Ken Olson: Pasture rent considerations
BROOKINGS, SD – Rental rates for range and pastureland are on the rise due to increasing demands for corn, says Ken Olson, South Dakota State University (SDSU) Extension Beef Specialist.
“Increasing demand for corn for ethanol production and growing export markets has increased the price of corn, and the repercussion has been increased costs of virtually all other feedstuffs. Through both direct and indirect influences, this has been an important factor driving land prices and rental rates up, including range and pastureland,” Olson said. “This makes renting grass one of many rapidly escalating portions of rising annual cow costs.”
Rangeland and pasture cash rental rates for 2012 ranged from $11.65 per acre in southwest South Dakota to $61.95 per acre in east-central South Dakota, according to “Agricultural Land Market Trends: 1991-2012,” a publication recently released by SDSU Economists, available in the Livestock Profit Tips community on iGrow (igrow.org/livestock/profit-tips).
In contrast, the same document showed when cash rents were reported on a cost per animal unit month (AUM) basis, the range was much smaller ($25.25 to $36.90).
“These per acre rates reflect an increase of more than 10 percent from the previous year,” Olson said.
Olson says one concern these figures present is how to compare rental rates on a per acre basis, to rates calculated on an AUM or per animal basis.
“This becomes an issue of knowing the stocking rate so that AUM or animal numbers per acre can be used to compute the acreage required to support the animals,” he said.
He adds that further complicating this is converting animal numbers to an AUM basis.
The definition of an animal unit (AU) is a 1,000-pound cow with or without a suckling calf at her side.
However, Olson notes that today this is not necessarily an accurate definition because most cows weigh substantially more than 1,000 pounds.
“We should not assume that a cow is equivalent to an AU. Bigger cows need more nutrients and therefore additional acreage should be rented for them if they are to receive adequate nutrition to perform well – or run fewer cows on a fixed acreage,” Olson said.
He says that a simple, straightforward and accurate way to convert the AU equivalent (AUE) of cattle based on their size is to simply divide the weight of the actual cattle by 1,000 pounds to calculate the AUE.
Example: If the average weight of a cattle producer’s cowherd is 1,350 pounds, their AUE is 1.35. If they are grazing steers for the summer and their expected average weight during the summer will be 770 pounds, the AUE will be 0.77.
An AUM is the forage that one AU will consume in one month.
Olson says a reasonable figure would be 750 pounds of dry matter, which is 25 pounds per day for 30 days.
“If you have an estimate of herbage produced, and assume that only part of it can be removed without damaging the plants – e.g. 25 percent – then the appropriate stocking rate in acres per AUM can be calculated that will allow adequate forage to support an AU. Based on the AUE, this can then be converted to acres per animal or pair in the case of cow-calf pairs,” Olson said.
Using stocking rate (the ratio of animals to acres), a livestock producer can convert rent per acre to rent per pair easily. Once the conversion is made, the asking rental rate on one unit offered in price per acre can be compared to another unit that is offered on a price per pair basis.
“There are likely to be cases where cost savings can be found once the rental rates can be compared in similar terms,” he said.
He adds that another situation where conversion to similar units may be necessary would be when an absentee landowner is more comfortable using a per acre basis and a producer is more comfortable using an AUM basis, or vice versa.
“Being able to quickly convert from one to the other will make negotiations of future rental rates more straightforward,” Olson said. “Ultimately, it will help the producer to ensure that the influence of pasture rental on total annual cow costs is managed to the greatest degree possible.”
– SDSU Extension