2006 Grazing Rates Survey: Rates Inching Up

Reflecting the impact of an expanding drought and historically low cattle numbers, grazing rates on privately owned land across the western U.S. inched up just 0.8% this year to $13.20/animal unit month (AUM). This year's modest rise follows a 6.5% gain last year, according to the new USDA January Cattle Survey.

The region's firmest pasture markets are in Nevada, Colorado and Wyoming, where rates are up an average of 15.1%, 7.4% and 6.5%, respectively, over last year. Conversely, grazing rates contracted in Washington, Utah, Nebraska, New Mexico and Texas.

It's important to note the survey rates reflect state averages. Local rental rates vary widely based on such factors as forage quality, proximity to roads, stock-water availability, acreage size and lease term.

Another factor affecting fees are the services provided by the landowner, which can vary from no more than collecting the lease checks to taking complete care of the stock. Charges for counting, checking health and water, providing salt and minerals, and maintaining fences varies by each situation, range specialists note.

The accompanying chart reports average grazing rates for three common pricing methods: 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.

Drought effects

The expanding drought across the Southwest, Plains, and in western Arkansas and southwest Missouri, has dulled landowner efforts to seek higher pasture rents. In Texas, producers report rangeland leases are mostly unchanged, even though the supply of grazing tracts continues to contract as landowners close parcels off to livestock in favor of hunting leases, which can fetch four to five times livestock grazing fees.

“People have bought up land and high-fenced it for hunting. They don't want to hassle with livestock for a few dollars per acre,” says David Moore, a Frio County, TX, cattleman. Moore leases 3,200 acres of pasture for his own cattle, and custom preconditions another 8,000-10,000 head annually.

He says lack of pasture and high feed prices caused by the drought in South Texas are prompting him to send 1,000 calves to graze winter pasture in Kansas this month.

“They were due to be sent in May,” Moore says. “Normally we would put them on pasture to hold them, but I can't find any pasture and it's too expensive to feed them.”

Similarly, grazing rates are flat across Oklahoma.

“Drought and a lack of cattle numbers means the demand for pasture hasn't changed,” says J.C. Hobbs, an Oklahoma State University Extension economist in Enid.

Indeed, there are 6.4 million fewer cattle competing for pasture today than a decade ago. But high cattle prices have prompted producers to expand the breeding herd.

Beef cow numbers are up 1% for the 12 months ended Jan. 1; beef replacement heifer numbers are 4% higher. The number of all cattle stands at 97.1 million, a 2% increase over last year. This expansion — which began in 2004 — could continue for five or more years.

The recently ended eight-year decline in cattle numbers helps explain why pasture rents haven't kept pace with land values. There have been fewer cattle to compete for pasture.

But there are pockets of strength. In some regions of eastern Montana and into the Dakotas, lease rates have risen faster than land values in recent years, says George Luther, a Miles City, MT, appraiser who also manages ranch tracts.

“There is just a big demand for pasture,” Luther says. “We have a sizeable waiting list for people who would like to lease property for grazing.”

Base rates on new leases are running $15-$20/head/month, up from $12-$16, he reports.

Federal fees cut

The Bureau of Land Management and the Forest Service are cutting the federal grazing fee for western pasture lands more than 12% this year. The new fee, which takes effect March 1, falls to $1.56/AUM, down from $1.79 last year. BLM says rising production costs — especially higher fuel prices — overshadowed increases in cattle prices and 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 lands are headed up. After holding base rates unchanged last year, grazing leases with the Colorado State Land Board are increasing 5.5% in 2006, and again in 2007. This year's rates range from $6.65/AUM to $9.68/AUM. State officials cite rising private lease rates and strong beef market prices for the increase.

In neighboring Nebraska, grazing rates on state-owned land are also generally up — despite USDA's reported 2.2% average decline for leases on privately owned pasture. State leases for sandy soil pasture range from $18.50/AUM in Nebraska's southwest panhandle to $26.50/AUM in the north-central region. Hard, silt-clay pasture in the eastern third of Nebraska is priced at $22-$27.50/AUM.

Ron Vance, field supervisor with the Nebraska Board of Educational Lands and Funds, says the agency sets grazing rates based on surveys of local private leases.

Private leases on central Nebraska's Sand Hills are running $24-$30/AUM, reports Lex Madden, manager of Torrington Livestock Markets, Torrington, WY.

Though pasture lease rates will eventually trend higher as the cattle herd rebuilds, most experts agree it makes more sense for expansion-minded producers to rent pasture rather than buy.

“If you can find good land a reasonable distance to your overall operation, lease it,” counsels Richard Sullivan, an appraiser with Farm Credit of Missouri in Springfield.

“The consensus among producers is that land is priced too high for what a cattle herd would reasonably be expected to support,” says Matt Diersen, a South Dakota State University Extension economist in Brookings. “The cattle herd size is getting larger, which will lower returns from running cattle. You wouldn't want to set yourself up to pay record prices for land or pasture rent as the herd starts rebuilding.”