Grazing Values

Research, Compromise Help When Negotiating Pasture Rents

Victoria G Myers
By  Victoria G. Myers , Progressive Farmer Senior Editor
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Pasture quality and the forage values therein should play a large part in rental rate negotiations. (DTN/Progressive Farmer photo by Becky Mills)

Maybe you'd like to bring in a load of stocker calves this spring, or you're interested in buying some bred heifers to grow the herd. You'll need grazing area to make it happen. And, depending on the region, there are almost as many ways to negotiate a pasture lease as there are cattle and landowners.

Lee Schulz, Extension livestock economist at Iowa State University (ISU), says pasture rents can be established several ways: by return on investment, forage value, rent per head per month, carrying capacity or rent per pound of gain. That's a lot of options and a lot of numbers to run. Just remember: Everything starts with what's in those pastures.

"Forage value is important to look at," Schulz explains. "Going market rates for the forage in that pasture are dictated by supply/demand and condition. A lot of the rate can be driven by drought in an area or, conversely, by an increase in supply. There's also producer demand to consider, which will support prices. This, then, is a changing target year to year."

Don Hofstrand and William Edwards, both recently retired from ISU, authored a report "Computing a Pasture Rental Rate," which outlines various methods to establishing rates. Here's a closer look at each method.

-- Forage Values. A rental rate based on forage value starts with an estimate of pasture production in tons per acre. Multiply that by 25% of the price of grass hay during grazing season. Production levels will change based on types of grass. For example, warm-season grasses are estimated at 4 to 6 tons per acre, cornstalks at 0.5 to 1 ton per acre.

-- Return On Investment. This approach uses the land value as a means to set a monthly rental rate. In most markets, rental rate ranges from 1.5 to 2% of the market value. It can be challenging for landowner and prospective renter to agree on the value of land. In this case, appraisers may be needed to set a price.

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-- Rate Per Grazing Animal. Number of animals and time on pasture are key factors in this approach. Animals aren't counted per head but per "animal unit month" (AUM), which is based on weights of the animals on the pasture. An AUM equals the amount of forage to support one 1,000-pound cow with a calf up to 4 months of age, for 30 days. To reach a total, multiply a rental rate for the ground by AUMs. The rental rate here should be based on quality of the pasture and forage type. Cornstalks, for example, would have a 0.10 quality rating, whereas average native pasture would have a 0.15 rating and lush high-protein pasture a 0.22 rating.

-- Carrying Capacity. How many AUMs a pasture can carry for the grazing season is used to set rates in this case. Rental rate per AUM is multiplied by carrying capacity.

-- Per Pound Of Gain. Backgrounders or stockers often negotiate a pasture rent based on how many pounds calves add while they are on the pasture. Calves have to be weighed before they go on and when they go off to arrive at the payment. An average value of gain on livestock is 50 to 60 cents per pound, with rent figured by multiplying this value of gain by total gain.

-- Going Rates. The simplest, and often most common, approach to setting a rental rate is knowing what the going rate is in the area and agreeing to that. Some states conduct annual surveys and have this data available. There is also a broader survey available from the USDA.

Schulz says it's important producers look at the entire picture before settling on a rate, regardless of method used. Will cattle need supplementation? If so, who pays for that supplement and physically puts it out? Are there adequate water sources on the pasture? Is fencing well kept? Who repairs fencing if needed? Are handling facilities available?

"Make sure facilities are adequate, and they match your production system," Schulz adds. It's also worth considering proximity and how much extra time and cost you will have to devote to those rental acres.

"When you look at different types of contracts, there is no one-size-fits-all for any producer. Look for equitable rates that take into account growing conditions and any other factors that may occur."

For More Information:

-- Iowa State University: www.extension.iastate.edu/agdm

-- USDA cash rents: www.bit.ly/2a4IbML

-- USDA land values: www.bit.ly/2bE3Nx1

(AG)

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Victoria Myers

Victoria G Myers
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