The lack of a futures market for forages can make it difficult for landowners and beef producers to establish a fair-market value, particularly for standing forages. Furthermore, the plethora of management and infrastructure considerations that go into establishing a value, while overwhelming at times, often can make the difference between profit and loss on a beef operation for a given year.
The Iowa State University Extension suggests these options for successful, long-term grazing contracts. (Also, check out Iowa State University Extension’s contract grazing fact sheets for more information.)
Types of Agreements
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. Although simple in nature, there are specific items that should be part of this type of agreement:
- Establish which party is responsible for which inputs such as fertilizer and fence repair.
- Decide who will determine when to remove cattle because grass has become too short.
And don’t forget to include often overlooked 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 up-start 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 implementing a detailed record keeping system and annually evaluating actual costs. Remember that effective agreements share risk and profit among all entities involved. The length of a cow-calf share agreement generally is based on a marketing year as settlement typically occurs at weaning or feeder calf sale. This Iowa State University Ag Decision Maker Tool can help with the math. Every change in contribution by involved parties should change the profit split; there is 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 is a common arrangement on Great Plains wheat acres, with feedlot owners hiring operators to manage stockers on land owned by a third family. This also is a popular agreement in many parts of the Midwest where pasture is sparse and/or high priced. Diversified row-crop operations often send cow-calf pairs to summer pasture in areas like 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/operator. In this type of agreement, less risk is assumed by the operator, but there is also 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 and potentially supplement are added and how those inputs impact total payment.
Animal performance-based. Some stocker owners pursue agreements that pay the grazier 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 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.
See The Grazing Calculator By South Dakota State University Extension to eliminate the guesswork and mess associated with doing calculations by hand. It requires a few inputs on your end, and you’ll be able to save a downloadable Excel file for your record keeping.