Q&A: How do I determine a fair pasture rental rate?
Q: I saw your CropWatch story on setting pasture rental rates (March 16, 2017). I am an out-of-state landowner interested in renting out 91 acres of pasture in south central Nebraska. According to the article I might charge $35 an acre per month or $47.30 per cow/calf pair per month. Would the $47.30 rate be for five months?
A: The author of this CropWatch article, Extension Forage Specialist Bruce Anderson, responds:
It is important to understand how each method (per acre in Table 1 of the story and per cow-calf month in Table 2) is put into practice. (This story references average pasture rental rates for the south district, as reported in the 2017 Nebraska Farm Real Estate Market Survey Report, page 15. The 2018 report is expected to be released March 14.)
When rent is on a per acre basis, that implies that it is rented for the full, five-month (or longer) grazing season. For your 91-acre example, that would total $3,185 (91 x $35 = $3,185) for the entire season. This is a reliable, consistent income that many landowners prefer. It is important that you also determine some other factors like maximum stocking rate as well as starting and ending date when renting on a per-acre basis. Otherwise the tenant could put too many animals on your pasture for too long a time. That could damage long-term productivity of the pasture.
When rent is on a monthly cow-calf pair basis, you have the opportunity as well as the risk associated with the productivity of the pasture. Again using your 91-acre example, you would receive the same $3,185 income if your pasture produces about 67.3 cow-calf pair months of grazing ($3,185/$47.30 = 67.3). If the 67.3 pair months are spread over a five-month grazing period, the stocking rate would be about 13.5 cow-calf pairs (67.3/5 = 13.5). If the pasture does better than average and grazing can last for 5.5 months, you would receive $3,512 as rent (13.5 x 5.5 x $47.30 = $3,512). However, if a drought shortens grazing to just 4.5 months, rent would be lessened to $2,873 (13.5 x 4.5 x $47.30 = $2,873). Of course, you can’t have 0.5 cow-calf pairs so either 13 or 14 pairs would actually be used.
On average, native grassland in Franklin County in south central Nebraska requires about six acres to support a cow-calf pair for six months, according to FSA data. That would be similar to requiring five acres for five months. If your 91 acres are average, the pasture might normally support 18 cow-calf pairs for five months (91/5 = 18). Since part of your pasture is actually a pond, the size of the pond should be subtracted from the 91 acres. Also realize that these averages assume grazing begins with an 1100 -1200 lb cow with a 200 lb calf. Animals of different sizes will influence how many can be supported on a pasture and might suggest using a higher or lower price per cow-calf month.
Personally, I like using the cow-calf pair basis. I often convert it to a daily rather than a monthly basis ($47.30/30 = $1.58 per day). The cow-calf pair basis is fairer to both landlord and tenant since it directly reflects production; however, it requires a bit more trust for an absentee landlord because accurate recordkeeping of number of animals and number of days is needed.