Pasture Rental Rate

– Rory Lewandowski, OSU Extension Educator, Athens County

I’m getting a few phone calls on pasture rental rates, and, in fact, a couple of weeks ago got myself in the middle of a pasture rental disagreement between two parties based on an answer I gave. This has caused me to go back and review some of the various methods that can be used to calculate a pasture rental rate. Let’s begin this discussion by laying down a few ground rules:

* Pasture rental rates should be determined and agreed on by both parties before any animals are placed on pasture. The best situation is to have the agreement in writing signed by both parties.

* Rental rates will vary depending upon the method and factors used in calculating a rental rate. There is not one correct answer. The method used may depend upon the quality of pasture available, time of year the pasture is rented and the type of livestock that will be grazed on the pasture.

* Rental rate calculations are guidelines, that is, they provide a place to start a discussion between parties. They may or may not provide the final, agreed upon rental price.

* The market rules. If there is high demand for rental pasture, rental price could go higher than a calculated value. Conversely, if demand is low, the rental price could be lower than a calculated value.

There are several good publications available that provide some similar information and guidelines relating to establishing pasture rental rates. Iowa State University Extension has a publication entitled “Computing a Pasture Rental Rate” by Don Hofstrand and William Edwards. It can be found on line at: http://www.extension.iastate.edu/agdm/wholefarm/pdf/c2-23.pdf. There is also an Extension publication from the North Central Region, publication 149, entitled “Pasture Rental Arrangements for Your Farm” available for order through Midwest Plan Service ($4.00) at 800-562-3618 or on line at: http://www.mwpshq.org/. Recently OSU Extension Educators Jeff Fisher and Dave Mangione have written an excellent pasture rental fact sheet entitled “Establishing a Fair Pasture Rental Rate”. This fact sheet is available through your county Extension office or on-line at: http://ohioline.osu.edu/fr-fact/0008.html. I’ll try to briefly summarize a couple of methods of computing pasture rental that might be applicable in our area and that are contained in some of these publications.

One method that can be used to calculate pasture rental is forage value. To use this method estimate the expected pasture production on a per acre basis. If farm records have been kept on hay production, this might provide an estimate of pasture production. I went to the Ohio Department of Agriculture’s annual Agricultural Statistics report and looked at the average hay production figure for Athens County. It was 2.26 tons per acre. Some pastures, especially those that have been limed and fertilized on regular basis and managed with rotational grazing, should be producing significantly above this average. Some pastures will be below this average. Once there is some agreement on pasture production potential, multiply that figure by 25% of the price of grass hay during the grazing season. For example, assume that a pasture has a potential to produce 2.5 tons of useable forage during the grazing season, and that grass hay can be purchased for $40 per ton during the grazing season. Pasture rental rate would be 25% of hay price (.25 x 40 = 10) times the pasture production of 2.5 tons or: 10 x 2.5 = 25 dollars per acre.

A second method that is sometimes used to calculate pasture rental is a per head per month charge. Under this method an animal unit (A.U.) figure is calculated and multiplied by a pasture quality rating and a hay price per ton. We must first define an animal unit. Generally one animal unit is composed of 1000 pounds of animal weight. The following table is taken from the OSU Extension fact sheet on pasture rental and provides guidelines on animal units for various classes of livestock.

Next, we have to make some assessment as to pasture quality, and assign it a value. This is subjective and rental parties must come to some agreement. Referring again to the OSU Extension fact sheet on pasture rental, the following table can be used as a guide:

As an example consider a situation where a neighbor wants to rent pasture for 20 heifers weighing about 650 pounds on average. According to our animal unit table, each heifer counts as 0.8 A.U. The pasture is of average quality so use a quality rating of 0.15. Hay can be purchased for $50 per ton out of the field. Applying our formula, pasture rent is equal to A.U. x Pasture Quality Rating x Hay price/ton, or 0.8 x .15 x 50 = $6.00/head/month.

Pasture rental can also be determined by what others are charging. This information could be gathered at a neighborhood coffee shop, or on a more formal basis by sending out a survey. The last OSU survey that attempted to get information on pasture rental rates had a poor response, especially for our area of the state, so the information should be taken with a bit of caution. The 2002 survey showed pasture rental rates around the $25 dollars per acre value for our area of the state. Remember, 2002, and limited responses. Also, this standard of “what others are charging” can be misleading. I know that there are dairy producers paying $1.00 per head per day for pasture rental. This may not work for another class of livestock, but it is what some are paying for pasture rental.

Another method sometimes used in establishing pasture rental is based on a percentage of cropland value. This varies by region of course, but on average, pastureland rents for about 70% of cropland value.

The recent ethanol production push and the resulting higher corn prices may be a wildcard factor in determining pasture rental rates. If pastures are suitable for crop production, this potential use could compete against keeping the land in pasture. Essentially, pasture would have to be as profitable as $4.00 per bushel corn at this point in time.

Some other factors to consider in determining pasture rental rate include pasture upkeep, fence, time of year, and labor/management. Who is responsible for mowing weeds/clipping pastures? Does the renter have any obligations as far as maintaining fertility and soil pH? Who will maintain the fence and water system? If the fence is electric, does the renter or the pasture owner pay the utility bill? If public water is used, who pays that cost? Are you renting during the growing season or are you renting stockpiled pasture for winter use? Who is responsible for checking the livestock and/or moving the fence and livestock if rotational or strip grazing is being utilized? In the example I gave of a dairy producer paying $1.00 per head per day, this was to rent stockpiled pasture for winter grazing and the pasture owner checked the cows and moved the fence as required. The owners were only contacted in the event of some problem.

Although pasture owners and potential renters may want a definitive, specific answer when they call about pasture rental rates, the best answer really may be, “it depends”. It depends upon understanding the various methods that can be used to calculate a rate and understanding what is and what is not included in that figure. Pasture rental should start with some type of calculation as a starting point for discussion between the two parties that should end with a written agreement that satisfies both parties. The OSU Extension fact, “Establishing a Fair Pasture Rental Rate” by Fisher and Mangione does a good job of laying out various options to calculate a rental rate and also includes a sample pasture lease agreement.