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Pasture Rental Rates: Doing the Math Part 1

By   /  February 9, 2015  /  4 Comments

Math is hard but important. So we’re going to try to work through this without hoping for a miracle to occur.

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cartoon_then-a-miracle-occurs1There are a variety of bases for figuring a pasture lease price and each of them involves its own math.  You can figure by return on investment or annual leases, or figure out a per acre, per head grazed, per month, per Animal Unit Month cost, or share the risk and reward with the landowner by paying a rate based on pounds gained. Lots of people have shared lots of information on how to do the math for the various methods. Here’s a condensed version of their recommendations.

Return On Investment

Last week I showed you this chart of what pasture land was worth, on average, in different states in the U.S. in 2014  Remember, that’s just an average. Some pasture will be worth more, other pasture worth less depending on where it’s located in the state, the kind of forage it produces, etc.

What we can do with this information is plug the numbers into a formula that allows us to figure out how much we’d like to charge for a given pasture so that we get some kind of return on our investment. Here’s a sample calculation from a University of Arkansas fact sheet (downloadable here).

If the land is assessed at $200 per acre and banks charge 8 percent for loans (or a return of 8 percent on investment is desired), then pasture rent is calculated as follows:

($200) x (8%) = $16/ac per year base cost

The problem with this method if you’re the person leasing is that it doesn’t take into account forage quality or production or whether there is adequate fencing, water and other things that you need to care for livestock on pasture.

Forage Value

On Pasture reader Gene Schriefer noted last week in the comments that forage value is another good way to look at how much you should pay for pasture.  So let’s take a look.

We start by figuring out how much a given piece of pasture might produce in tons of forage.  You may already have a good idea what to expect. If not, you can ask a local farmer, talk to your Conservation District, NRCS, or Extension staff, or, you can use the NRCS’s online soil survey tool.  Not only will the tool tell you about the soils in the pasture that you’re considering, but it will also tell you how much forage production you might expect. Here’s an On Pasture article with instructions for using the soil survey tool to get that information.

As Gene suggests, one way you can do the math from here is to figure the value of the hay (estimated production) and then subtract the harvest costs and the cost of livestock transportation and your own time and travel to check on your livestock to arrive at the maximum you might pay.

Iowa State University Extension Economists suggest taking the estimated forage production and multiplying it by with 25 % of the price of grass hay during the grazing season for pasture, or 35% of the price of hay if you’re looking at an established hay stand. Here’s what their math looks like:

Price of hay/ton x 25% or 35% depending on your forage = rent/acre
With numbers plugged in it looks like this:

Pasture at 25%
$100/ton x .25 = $25 per acre rental rate

Established Hay Stand at 35%
$100/ton x .35 = $35 per acre rental rate

This forage production table is included in the information on pasture rental rates from Iowa State University. Click on the image to go their site.

This forage production table is included in the information on pasture rental rates from Iowa State University. Click on the image to go their site.

Whew! Are you tired of math already? Hang in there! Since this is all in an effort to help us make good choices and be successful in our business, let’s keep going. Next week we’ll talk about figuring pasture rental rates based on how many animals your pasture will feed.  It means stretching our brains to understand Animal Unit Months (AUMs), but it’s well worth the effort as you’ll be able to use this information as part of your overall pasture management too. And before we’re done, we’ll even add some math about how you can put numbers to pasture quality as you go about figuring how much a pasture is worth.

Here’s the first in the series.

Here’s the third part in the series.

Here’s the last in the series.

 

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About the author

editor and contributor

Kathy worked with the Bureau of Land Management for 12 years before founding Livestock for Landscapes in 2004. Her twelve years at the agency allowed her to pursue her goal of helping communities find ways to live profitably AND sustainably in their environment. She has been researching and working with livestock as a land management tool for over a decade. When she's not helping farmers, ranchers and land managers on-site, she writes articles, and books, and edits videos to help others turn their livestock into landscape managers.

4 Comments

  1. Gene Schriefer says:

    We can our management of the forage and animals, but what we cannot change greatly, or in a short period of time is the soil in the pasture.

    We cannot take marginal soil and necessarily achieve the ISU forage yields estimates. For a starting point, I’d consider data from the web soil survey and potential forage production based upon soil type within a pasture. On our farm my worst soils are around 1- 1.5 tons/acre with cool season forages, but better soils will yield over 5 tons.

    Interesting because of the low yield I only graze these paddocks 1 or 2x each year. I’ve notice indiangrass volunteering and increasing each season. I’ve not yield measured yield on this yet, but it “looks” like there may be 2-3 x more forage biomass/acre.

    Tables are nice, but your results may be dramatically different, there is more useful data available in figuring out potential forage production and setting a pasture value

    • Kathy Voth says:

      Good point Gene. Adding to information about soil quality is the NRCS’s Soil Survey online which shows you what your base soils are. It’s a great resource which is why I keep promoting it. 🙂

  2. Neil says:

    Here’s another reference on leasing arrangements. Although range- and Idaho-specific, it may give some food for thought on forage differences and services provided with the lease.

    http://web.cals.uidaho.edu/idahoagbiz/files/2014/10/RES185.pdf

  3. Zinn says:

    Check out this website for calculating pasture rental rates. Keep up the good work!

    http://www.extension.iastate.edu/agdm/wholefarm/html/c2-23.html

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