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Determining Pasture Rental Rates (R1823)

Livestock producers and land owners have asked for a simple and fair method to determine pasture rental rates. This tends to be a difficult question to answer as prices can vary from region to region due to market demand and supply. However, several methods are available to computing a pasture rental rate. These methods will be described in this publication with examples.

Kevin K. Sedivec, Extension Rangeland Management Specialist

Miranda Meehan, Extension Livestock Environmental Stewardship Specialist; John Dhuyvetter, Area Extension Livestock Systems Specialist


Photo by Miranda Meehan, NDSU

Photo by Miranda Meehan, NDSU

Livestock producers and land owners want a simple and fair method to determine pasture rental rates. This tends to be a difficult question to answer because prices can vary from region to region due to market demand and supply.

Several methods are available for computing a pasture rental rate. However, before computing a pasture rental rate, producers and landowners need to understand a variety of factors influencing rental rates.

Pasture rental rates vary based on:

  • Forage quantity and quality
  • Forage species and composition – rangeland, improved pasture1, annual cover crop, crop residue
  • Condition of fence
  • Water quality and availability
  • Management practices required by landowner
  • Presence of a grazing system on rangeland and improved pastures
  • Fertility practices on improved pastures
  • Supply and demand

1 Improved pastures usually refers to seeded pastures and may include tame grass species such as crested wheatgrass, brome grass, wheatgrass mixtures, and expired conservation reserve program lands in the northern Plains.

Pasture Rental Rate Options

Many options are available to calculate pasture rental rates as a starting point for negotiations between a landowner and tenant. Because North Dakota is primarily a cow-calf producing state, the best rental rate options that fit our region are based on:

Rental rate by acre

  • Current market rates as provided by U.S. Department of Agriculture’s National Agricultural Statistics Service-North Dakota, which conducts annual surveys
  • Return on pasture investment - return based on value of land

Rental rate by animal unit month (AUM)

  • Rent per head of livestock (animal unit equivalent) per month

Pasture quality factors

Pasture quality factors is a method recommended for annual forage pastures such as cover crops, crop residue and annuals planted used for grazing.

  • Uses current market value for hay price per ton multiplied by pasture quality factor multiplied by animal unit equivalent
  • This method will undervalue rangelands, especially with good cattle prices and lower hay values (for example,$60/ton grass hay x 0.15 x 1.15 (1,200-pound cow with calf = $10.35/AUM)

Pasture rental rates often are influenced by commodity prices such as commercial hay, corn, barley, byproducts and alternative land uses. Pasture rental rates need to be competitive with the production values of these crops that typically are fed to livestock as alternative feeds.

Performance method

Performance method is an option used when payment is made based on livestock performance. This method is not recommended for permanent pasture types such as native rangeland or improved pastures grazed with cow-calf pairs in the Northern Plains. The performance method is calculated based on weight gain of livestock.

  • Used primarily with yearling cattle
  • Based on break-even rate for cost per pound of gain multiplied by pounds gained on pasture per head

— The break-even rate for cost per pound of gain is extremely variable across a region and the country, thus leaving a wide range of potential rental rates. Publications throughout the country list a range of 30 to 60 cents as a break-even rate for cost per pound of gain (1, 2).

Responsibilities

The responsibility of the tenant and landowner must be considered when negotiating rental rates. In most cases, unless specified in a written contract, the tenant is responsible for those activities related to livestock production and management. These activities include:

  • Checking livestock
  • Checking/maintaining water sources
  • Providing salt, mineral and fly control
  • Fence repair

— Often negotiated between tenant and landowner

— Material typically provided by landowner, but can vary from region to region

The landowner typically is responsible for those activities related to land production. These activities include:

  • Fence

— Responsibility for material and repair may vary and often is negotiated between landowner and tenant

  • Water
  • Weed and brush control

— Negotiable, but landowner provides chemical

  • Fertilizing and reseeding improved pasture

— Negotiable, but landowner provides fertilizer and/or seed

Landowner and Tenant Considerations

A landowner typically expects rental rates to cover the real estate taxes, cost of land maintenance (fence repair, water source costs, weed control/management, etc.), insurance and any interest on the investment if purchasing land. A landowner should be able to cover all out-of-pocket expenses from the rental payment; however, in some cases, this may be unrealistic due to current range and pasture values.

Tenants should determine their level of ability to rent a pasture based on current livestock market values, availability and costs of alternative feeds, and availability of other pastures within a reasonable distance. Basically, the tenant needs to know what he/she can afford based on his/her return per head or herd and projected annual budget.

Renting by the Acre

Renting by the acre is the simplest option because it creates a direct payment rate for each acre of land grazed and is most familiar to livestock producers and landowners. However, this method has the greatest potential for economic losses by the tenant and poor land conservation efforts.

Leasing pasture by the acre sets a value on the land for the entire operating year (based on North Dakota Century Code) and usually is not tied to livestock numbers unless specified in a contract. This method usually benefits, economically, the tenant because he/she can add more livestock without increasing the payment.

This method also can increase the risk of overgrazing because adding more livestock doesn’t add more expense to the tenant. Increased livestock numbers reduce the direct costs per head of livestock and potentially create overgrazed pastures if too many livestock are added during a period of time. The livestock producer may experience poor livestock performance and landowner resource degradation when overgrazing occurs.

NOTE: The NDSU Range and Pasture Calculator may be used to calculate pasture rental rates.

Current Market Rates: Survey Data

The USDA National Agricultural Statistics Service for North Dakota provides average pasture rental rates and range/pasture land values that are created based on annual surveys of farmers and ranchers. Approximately 4,600 North Dakota agricultural producers responded to the 2017 survey.

Table 1 shows county-level data for range and pastureland average, most frequently reported rental rates per acre, and average value of rented pasture and rangeland in 2017 (3). We advise the reader to exercise discretion when using these county averages and use these values as one factor to establish rental arrangements.

Table 1

Return on Investment

Landowners can determine rental value based on the desired return of investment from their estimated value of the pastureland or rangeland. This is a fairly simple method to estimate the base rental rate per acre. The base rate then can be used to negotiate the final rate, depending on contributions by each party.

To determine the base rate, multiply the estimated value of the land (Table 1; or the value of the land if known) by an accepted rent-to-value ratio and divide by 100 (3.5 percent divided by 100 = 0.035). Rent-to-value ratios will vary from year to year based on typical returns you would expect from a bank or investment. These numbers can vary from 1.5 to 8 percent, depending on county, region, area and state. Based on published reports, pasture rent appears to range from 1.5 to 2 percent of market value in the Midwest (2) and 3.5 to 6 percent of market value reported in the West (1). You, as a landowner or tenant, can determine what ratio-to-value return you are comfortable with when starting negotiations (see formula below or Worksheet D of the Range and Pasture Calculator).

 Example 1

Example 2

A landowner can determine a starting point for return on investment based on his/her land value and calculate a return on investment with which he/she is comfortable. Landowner can use the North Dakota NASS report and compare rental values of calculated rents versus survey rental reports for their county.

Landowners should be open to negotiate based on supply and demand, trust and a positive relationship with potential tenants, current livestock market values and trends, and acceptable contributions by both parties on the management of the livestock herd and upkeep of the pasture infrastructure.

Renting by the Animal Unit Month (AUM)

Renting by the animal unit month (AUM) provides the most equitable option for the landowner and tenant while reducing the risk for overgrazing or understocking. Overgrazing reduces the long-term ecological function of the plant community, reducing plant vigor and forage production potential in future years, and impacts overall livestock performance of the herd (gain per day and gain per acre), especially for future years.

Understocking leads to reduced income potential for the landowner because the tenant only pays for that number of animal units grazed. Understocking may be desirable in some cases; for example: when improved wildlife habitat is desired to increase wildlife populations.

A note of caution: Understocking for a period of many years (two years or longer, depending on location) will create a buildup of litter and a cooler, wetter micro-climate that favors the invasion of exotic, cool-season grasses in the Northern Plains, thereby negatively impacting plant communities on native rangelands.

Calculating AUMs: Stocking Rate

Stocking Rate Formula

Example 3

Example 4

Using the AUM rental method, the tenant pays rent based on the number of animals grazed and length of time the pasture is used (see formula below or Worksheet E of the Range and Pasture Calculator). To determine AUMs, you first must convert the livestock class to an animal unit equivalent (see Table 2).

Table 2

An animal unit (AU) is based on forage consumption of a 1,000-pound cow with a calf up to 6 months of age, or daily consumption of 26 pounds per /day of oven-dried forage or 30 pounds per day of air-dried forage. An AUM is the amount of forage consumed by one AU for one month (M).

For more information on calculating stocking rates, refer to “Determining Carrying Capacity and Stocking Rates for Range and Pasture in North Dakota” (R1810).

Calculating AUM Rental Rate: Carrying Capacity

The value for pasture rental rates using the AUM method can be highly variable and driven by supply and demand. Little to no survey data is available in North Dakota that provides an average or most frequently used AUM rate. However, once you have calculated your rental rate by the acre, you can convert that value to an AUM rate.

Calculating the AUM rate requires that the average carrying capacity for your pasture be determined. For landowners who do not know the carrying capacity of their pasture or rangeland, Table 3 is included to provide an estimated stocking rate guide for different regions (see Figure 1 for multiple land resource areas) of North Dakota. For more information on calculating carrying capacity, refer to “Determining Carrying Capacity and Stocking Rates for Range and Pasture in North Dakota” (R1810).

Table 3

Figure 2

Figure 1. Major land resource areas of North Dakota.
North Dakota state agencies and the ND GIS Hub

The landowner and tenant agree upon a per-acre rental rate and determine total payment for the pasture using the assumption that livestock will graze for the entire planned grazing season (even if they don’t). Then the landowner estimates his/her carrying capacity of the pasture to be rented (we highly recommend determining actual carrying capacity using a current or past conservation plan.)

The landowner must categorize all acres within the pasture by upland and lowland vegetation types (also will need soil type; for example loamy, sandy, clayey). Each vegetation type is multiplied by the recommended stocking rate from Table 3 to determine AUMs available.

Finally, divide the total payment by the AUMs available in the pasture to determine the AUM rental rate (see formula below or Worksheet E of the Range and Pasture Calculator). By using this value, the tenant pays only for the number of animal units he/she grazes for the given time period.

capacity formula

Example 5

Example 6

 

Renting Using Pasture Quality Factors
(Use for annual forages such as cover crops and crop residue)

Pasture quality factors (PQF) is a method recommended for annual forage and improved pastures. This method commonly is used on improved pastures such as orchard grass and tall fescue in the east-central regions of the U.S. However, it may provide a base price for annual crops and residues in the northern regions.

The PQF method uses current market value for hay price per ton. This hay price is multiplied by the PQF that best describes the pasture type (Table 4). Note: The hay price should represent the average price of good-quality grass hay for all pasture types with a PQF of 0.18 or lower. Use the average price for equal quality hay that represents PQF of 0.22 and 0.20 (see Table 4) to best represent the hay needed to replace higher-quality pastures.

Table 4

This concept is designed to best represent the value of high-quality pastures; however, if a livestock producer were to replace hay with lower-quality pastures, he/she still would need to feed a good-quality hay.

Then this value is multiplied by the animal unit equivalent (AUE) for the class and size of livestock grazed (Table 2; see formula below or Worksheet F of the Range and Pasture Calculator). The rental rate will be represented as dollars per AUM.

This formula works because the renter pays for the forage crop (hay) harvested with livestock as an alternative to machinery. The AUM grazing formula is adapted for forage moisture content, pounds consumed, forage volume within the pasture and plant population.

AUM grazing rate formula

Example 7

Example 8

Example 9

 

Citations

Hendrix, F.W. 2015. Calculation of Fair Pasture Rates. Publication FS187E. Washington State University.

Hofstrand, D., and W. Edwards. 2015. Computing a Pasture Rental Rate. AgDM File C2-23. Iowa State University.

North Dakota Department of Trust Lands. 2017. 2017 County Rents and Values North Dakota.

September 2017

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