Most people agree that overall, pasture rental rates will increase this year. Of course, weather conditions will impact that as we move into spring. So, with all the variables, how do
you determine what’s a fair price?
"Fair market value is determined by many buyers and many sellers coming together. That is sometimes hard for land, since it is fixed in place. Surveys are the best way to know what the market is. Then make adjustments for productivity," says William Edwards, an Iowa State University economist.
Cattle producers should expect to pay more for pastures, as most regions are estimating slight increases in pasture rental rates. Many factors impact rental rates for any tract of land, says Kansas State University agricultural economist Kevin Dhuyvetter. Besides stocking rate, forage quality, size of pasture, quality of fence, etc., his examination of historical data shows three factors that explain the variability of pasture rates over time:
- Rates trend up over time and typically increase from year-to-year.
- Rates are positively related to cattle prices.
- Rental rates are positively related to corn prices.
Rates on the rise. In Kansas, Dhuyvetter says, the average annual percentage change for the previous 30 years has increased roughly 1.5% to 2% each year. In addition, given higher feeder cattle and corn prices, some producers might see rates increase by 1% to 3% this yea
r. Dhuyvetter points out that pasture rent rates went up signifi cantly in 2011 due to cattle and feed prices, so 2012 increases should be relatively modest.
For example, in 2011 the average lease rate estimate for a 500-lb. to 699-lb. steer increased 7%; for 2012, the projected estimate is 1.35% higher.
"As far as increases in rental rates, we have observed a slow increase in rates in Iowa, fi rst due to competition for hunting and recreational purposes and lately due more to increased beef prices," Edwards says.
"In the Midwest, some pasture has probably been converted to row crops, though the yearly acreage figures are not precise enough to measure that very well," he adds. "Movement of cows from the Southern Plains to nearby states because of drought may have pushed rental rates up in those states."
Weather and pasture condition also play a role in pasture rental rates. That’s why Dhuyvetter encourages farmers and ranchers to base the lease on a per-animal basis rather than a per-acre basis. Then it will fluctuate with stocking rates.
"It is important for landowners to recognize that while current economic conditions suggest that pasture rental rates will be higher, rates may need to decrease if and when conditions go in the other direction," he says.
For instance, if cattle or feed prices drop significantly, you may want to plug those values into a calculator to see how they impact projected rental rates.
The same goes for significant price increases. "If prices increase significantly before the grazing season starts, rental rates may need to increase," Dhuyvetter says.
To get started, Edwards advises, producers should find out as much as they can about the pasture—has it been reseeded, fertilized or otherwise improved, or does it already have adequate water?
"Also, if the tenant does these things, can he or she obtain a long-term lease or an agreement to be reimbursed if the lease is not renewed? Similar considerations apply to improving fences and water sources.Pastures can usually be ‘improved,’ but the renter needs some assurance that he or she will receive the long-term benefit from it." Negotiate from there.
There are several tools online to help with pasture rental rates and leases.
- Mid-February 2012