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Lancaster Farming, Saturday, April 10,1902-
Will livestock
leasing worki
NEWARK, DeI. Commercial
businesses often use leasing as a
way to meet capital needs. The
practice is now being adopted by
farmers m some parts of the
■ 'try as an alternative to buying
c-quu, -uent or breeding stock
especially ;n -lairv and s-.une
operations
To find out whether the idea Ml!
nOTK on the Deimarva peninsula,
last year economists in ihe
University ot Delaware’s colleges
of agricultural sciences, ona
business and econonucs surveyed
the area’s igncuiturai and
business communities to learn hot*
farmers felt anout leasing The
survey was iunaeo by a grant rrom
Rothchilds, a New York oasea
investment tirm
According to Extension Farm
Management Specialist Don
Tilmon, who participated in the
study, results showed that while
fanners on the peninsula are still
reluctant to lease equipment, some
could and, in the future, probably
would, benefit from leasing
livestock.
“Commercial firms are now
entering this market and complete
herds, herd expansions and
replacements are being made
available,” he says. One firm
claims to have leased 18,000 cows
at an average cost of about 87 cents
per cow per day. This is less than
the interest a farmer would pay on
money borrowed to buy that cow.
Leasing allows a fanner to
retain the use of assets such as
breeding stock without investing
equity or debt capital. The
arrangement alo benefits the
owner of the stock, who gets a tax
benefit because, under the 1961 tax
reform act, the profits are con
sidered capital gains rather than
income a distinction worth tax
savings of 60 percent on the money
involved.
Lease arrangements offer
several other advantages to both
parties. No down payment is
required from the lease. Payments
are fully deductible tax expenses.
A lease gives a beginning farmer a
chance to acquire resources, and
may also be a way to obtain better
quality livestock than would be
possible otherwise.
At the same tune, the lessor or
owner of the livestock' retains the
breeding herd without providing
labor and operating inputs, and
may have investment credit and
accelerated cost recovery
(depreciation) tax benefits. Total
returns may also be higher
through rental income and tax
advantges.
Tilmon says farmers who
currently own a livestock
operation but are nearing
retirement may want to consider
leasing their herds as an orderly
means of phasing out of the
business without being subjected
to large tax liabilities. However,
there are also some drawbacks to
livestock lease arrangements, he
cautions. Both parties give up
partial control and possible con
flicts of interest or disagreements
are much more likely than in a sale
transaction. In the long run.
leasing may also be more ex
pensive than a capital purchase.
A lease agreement is a binding
contract and should be in writing,
TUmon says. Engage an attorney
to help with the legal details. The
specialist is also available to
consult with farmers who want to
make sure such an arrangement
meets their needs.