Top 10 Questions to Ask Before You Sign That A.I. Contract

Thursday, April 26th, 2012

Getting a contract to supply a top young sire is a rite of passage on the journey to becoming an elite dairy breeder. You`re about to sign on the dotted line with an A.I. company. Do you know exactly what you`re getting into? Before you give a quick answer that might cost you money, take a look at these 10 areas that smart breeders get all the answers to:

What kind of contract am I looking for?
a- Is the contract for the mutual benefit of you the “breeder” and the A.I Company or is it one sided in nature?
Where do Genomics fit in?
a- Do you get to see his genomics first before you are asked to sign the contract? If not what is the reason?
b- If you can test your own bull in 2013 what advantages are they offering you to sign now before genomics are known?
c- If your bull has a higher PA than his genomics, will they take him?
Ask yourself, “Should I take this risk?”
a- Does the contract come with any guarantee, or are you taking all the risk to hopefully get your ROI from the female side, if things don`t work out?
Where’s the Money?
a-Is the contract for cash, or is it a per dose, or “NET” royalty option or any combination of these?
b- Does any amount of semen given away at the start count in regards to the total amount that needs to be made before your per dose royalty kicks in?
c- If semen sells for $10 or $20 and your royalty is 10% of the “NET” what are you likely to receive?
d- What if your bull’s semen is exported for $2 or $4 what will your “NET” be then?
e- Will each sale be made transparent? Number of doses sold, and value per dose?
What about royalty agreements? When to say, “No!”
a- Is your royalty capped, and if it is what is the reason?
b- If they are offering a “NET” royalty have they fully explained what a “NET” royalty is? (A very, very important question to ask)
c- If they give you a down payment say $10,000 does the per dose royalty kick in after 10,000 doses are made or does it start immediately?
d- **Does it say anywhere in your contract that your royalty only kicks in after your bull makes the “Proven line up” or the “Active line up” If it does do not sign it until it is removed.
e- Do you receive any sort of bonus or royalty on the “early release” and most valuable semen used to fill other contracts? If not, do you know how many of these early doses are not included in your contract?
Advertising pays. Who does it?
a- Will they promote and advertise your young bull to help him reach his bonus?
b- If they do, where will they advertise him? Does that come with a guarantee?
c- What is their typical advertising budget in for a young genomic bull or any bull under 30 months, and do they typically advertise only their best young genomics bulls?
d- If they don`t typically advertise, or market their young genomic or unique bulls, what is the reason?
It’s all about semen sales. What are the details?
a- If his first and most valuable semen is given away for free for future contract considerations how does this benefit you?
b- As the “breeder” do you receive your bull’s very first semen, and are you free to use it how you wish without conditions? If not, why not?
c- Is there a bonus in your contract for the number of doses produced? Does it start at 20,000 doses or 50,000 doses or more?
d- How much semen does an average young bull produce in his first 30 months of collection?
e- What is the percentage of young genomic bulls that produce (and sell) 50,000 doses of semen before they are 30 months old?
What happens if you have a bonus bull?
a- If your bull calf has higher genomics then his PA, or is better than his sire and he is also Red, *RC, outcross, polled or any combination of these to make him truly unique is there any extra compensation or bonus offered?
b- Does your contract have a bonus if he is the #1 Red, *RC, outcross, polled or #1 for type? How much extra? You should think about what a #1 female equivalent would be worth.
c- Is there a bonus if your bull is in the top 10 for Red, *RC, outcross, polled or type?
d- Is this bonus paid for your bull if he reaches the top 10 at any time, or does this only count if he is still in the top 10 at the time of his first collection, or even later at the time of his first release? (very important to know when your bonus actually counts, could be in top 10 today but unlikely to be top 10 at time of first collection with 1,000s of bulls being tested every month)
e- Does this bonus only count for the top 10 of the stud you’re working with, or is it for the top 10 of the entire population?
f- Is there a different bonus if he reaches the top 10 of the entire population? Again – think about what an equivalent top 10 female would be worth.
Are there other benefits that should be considered?
a- If your bull is good enough they are requesting contracts on his early semen there is a good chance your young bull will have his own son producing semen before he is 30 months old. Once he has to compete with his own sons how will this affect his semen value at that time?
b- If you sign a bull contract before your bull is born what if any benefit does it provide you?
***and here is the single most important question that you MUST be able to answer:
DO YOU UNDERSTAND EVERYTHING IN THE CONTRACT?
If your sire analyst does not know the answers to these questions, or is unable or unwilling to answer them, you need to speak to the person in charge who does. Do not sign or agree to any contract you do not feel comfortable with or that you do not fully understand.

As 2013 is approaching very quickly it is possible many other options will become available. There could be differences depending on whether you are negotiating in Canada or the U.S. Who knows, it may be possible to test your bull and then sell him at auction to the highest bidder.

It is important to weigh every option, but if you are uncomfortable with the way a contract is presented, or if you do not understand something it is in your best interest to ask questions. There are many unknowns going forward, but hopefully this helps to answer some of those unknowns for you, and you can print this off and have it handy when they call to contract your best animal.