It can be difficult for landowners and beef producers to establish a fair-market value for pasture and standing forages. Establishing that value, however, can make the difference between profit and loss for a cattle operation in a given year. That’s why Iowa State University Extension beef specialists Patrick Gunn and Joe Sellers created a new fact sheet, “Pasture and Grazing Arrangements for Beef Cattle,” for landowners and tenants who use pasture and grazing rentals in their farming operations.
"This new resource provides an overview of four common types of arrangements, along with suggestions on how to structure agreements for the benefit of both parties," says Gunn. The two-page fact sheet includes information on establishing pasture rental price for each of the four types and has links to online resources from ISU Extension’s Ag Decision Maker and Iowa Beef Center websites. It’s available as a free download through the ISU Extension and Outreach store website.
4 common types of agreements
Many different pasture management and grazing considerations can go into establishing a pasture rental agreement. While overwhelming at times, these provisions in the agreement are important. Here are some guidelines for both parties to consider, so successful, long-term contracts can be developed for grazing.
• Pasture rent only. This is the simplest and most conventional agreement. Typically, pasture rent agreements are designed to establish either a price per acre, or a monthly or daily rate based on number of grazing units.
There are specific items that should be part of this type of agreement: establishing which party is responsible for which inputs such as fertilizer and fence repair, and deciding who will determine when cattle need to be removed because grass is too short. And don’t forget to include often overlooked yet important items such as water access, length of grazing season, etc. The more inputs and labor the grazier is willing to assume, the lower the rental rate should be, and vice versa.
• Resource sharing. Because capital investment expenses are cost-prohibitive for many young and upstart farmers, there is a renewed interest by many of these producers in trading “sweat equity” for capital access. Cow-calf share agreements offer incentives for both land and cattle owners to partner with young producers without assuming all the risk.
An effective cow-calf share agreement identifies and itemizes what the cow owner, landowner and operator (if different from landowner) are contributing. This requires using a detailed recordkeeping system and annually evaluating actual costs. Remember, effective agreements share risk and profit among all entities involved.
The length of a cow-calf share agreement generally is based on the marketing year, as settlement typically occurs at weaning or feeder calf sale. This ISU Ag Decision Maker Tool can help with the math. Every change in contribution by involved parties should change the profit split; there’s no such thing as a 50-50 rule of thumb.
• Contract grazing. This, too, could be as large as a three-party agreement with a landowner, livestock owner and a caretaker. It’s a common arrangement in the Kansas Flint Hills range and on Great Plains wheat acres, with feedlot owners hiring operators to manage stockers on land owned by a third family.
This is also a popular agreement in many parts of the Midwest, where pasture is sparse or high-priced. Diversified row-crop operations often send cow-calf pairs to summer pasture in Missouri or Kentucky to be managed by a landowner or third-party caretaker. It should be noted that grazing land has been owned for generations by some families that have never owned cattle.
In a contract grazing arrangement, a rate is typically established per animal unit month (AUM) or per head per day, which is paid by the cow owner to the landowner or operator. In this type of agreement, less risk is assumed by the operator, but there also is limited upside potential. Typical points of negotiation for a contract grazing agreement include who will do the work; who determines which inputs such as mineral, creep feed and potentially supplement are added; and how those inputs impact total payment.
• Animal performance-based. Some stocker-owners pursue agreements that pay the grazer by pounds of gain added per day or per grazing season. This often transfers more risk to the operator, with little reward above the standard rate noted in the pasture rent and contract grazing sections described above.
It is important to remember that forage type will dramatically influence potential gains. For example, Eastern Corn Belt grasslands typically do not achieve yearling gains above 2 pounds per day without added supplementation, whereas more traditional stocker areas, such as the Great Plains, may well exceed 2 pounds per day if the genetics and condition of the cattle will allow.
On unimproved fescue, gain may be as low as 1 pound per day. It is critical that supplementation be allowed (if it fits the market outlet) and that the operator is guaranteed an adequate grazing period to capture adequate income. A better performance-based arrangement is a floor rate, based on a per-day fee and gain incentives if cattle perform better. This type of arrangement also could fit grass-fed beef development.
Source: Iowa State University