Part 2 of Figuring Pasture Rental and Use Rates: Animal Units and Profit Sharing

We first covered this back in 2015. Here’s the third part in the series with some updates suggested by On Pasture readers. If you’ve missed the first two, here they are:
How Much to Pay for Leased Pasture – 2018
Doing the Math on Pasture Rental Rates Part 1

AUM Breakdown
The two tables in this article come to us from Oregon State Extension.

Animal Unit Months

Figuring pasture use rates by Animal Unit (AUM) is more common in the western United States where it is the basis for public lands leased to ranchers for their stock. The nice thing about this method is that it makes it easy to plug numbers into a formula to give you a good idea of how many animals you can feed for how long. The formula factors in pasture quality, and the market price of hay so that you can come up with something fair to both parties.

An Animal Unit Month (AUM) is the amount of forage required to sustain a 1,000 pound cow with her calf at her side for 30 days. That works out to about 26.1 pounds per day. Forage requirements for all the other classes of livestock are shown in relationship to that 1,000 pound cow and her calf.

Here’s the formula:

Number of Animal Units x Average Hay Price Out of the Field Per Pon x Pasture Quality Factor = Rate Per Head Per Month

Pasture Quality Factor(Note: This formula works well for irrigated pasture, but may over-estimate non-irrigated, arid range rental rates where there is less forage and very little infrastructure.)

Here’s an example of what the formula looks like using a 1200-pound cow with her calf, during a time when hay is going for $10o per ton, and you’re hoping to rent an excellent grass and legume pasture:

1.20 AU x $100/ton x .20 Quality Factor = $24/AUM

From here the landowner and prospective lease can negotiate price based on expectations for management of the pasture, past experience, water and fence infrastructure and other requirements.

Don’t like that formula?  Here’s another option:

Hay Value Per Ton / 8.5 Rule of Thumb Forage Equivalent x Animal Unit = Rate Per Animal Unit Per Month

Using the same cow-calf pair and hay price, here’s that formula in action:

($100 per ton/8.5) x 1.2 = $14.12 per AUM

This is also just a starting point and depending on the result may point out whether you’ve over- or under-estimated the value of your hay.

Sharing Profit and Risk

If you intend to graze Stocker Cattle, establishing a rental rate based on pounds gained means that the landowner and the lease share the profit if there is one, and the risk if gain isn’t as great as expected. If you’re considering this method, you’ll have to have base values for the cost of gain, the expected gain, how long the animals will graze, and the per animal costs for caring for them through the grazing season.

All of the formulas I found for this method start with a Pasture Charge per Head per Month, also called a Seasonal Cost.  None of them told me where they got that number, but they all started with $10.  So starting with that as my full disclosure, we’ll go through this figuring process.

Pasture Charge Per Head Per Month x Number of Months = Seasonal Cost

$10 x 6 months = $60 per head

We use this as our base and then we divide by the pounds of gain we expect. This will change depending on the kinds of animals you’re running, grazing management, health and parasite load of the livestock and forage quality. This is where the risk sharing comes in. Let’s say that we think our stock will gain 200 pounds each while they’re on pasture.  Now our formula looks like this:

($10 x 6) / 200 pounds = 30¢ per pound of gain.

Thirty cents per pound is our break-even price and if the animals all gain 200 pounds each, that’s what the landowner gets. If the stock gain more, say 240 pounds, here’s what the landowner gets per animal:

240 x .30 = $72 per head

But if the animals only gain 175 lbs each, the landowner gets less money per animal:

175 x .30 = $52.5 per head

CowCalfPairOne More Thing….

Before you run out and make an offer, stay tuned for next week’s article about pasture conditions that may cause you to adjust your rental rate.

Thanks to the National Grazing Lands Coalition for making this article possible.

The 7th National Grazing Lands Conference is coming up in December and it’s one of On Pasture’s favorites. One of the things that makes it so great is that folks just like you are the speakers, sharing their great experiences. Learn more about how to be a speaker here. And learn more about the event here.

One thought on “Part 2 of Figuring Pasture Rental and Use Rates: Animal Units and Profit Sharing

  1. There’s an old saying about all politics being local. I think the same thing applies to the value of pasture. The market in your particular area largely determines the value of your grass. Along with that, the additional skills and benefits you bring along with the grass has significant value too. Fencing, water, facilities and especially your husbandry skills all impact how much the cattle owner will pay a grazier.

    A friend of mine used to say that the problem with equal partnerships is that partnerships are never truly equal. I think that’s often the case in profit sharing arrangement like you describe above. In most cases, the cattle owner has a tremendous advantage in terms of knowledge and experience. I always advise great caution in these situations. If you are dealing with a person of modest character it is easy to get taken advantage of. For instance, if you are taking on a group of cattle that includes a significant percentage of high-risk, chronic, sick, high-stress cattle, the result could be high morbidity and mortality and tremendous workload for the grazier. Assuming the good calves do well (and maybe some of the bad ones do also) there is a huge deduction from the gain for dead calves, and very low production for the chronics. Many of these sick or dead calves were bought at a huge discount, so their loss doesn’t mean very much to the owner. But a dead 400 pound calf represents a loss of 400 pounds of gain to the grazier.

    Bottom line, doing business with honest professionals is probably the most important piece of the puzzle. Identifying who those people are, well, that’s tough. Like the rest of the world, the grazing business has its share of sociopaths.

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