Custom Grazing Rates and Contract Structuring

This is the second part in Meg’s series on Custom Grazing. Here’s the link to the first in the series.

Contract Structuring

The way I like to set up custom grazing contracts is this: the owner pays me per head per day for my labor. This is the income I get to keep on the custom grazing deal, and put toward my overheads.

I bill the owner additionally for anything his animals cost me: vet bills, treatment products, ear tags and hay, to name a few things. Therefore, the owner is responsible only for direct costs and not for any overhead associated with the custom herd. I as the grazier have no direct costs for the owner’s animals. I have only my own overheads for land, insurance, labor, fuel and equipment.

Some custom graziers include the cost of winter and/or supplemental feed in their negotiated rates. This makes sense if the grazier makes his own hay or grows crops. It is absolutely imperative for the grazier-grower to know his exact cost of production for each bale or each pound of feed. Otherwise it is very easy to lose money on this! For graziers who buy feed instead of producing it, I recommend billing the owner for the full cost of all purchased feed separately from custom grazing fees.

Personally I would not be comfortable with rolling the cost of any supplemental feed or direct production needs (medication, pregnancy checks, etc.) into my custom grazing fees because it does not guarantee my income. If a snowstorm hit or a cow required veterinary attention, the income I need to cover my overheads could be used up in a hurry. I am not much of a gambler.

Cow-Calf Rates

I’ve been in the custom grazing business since 2013. In that time, I have seen custom grazing rates for beef cows fall anywhere from $1.25 per cow per day on the very high end, to $0.75 per cow per day during the winter when owner-purchased hay is being fed. Usually the rate is slightly higher in the grazing season than the hay-feeding season, for two reasons. First, it encourages the grazier to manage pastures to the best of their ability, so that the herd spends the most possible days on grass. This ensures that the owner’s hay cost is minimized. Second, cutting the rate during hay feeding provides financial relief to the owner when he is paying for hay. If the grazier is feeding his own hay under a combined feed and labor rate, the rate goes up when supplemental feeding begins instead of down.

As far as calves, I do not charge per-head-per-day for calves until they reach a year old. At that point, if the owner has not removed them from my farm, I start charging for them. Some graziers charge a one-time fee of $30-50 for every live calf that is born on their farm. I don’t charge for live births, because there’s still a lot of risk between birth and adulthood. The owner could demand a refund in the event that a paid-for calf dies.

Stocker Grazing

Beef stocker graziers are usually paid on a per-pound-of-gain basis. I’ve seen rates run anywhere from $0.75 to $1.15 per pound of gain.

To make money as a stocker grazier, you need to have the grass quality and quantity, as well as the management prowess, to consistently produce high gains. It’s also imperative that you know your cost of gain, and you can keep it well below what you get paid per pound of gain. Winter is a problem area for this, because what it costs to make a stocker gain a pound in the winter is much more than in the summer. Keeping high-quality feed going into an animal is expensive when it isn’t growing on the pastures.

A good stocker grower must have a livestock scale, and should weigh the cattle at least every 60 days to keep track of their gain. A scale allows a grazier to track the effects of management decisions on gain. It shows how grass quality changes throughout the grazing season as indicated by gain. A scale also makes it obvious which animals “sink” and which “swim” on grass. An owner will appreciate this data, so he can select for “swim” genetics and cull out the “sink” ones. Access to this feedback loop is a big incentive for a cow-calf producer to retain ownership of calves through the stocker phase instead of selling them at weaning.

Stocker Gamble Factors

Custom grazing on per-pound-of-gain basis is always a gamble on the owner’s genetics. If they have high-maintenance genetics that don’t gain on grass, you’re sunk no matter how good your grass and your management is. Make sure you’re working with an owner that you know has capable cattle. Ask to see gain records from the owner’s herd and find out what his year-round feed program is.

Animal health decisions are an important factor in income determination as well. If an owner’s herd health program does not maximize gains, or your management practices do not set up the owner’s herd for success, your income as a stocker grazier will suffer. For example, I know a stocker grower who took on 150 custom calves for a summer in western New York. The owner, being a holistic producer, did not want to use dewormers. (I completely agree with not deworming. But in order for it to work, very specific management practices must be followed. On this particular operation, dewormer-free grazing was not feasible.) As a result, worm burden on the stockers significantly decreased gains. They started to do a lot better when the owner caved and allowed the angry grazier to deworm. However, there was no recovering the income that the grazier had lost due to low gains for half the summer. Talk over management issues like this before getting into a custom grazing deal, and make sure to put your rules down in writing for what must be done with cattle before and while they are on your farm.

Disclaimer on Rates

Keep in mind that the rates I have quoted were from the last few years when cattle prices were at all-time highs. Don’t expect to get the top rates anymore, since the market has dropped. CattleFax actually predicts the market to stay low for the next 3 to 5 years. The exception would be grazing for a high-value niche market, like 100% grassfed dairy or meat. I guess you can custom graze sheep, goats or other animals, but I haven’t met anyone doing it. There could be opportunities in grazing horses or rodeo stock, as my mentor Greg Judy has done. However, this is nothing I have any desire to gain expertise in!

Would you like some information on how to write a custom grazing contract? Here you go!

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