John Nalivka: Federal grazing permits have value and costs
March 3, 2016
For many ranches in the Western U.S., federal grazing permits are vital to their total feed resources. Consequently, those federal AUMs add value to the ranch. We see that value capitalized into ranch sale prices. People may have varying views on the value of a ranch depending upon different qualities, but if a ranch is operated to produce beef, the grazing and water resources are the primary contributors to value. Therefore, with regard to the value of federal grazing permits, 1) resource management has bearing on the quality and value of the resource and therefore, 2) the resource's contribution to beef production and income, and therefore, 3) ultimately, the value of the ranch. In addition to the direct contribution to the grazing resource as the result of the permittee's ranch and grazing management, there is also the indirect contribution of value to other Federal land resources, i.e. wildlife. This adds value from both the private and public perspective.
The other part of the income equation is costs. Contrary to what many people may believe, there is a cost to grazing on federal lands administered by the BLM and Forest Service beyond the federal grazing fee. These are direct as well as indirect costs. As we all know, there is "no one size fits all" with regard to the economics of ranching and the value and costs associated with federal grazing permits is no exception. I have calculated these "non-fee" costs for many ranches for private consulting projects as well as for litigation and while the grazing fee is currently $1.69 per AUM, the other costs associated with maintaining and using the Federal permit may easily add another $25 per AUM to that fee or more depending upon the ranch. Again, there is no "one size fits all" and all ranch costs must be assessed individually through analysis of ranch financial statements.
As an example, I analyzed the costs to a ranch in Central Nevada associated with wild horses – 2,000 horses versus 125 that should have been on the BLM allotment under the Wild Horse and Burro Act. This family-owned and operated ranch has been in existence since the late 1800s and holds a water-based Federal permit that dates to the creation of the BLM. The cost of grazing is primarily associated with water developments and therefore the costs associated with wild horses could be tied to the costs of providing water to cattle and horses. The bottom-line – after nearly 20 years of litigation, the excess wild horses were removed and the ranch was compensated for the associated costs.
Grazing on federal land is important to the Western beef industry as well as the public. But, at the same time, the public must understand that these federal grazing permit holders contribute value to the resource at their expense and it isn't necessarily cheap as the federal grazing fee would imply. I will have more on this topic in future articles.