number of animals that

value last payment?– Other?

• Date on which last payment is due if contract is terminated

All fees for admission must be paid on date of arrival. Monthly weight gain or daily fee will be billed by statement on the first day of each month following the month gain was recorded. Payment will be due and payable by the end of each month. All terms are Net 30 Days with no discounts applicable. Overdue accounts will be subject to standard terms and conditions shown on the back of all _____ (Heifer Grower Business) invoices (see attached). All accounts must be current before heifers/cows will be released to return to owners. If accounts become 120 days or greater overdue, owner agrees to provide heifers as collateral toward the payment of such fees, and surrender ownership of heifers of equivalent value until such bills are paid.

Example:

All fees for admission must be paid on date of arrival. Monthly weight gain or daily fee will be billed by statement on the first day of each month following the month gain was recorded. Payment will be due and payable by the end of each month. All terms are Net 30 Days with no discounts applicable. Overdue accounts will be subject to standard terms and conditions shown on the back of all _____ (Heifer Grower Business) invoices (see attached). All accounts must be current before heifers/cows will be released to return to owners. If accounts become 120 days or greater overdue, owner agrees to provide heifers as collateral toward the payment of such fees, and surrender ownership of heifers of equivalent value until such bills are paid.

Example:

All fees for admission must be paid on date of arrival. Monthly weight gain or daily fee will be billed by statement on the first day of each month following the month gain was recorded. Payment will be due and payable by the end of each month. All terms are Net 30 Days with no discounts applicable. Overdue accounts will be subject to standard terms and conditions shown on the back of all _____ (Heifer Grower Business) invoices (see attached). All accounts must be current before heifers/cows will be released to return to owners. If accounts become 120 days or greater overdue, owner agrees to provide heifers as collateral toward the payment of such fees, and surrender ownership of heifers of equivalent value until such bills are paid.

Example:

All fees for admission must be paid on date of arrival. Monthly weight gain or daily fee will be billed by statement on the first day of each month following the month gain was recorded. Payment will be due and payable by the end of each month. All terms are Net 30 Days with no discounts applicable. Overdue accounts will be subject to standard terms and conditions shown on the back of all _____ (Heifer Grower Business) invoices (see attached). All accounts must be current before heifers/cows will be released to return to owners. If accounts become 120 days or greater overdue, owner agrees to provide heifers as collateral toward the payment of such fees, and surrender ownership of heifers of equivalent value until such bills are paid.

Example:

Responsibilities

Entrance Requirements

• Health status• Vaccination history• Pervious performance

Responsibilities

Performance/Quality Standards• Age• Weight• Structural growth• Body condition• Reproductive status

Responsibilities

Monitoring & Reporting

• Weigh & measure monthly?• What to include?

– Death loss– Veterinary procedures

• Report format?– Phone call– Email– Detailed report

• When to report?– Quarterly– Monthly

Heifers will be weighed upon arrival at the farm and thereafter within the last five days of each month on a farm scale maintained by _____ (Heifer Grower Business), and the weights of each heifer reported to the owner. A final weight will be obtained on the day heifers are loaded to return to the owner. Owner agrees to accept the weights obtained by this procedure and as provided by _____ (Heifer Grower Business).

Example:

Heifers will be weighed upon arrival at the farm and thereafter within the last five days of each month on a farm scale maintained by _____ (Heifer Grower Business), and the weights of each heifer reported to the owner. A final weight will be obtained on the day heifers are loaded to return to the owner. Owner agrees to accept the weights obtained by this procedure and as provided by _____ (Heifer Grower Business).

Example:

Responsibilities

Health Practices

• Whose veterinarian?

• Standard health protocol?

• What procedures are covered by the contract fee and what would incur additional charges?

Example:

Heifers will be vaccinated when received, and each fall thereafter for IBR, BVD, PI3, Lepto, and Haemophilus. In addition each heifer will receive one vaccination for rabies.

Example:

Heifers will be vaccinated when received, and each fall thereafter for IBR, BVD, PI3, Lepto, and Haemophilus. In addition each heifer will receive one vaccination for rabies.

To pay all AI and veterinarian expenses associated with synchronizing, breeding, and checking animals for pregnancy. Such expenses will be limited to actual charges made by Dr. _____, his employee, or another veterinarian of _____ (Heifer Grower Business) choosing. These bills will be presented on a monthly basis.

Example:

To pay all AI and veterinarian expenses associated with synchronizing, breeding, and checking animals for pregnancy. Such expenses will be limited to actual charges made by Dr. _____, his employee, or another veterinarian of _____ (Heifer Grower Business) choosing. These bills will be presented on a monthly basis.

Example:

Responsibilities

Breeding

• Whose responsibility?• AI or natural service?• How is semen chosen?• How many times will

heifers be inseminated?

Example:

Heifers, which are open, will be bred at the owner’s expense to a bull of the owners choosing from Genex, Sire Power, or another mutually agreed upon bull stud. Pregnancy exams, synchronizing shots, and implants given specific animals will be billed at cost to the owner of the heifer.

Example:

Heifers, which are open, will be bred at the owner’s expense to a bull of the owners choosing from Genex, Sire Power, or another mutually agreed upon bull stud. Pregnancy exams, synchronizing shots, and implants given specific animals will be billed at cost to the owner of the heifer.

Example:

Heifers, which are open, will be bred at the owner’s expense to a bull of the owners choosing from Genex, Sire Power, or another mutually agreed upon bull stud. Pregnancy exams, synchronizing shots, and implants given specific animals will be billed at cost to the owner of the heifer.

Responsibilities

Death Losses

• Who incurs the loss?

Responsibilities

Transportation

• How often?

• Who will transport to and from the grower?

• Is cost of transportation included?

Responsibilities

Animal Identification

• How?– Ear tags, collars

• Who will supply identification?

Responsibilities

Animal Nonperformance

• Who determines satisfactory performance?

• Who determines removal from the herd?

• If heifer is sold, how are proceeds distributed?

______ (Heifer Grower Business) will provide the best care possible, but does not warrant that each heifer will become pregnant. In addition we accept no liability for animals which become injured or must be culled for other reasons. If an animal is culled, the owner will receive the cull sales value as determined by sale at auction of said animal less cost of trucking, auction costs, and veterinarian costs associated with treatment of said animal.

Example:

______ (Heifer Grower Business) will provide the best care possible, but does not warrant that each heifer will become pregnant. In addition we accept no liability for animals which become injured or must be culled for other reasons. If an animal is culled, the owner will receive the cull sales value as determined by sale at auction of said animal less cost of trucking, auction costs, and veterinarian costs associated with treatment of said animal.

Example:

______ (Heifer Grower Business) will provide the best care possible, but does not warrant that each heifer will become pregnant. In addition we accept no liability for animals which become injured or must be culled for other reasons. If an animal is culled, the owner will receive the cull sales value as determined by sale at auction of said animal less cost of trucking, auction costs, and veterinarian costs associated with treatment of said animal.

Example:

Responsibilities

Insurance

• Whose insurance covers any loss of animals?

Responsibilities

Reassignment of duties

• Is there a plan should something happen to you?

• Is it acceptable for someone to take over your duties?

Amendments, renegotiations, and renewal

Arbitration

• When does a dispute go to arbitration?

• How are arbitrators chosen?

• How long will it last?

CLAUSE IV: ARBITRATION: Any dispute arising under the terms of this contract may be referred by the parties hereto to an arbitrator, or if one person cannot be found who is acceptable to both parties, then each shall choose an arbitrator and the two chosen shall select a third. The majority decision of the arbitrator(s) shall be presented to both parties in writing. The arbitrator(s) shall have the power to make an award or determination on any issue which arises out of the contract and it shall be binding on both parties. The expense of the arbitrator(s) shall be divided equally between the parties. Pending final decision of a dispute hereunder, the parties hereto shall proceed diligently with the performance of the contract.

Example:

CLAUSE IV: ARBITRATION: Any dispute arising under the terms of this contract may be referred by the parties hereto to an arbitrator, or if one person cannot be found who is acceptable to both parties, then each shall choose an arbitrator and the two chosen shall select a third. The majority decision of the arbitrator(s) shall be presented to both parties in writing. The arbitrator(s) shall have the power to make an award or determination on any issue which arises out of the contract and it shall be binding on both parties. The expense of the arbitrator(s) shall be divided equally between the parties. Pending final decision of a dispute hereunder, the parties hereto shall proceed diligently with the performance of the contract.

Example:

CLAUSE IV: ARBITRATION: Any dispute arising under the terms of this contract may be referred by the parties hereto to an arbitrator, or if one person cannot be found who is acceptable to both parties, then each shall choose an arbitrator and the two chosen shall select a third. The majority decision of the arbitrator(s) shall be presented to both parties in writing. The arbitrator(s) shall have the power to make an award or determination on any issue which arises out of the contract and it shall be binding on both parties. The expense of the arbitrator(s) shall be divided equally between the parties. Pending final decision of a dispute hereunder, the parties hereto shall proceed diligently with the performance of the contract.

Example:

CLAUSE IV: ARBITRATION: Any dispute arising under the terms of this contract may be referred by the parties hereto to an arbitrator, or if one person cannot be found who is acceptable to both parties, then each shall choose an arbitrator and the two chosen shall select a third. The majority decision of the arbitrator(s) shall be presented to both parties in writing. The arbitrator(s) shall have the power to make an award or determination on any issue which arises out of the contract and it shall be binding on both parties. The expense of the arbitrator(s) shall be divided equally between the parties. Pending final decision of a dispute hereunder, the parties hereto shall proceed diligently with the performance of the contract.

Example:

Amendments, renegotiations, and renewal

Renegotiation

• How often will the contract be renegotiated?

• What starts the renegotiation process?

Amendments, renegotiations, and renewal

Contract renewal

• When does the contract start and end?

• When will renewal talks take place?

CLAUSE II: TERM OF CONTRACT: The term of this contract shall be from the ______ day of ______, 20____, to the _______ day of ______, 20____, and shall be automatically renewed from year to year unless otherwise terminated in accordance with the provisions herein or amended in writing as mutually agree upon.

Example:

Termination

• When does notice have to be given?

• What happens to heifers still in the grower’s care?

• Refer to procedure for last payments

You’reFired!

CLAUSE III: TERMINATION OF CONTRACT: This contract may be terminated at any time by mutual agreement in writing or by at least three months written notice from either party prior to the annual renewal date. The animals on hand will be finished out or disposed of by the written terms in the contract.

Example:

CLAUSE III: TERMINATION OF CONTRACT: This contract may be terminated at any time by mutual agreement in writing or by at least three months written notice from either party prior to the annual renewal date. The animals on hand will be finished out or disposed of by the written terms in the contract.

Example:

CLAUSE III: TERMINATION OF CONTRACT: This contract may be terminated at any time by mutual agreement in writing or by at least three months written notice from either party prior to the annual renewal date. The animals on hand will be finished out or disposed of by the written terms in the contract.

Example:

Example:

To accept owner’s animals back within four weeks of notification of intent by _____ (Heifer Grower Business) to discontinue the above agreement to raise heifers.

Example:

To accept owner’s animals back within four weeks of notification of intent by _____ (Heifer Grower Business) to discontinue the above agreement to raise heifers.

Summary

• Contracts are a form of protection and risk management

• Everyone’s responsibilities are known

Sarah RothPenn State UniversityFarm Business ManagementDairy Alliance

Visit us online:http://farmmanagement.aers.psu.edu

orhttp://dairyalliance.org

Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce