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Pastureland Survey Shows Lease Rates Still Climbing

Lingering drought and strong cattle prices combined to push private grazing rates up 4.5% this year to $13.80/animal unit month (AUM) across the Western U.S

Lingering drought and strong cattle prices combined to push private grazing rates up 4.5% this year to $13.80/animal unit month (AUM) across the Western U.S. This year's rise follows a modest 0.8% gain last year, according to the latest USDA January Cattle Survey.

Given the overall strength of the cattle economy, pasture rates would have likely risen higher except for the persistent drought, writes Michael Fritz in the upcoming March issue of BEEF magazine. Fritz is owner of Mercator Research LLC in Monona, WI, and editor and publisher of Farmland Investor Letter, a monthly subscription newsletter providing farmland market insight and intelligence for farmland investors and managers.

He says last year's dry weather, high corn prices and high energy costs stalled the rebuilding of the beef herd, which remains 6.3% under the 1996 peak of 103.5 million head. The number of beef cows in Texas, Missouri and Oklahoma, which represent nearly 29% of the U.S. beef cow herd, was down 4% in January compared to a year ago. Beef cow replacements in these three states contracted 7%. The result: 216,000 fewer beef cows and replacement heifers are competing for pasture than a year ago.

The region's firmest pasture markets are in South Dakota, California and Nebraska, where rates are up an average 10.3%, 7.1% and 6.7%, respectively, over last year.

The January survey reports that grazing rates contracted in Oregon and Washington. However, interviews with market participants in Oregon indicate grazing leases are steady to up 3.5%.

USDA's survey reflects state averages. Local rental rates vary widely based on such factors as forage quality, proximity to roads, and the availability of stock water, size of the acreage, lease term and landowner services. Charges for counting, checking health and water, providing salt and minerals, and maintaining fences vary with each situation.

The accompanying chart (click here to see chart) reports average grazing rates for three common pricing methods: per AUM, a cow-calf basis, and per head. An AUM is the amount of forage needed to sustain one cow and calf, one horse, or five sheep or goats for a month.

The protracted drought across the Southwest, Plains, Wyoming and southwest Missouri continued to counter landowner efforts to seek higher pasture rents. Lease rates were mostly unchanged in these states.

South Dakota is the exception. Here the strong cattle market and a tight grass supply due to insufficient rainfall provided much of the momentum behind a more than 10% increase to $20.30/AUM.

The run-up in corn prices is also believed to be indirectly pushing up grazing rates in eastern South Dakota. Cattlemen are feeling pressured to pay up for grass pasture since grass serves as a substitute for high-priced corn, asserts Matt Diersen, a South Dakota State University economist in Brookings.

These cost pressures continue to narrow the lease rate gap with Nebraska, which leads the western states at $24/AUM.

In Texas, rising maintenance costs have prompted landowners to take advantage of healthy cattle prices and push grazing rates up more than 6%. Higher steel prices have nearly doubled fencing costs over the last 18 months, says Richard Conner, a Texas A&M University economist in College Station.

Heading north into Oklahoma, grazing rates are flat to nominally higher. Cattlemen are paying an average of 34¢/lb. of gain for young lightweight stocker cattle on winter wheat pasture during the mid-November to March season, says Roger Sahs, an Oklahoma State University economist in Stillwater.

Graze-out wheat pasture, in which cattle remain on fields into May, is especially scarce. Strong wheat prices are prompting landowners to pull cattle off wheat fields before the first hollow stem growth stage to harvest their wheat for grain. This has helped push graze-out rates up 4¢ to an average of 37¢/lb. of gain.

Leases for native grass in Oklahoma are essentially unchanged at $9.80/acre. Bermuda grass pasture -- located mostly south of Interstate 40 -- is averaging $15/acre, up $2.

Lease rates are also flat in Missouri. Pasture leases range from $10/acre to $25/acre, depending on forage quality, reports Richard Sullivan, a Farm Credit Services appraiser in Springfield. Better quality land suitable for hay is renting for $35-$40/acre.

Mark Harmon, who runs 160 cows on leased pasture east of Joplin, says fescue pasture is renting for $35-$40/acre, also unchanged from a year ago.

The Bureau of Land Management (BLM) and the Forest Service are cutting the federal grazing fee for Western pasture lands 13.5% this year to $1.35/AUM from $1.56/AUM last year. The new fee, which takes effect March 1, is the lowest rate allowed under the current formula. BLM says rising production costs, especially higher fuel prices, outweighed strong cattle prices and higher private lease rates. The fee applies to more than 26,000 grazing permits and leases on public land administered by the two agencies.

At the state level, grazing fees on state-owned trust lands are flat to modestly higher. In Oregon, 2007 lease rates are up 3.6% to $5.80/AUM for the 638,000 acres of arid to semi-arid state rangeland in central and eastern Oregon. Typical privately-owned irrigated pasture in Klamath County, OR, rents for $22.50/AUM. County Assessor Reg LeQuieu expects 2007 rates will rise to about $24/AUM.

In Colorado, state grazing leases are up 5.5% and range from $7.64/AUM to $10.22/AUM.

In neighboring Nebraska, grazing rates on state-owned land are generally flat, despite USDA's reported 6.7% average increase for private leases. State leases for sandy soil pasture range from an average $21/AUM in the western Sand Hills, to $28/AUM in the eastern Sand Hills.

The extended drought has prompted continued cuts in stocking rates, reports Ron Vance, field supervisor with the Nebraska Board of Educational Lands and Funds.

Heavy herd liquidations over the last 6-9 months in the south-central and southern Plains have left some uncertainty in private lease rates. In mid-February, local observers expected private rates to hold steady at $18-$24/AUM in eastern Wyoming and the western Nebraska Sand Hills, and $22-$30/AUM in the eastern Nebraska Sand Hills.

Still, private rates could soften because fewer cows are competing for grass, notes Lex Madden, manager of Torrington Livestock Markets in Torrington, WY. Western Nebraska, western South Dakota and most of Wyoming remain in a moderate to severe drought.
-- Mike Fritz, Mercator Research LLC, Monona, WI

TAGS: Pasture