Ohio State University Extension Fact sheet

Ohio State University Extension Fact Sheet

Agricultural, Environmental, and Development Economics

2120 Fyffe Road, Columbus, OH 43210

Establishing a Fair Pasture Rental Rate

FR-8-06

Jeff Fisher, Extension Educator; Agriculture and Natural Resources, Pike County
David Mangione, Extension Educator; Agriculture and Natural Resources, Ross County

Determining Rental Rates

Questions often arise as to what constitutes a fair rental price. Since there is not a commercial market for pasture, determining the price often becomes a matter of bargaining. Supply and demand is probably the most important factor in determining the price. If there is a large quantity of pasture available in a given area and very few farmers needing extra pasture, rents may be low. Likewise, if there were little pasture acreage for rent but many farmers needing extra pasture, rents may be bid higher.

Pasture rental prices are also influenced by alternative land uses. If the same acreage could be planted to corn or soybeans, the price for the pasture would have to be competitive with the rental rate for corn and bean land. If the land is not suited for production of row crops but could produce hay, the return to pasture would also have to be competitive with the return to hay ground.

Livestock facilities and their condition as well as the quality of the pasture and availability of water all have an effect on pasture rental rate.

Division of responsibilities between the landowner and the livestock owner need to be considered when negotiating rental price. In most cases, the renter is responsible for production activities, including checking livestock; providing fly control, salt, and minerals; checking water supply. Land-related activities, such as repairing fence, weed and brush control, and fertilizing and reseeding pastures, are typically negotiable. However, in most cases, it is the responsibility of the renter to repair fences with the landowner providing the necessary materials.

Landowner Considerations

The landowner should cover the real estate taxes, cost of fence repairs, insurance, and interest on his/her investment. However, since pastureland typically sells for a higher price than its earnings can support, the landowner may be only able to cover his out-of-pocket expenses.

Livestock Owner Considerations

The renter should calculate what he/she could afford to pay for rent. All the guidelines and estimates are just that — guidelines and estimates. The livestock owner needs to know what price he/she can profitably pay according to his/her projected budgets and returns. Additional responsibilities in the rental agreement, such as fixing fences, fertilizing, and mowing, need to be reflected by making the appropriate adjustments to the rent.

Pasture Rental Rate Methods

Several rule-of-thumb formulas have been developed for determining pasture rental rates on an animal-unit-per- month (A.U.M.) basis or on a per-acre basis. Animal Unit Month is defined as the amount of forage or feed required to feed 1,000 pounds of animal weight for 30 days (See Table 1 — Animal Units). Calculating pasture rents on an A.U.M. basis addresses animal consumption requirements and grazing months, based on forage quality and quantity. Pasture rent formulas may be more precise when details on land capability and forage yield can be included. Animal performance may also be used to value pasture based on average daily gain.

Table 1. Animals Units (A.U.)
Type of Livestock A.U.
Cattle
Cow with an unweaned calf at side, or heifer two years old or older 1.25
Bull, two years old or older 1.3
Young cattle, one to two years 0.8
Weaned calves to yearlings 0.6
Horses
Horse, mature 1.3
Horse, yearling 1.0
Weanling colt or filly 0.75
Sheep
5 Mature ewes, with or without unweaned lambs at side 1.0
5 Rams, two years old or older 1.3
5 Yearlings 0.8
5 Weaned lambs to yearlings 0.6
Meat Goats
5 Mature does, with or without unweaned kids at side 0.75
5 Mature bucks, two years old or older 1.0
5 Yearlings 0.5
5 Weaned kids to yearlings 0.25

Pasture Rent Formulas

  1. Pasture Rent Formulas — Animal Unit Methods

    1. Hay value and pasture quality.
      Number of animal units times the average hay price out of the field per ton times pasture quality factor = rate per head per month.

      1. Number of animals units — A.U. (see Table 1).
      2. Hay price per ton.
      3. Pasture Quality Factor.

        • Factor Description
          0.12 Unimproved, poor condition
          0.15 Fair to good permanent pasture
          0.18 Very good permanent pasture
          0.20 Excellent meadow — grass and legumes
          0.22 Lush legume pasture

        • A x B x C = Pasture charge per head per month

        • As an example, consider a 1,000-pound cow with a 250-pound calf grazing fair to good pasture when the hay price is $60 per ton:
          1.25 animal units x $60/T x 0.15 quality factor = $11.25 per month

    2. Hay value per ton divided by 8.5? (rule-of-thumb forage equivalent) multiplied by the animal unit = rate per animal unit per month. Using the same cow-calf pair and the same hay price as previously:

      $60 ÷ 8.5 x 1.25 = $8.82 /cow-calf pair per month.

    3. Corn value per bushel multiplied by 2.2 (rule-of- thumb forage equivalent) multiplied by the animal unit = rate per month. Using the same cow-calf pair as before:

      $2.25/bu. x 2.2 x 1.25 AU = $6.19 /cow-calf per month


  2. Pasture Rent Formulas — Per Acre Methods

    1. Rent per acre per season. Quality of pasture, supply, and demand are the main factors for determining rental rate.


    2. Percentage of cropland value. This varies by region. On average, pasture ground values are nearly 70% of cropland values in Ohio. Pasture rent is then figured at the same percentage of comparable cropland rents.


    3. Percent of land value. Another rule of thumb that has been used is that seasonal rental rate should be equivalent to 3.5 to 6% of current market value of the pasture land. If the estimated land value is $1,800 per acre:

      4% of $1,800 = $72 per acre for the grazing season


  3. Pasture Rent — Utilizing Yields and Land Capability from the Soil Survey

    All soils in Ohio and most other states have been ­assigned values for yield and A.U.M. (animal-unit-month): the amount of forage or feed required to feed one animal unit (one cow, one horse, one mule, five sheep, or five goats) for 30 days. The productivity and suitability of soil for grazing can be found for Ohio soils in the county soil surveys.

    1. Here is an example of how we might utilize this information to establish a pasture charge based on yield. The values we will assign:

      1. Comparable hay value. We will price pasture at half of the hay value.
      2. Annual yield in tons.
      3. The number of animal-unit-days (AUD/30 = AUM) the pasture is utilized as a portion of the total grazing season.


      A x B = Seasonal Cost

      Value of comparable hay: $60/Ton; Pasture Value = $30/Ton
      Soil Survey Annual Yield: 2.8 Ton/A.

      Seasonal Cost = $30/T x 2.8 T/A = $84/A.


    2. If a stock density can be determined, then a cost per AUM and/or animal can be derived.

      If the Soil Survey indicates pasture can be utilized for 150 AUD (5AUM) per season, and it is used for 60 days, then the:

      Grazing Period Cost = A x B x C

      Grazing Period Cost = $30/T x 2.8 T/A x 60/150 = $33.60

      If the assigned stocking rate is one animal unit per acre, then the cost per head = AUM charge/number of animals. For someone grazing a breeding flock in the previous example (From Table 1, five ewes = 1.0 A.U.):

      Cost per head = $33.60/AUM x 1 AU/5 head = $7.72/head for the grazing period which equates to $3.36/ewe/month.


  4. Pasture Rent — Based on Gain — Stockers/Dairy Heifers

    When establishing pasture rents based on gain, the tenant and landlord must establish base values for per head/per month, number of grazing months, expected gain, and cost of gain.

    1. Pasture charge per head per month
    2. Grazing Season — number of months
    3. Reasonable expected gain during grazing period (pounds)


    To illustrate how this might work, one of the previous examples might formulate a pasture charge for a yearling steer at $10 per head per month.



    The cost of gain calculation is based upon an expected gain during the grazing season.



    Instead of charging $10 per head per month, the owner of the pasture could charge $0.30 per pound of gain which might be considered a break-even price. If the gain turned out to be above the expected gain, say 250 pounds, then the landowner would receive $75 per head per season. On the other hand, if grass is short and gain is only 150 pounds, the landlord would receive $45 per head per season. Feeding grain increases the average daily gain and may allow increased stocking rates, but it also increases the cost of gain and a new charge should be figured.

In Summary

Many factors affect the price paid for pasture rental, with supply and demand being the most important. Pasture quality, water availability, condition of fences and facilities are also important. The livestock owner needs to know his or her cost of production to calculate what he/she can profitably pay for the rental of pasture.

In turn, the landowner needs to know his/her ownership costs. An agreement that is fair to both parties can be negotiated when risk and responsibilities are understood.

Additional resources available to assist with pasture rental lease agreements include:

  1. Ohio State University Extension
    ohioline.osu.edu/fr-fact/index.html
    Farm Rental Agreement Checklist
    FR-0003-01 (pdf)


  2. Free Sample Pasture Lease Agreement — Not a legal document.
    (See page 5 of this fact sheet or contact your local county office of Ohio State University Extension for a copy.)

  3. Midwest Plan Service — Free Lease Forms
    www.public.iastate.edu/~mwps_dis/mwps_web/leases.html
    NCR Publication 109 — Pasture Lease

For a sample of a Lease Agreement please click here.

Click here for PDF version of this Fact Sheet.

OSU Extension embraces human diversity and is committed to ensuring that all educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, age, gender identity or expression, disability, religion, sexual orientation, national origin, or veteran status.

Keith L. Smith, Associate Vice President for Agricultural Administration and Director, OSU Extension TDD No. 800-589-8292 (Ohio only) or 614-292-1868


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