Custom Feeding Contracts - What's Different Since BSE?

Introduction

The closure of trade borders due to BSE has presented difficult production, marketing and financial challenges to the Ontario cattle industry. The partial lifting of the border ban for some meats and the initiation of a rulemaking process for the importation of live ruminant products offer some positive impact. However, many producers still face very uncertain circumstances. Prudent risk management and financial considerations may prompt some feedlot operations to consider the option of custom feeding, rather than ownership, of cattle. Likewise, cow-calf operators may consider retained ownership of their calves, with custom feeding as an option.

In the current market conditions, it is even more essential that cattle feeding agreements between the feeder and the owner of the cattle should be clear and understood by both parties. Risk and benefit should be carefully assessed before entering into any agreement. For a review of various agreement considerations and types of agreements, see OMAF Infosheet Custom Feeding - Make Sure It's In Writing.

OMAF Factsheet, Publication #600, Cattle Feeding Agreements, provides detailed information about feeding agreements. It also contains a sample agreement as a guide to help the owner and feeder to develop an agreement that fits their individual situation.

What's different about custom feeding contracts in the wake of BSE? In the past, financing and payment options have covered a broad spectrum. In many cases feedlots billed monthly, but were willing to finance until the cattle were sold. Such an option may not be available this year, given the financial impact of BSE.

Expect to negotiate monthly agreements with monthly payments. The type of agreement you have will determine what reconciliation, if any, is needed at the end of the feeding period. For example, the daily charge per head per day type of agreement may become even more common because it allows monthly billing for the cash flow planning of both parties. Accurate cash flow planning will be a priority for owners, feeders and their financial institutions.

Other considerations around payment and security are:

1. Should the owner of the cattle provide a non-revocable letter of credit to secure payment?
2. Do the cattle become collateral in the event of nonpayment?
3. What happens if a cheque is returned due to insufficient funds?
4. Should the feeder register a claim under the Personal Property Security Act?
   

Under current conditions, both parties may want to deal only with known entities. No matter how well you know each other, keep it a business relationship. Both parties should consult a lawyer before signing any legal or contractual agreement. A written custom feeding contract details the common expectations of the parties and identifies the responsibilities of the owner and custom feeder. So now more than ever, if you are custom feeding cattle - make sure it's in writing!

Related Links

• Custom Feeding - Make Sure it's in Writing
• Publication #600, Cattle Feeding Agreements

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