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Computing a Pasture Rental Rate

File C2-23
Updated July, 2009

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Use this decision tool to compare different methods of computing rent for hay and pasture ground.

Is there a simple and uniform method of figuring a rental rate for pasture and hay land? Probably not, but guidelines are available. Below are several methods you can use for computing a pasture rental rate.

Several factors will influence the rental rate. Pasture rental rates vary according to the quality of stand, type of grass species, amount of timber, condition of the fences, availability of water, and previous fertility practices on the pasture. Hay land rental rates depend mostly on the quality and age of the stand.

A rental rate can be based on:

  • a return on investment in pastureland,
  • forage value,
  • rent per head per month,
  • carrying capacity,
  • rent per pound of gain.

Current Market Rates

Pasture rent per acre can be established by charging a rental rate similar to what others are charging. Average pasture rental rates by county and region of the state are shown in Information File Cash Rental Rates. These rates are based on a survey that is conducted every spring.

Return on Investment

Another method is to compute a rental rate based on sale or market value of the pastureland. Pasture rent may range from 2.5 to 3.5 percent of market value. For example, pasture with a sale value of $2,000 per acre will rent from $50 to $70 per acre ($2,000 x 2.5% to 3.5% = $50 to $70).

However, determining the market value of pastureland is difficult because pasture is seldom sold separately from the farm. Information Files Farmland Value Survey - Iowa State University and Farmland Value Survey - Realtors Land Institute provide information on current pastureland values.

Forage Value

To compute a rental rate based on forage value, estimate the expected pasture or hay production per acre and multiply by either 25 percent of the price of grass hay during the grazing season for pasture, or 35 percent of the price of hay for an established stand of hay. If the tenant supplied labor and machinery for establishing the hay crop and pays half of the seed and fertilizer costs, then a rental rate equal to 50 percent of the value of the hay crop would be more appropriate. Use hay prices corresponding to the type and quality of the stand. Some typical pasture production levels are shown in Table 1.

Table 1. Forage production and animal unit months per acre for various types of grasses

For example, assume a summer grass hay price of $100 per ton and an unimproved bluegrass pasture yield of from one to one and one-half tons per acre (Table 1). The rental rate per acre is from $25 ($100 per ton x 25 percent x 1 ton per acre = $25.00) to $38 ($100 per ton x 25 percent x 1.5 tons per acre = $37.50).

An alfalfa/grass summer hay price of $120 per ton and an alfalfa/grass yield of from four to six tons per acre (Table 1) results in a rental rate per acre of from $168 ($120 per ton x 35 percent x 4 tons per acre = $168 per acre) to $252 ($120 per ton x 35 percent x 6 tons per acre = $252 per acre) for hay production.

Rent per Head per Month

With this method, the livestock owner pays rent according to the number of animals grazed and length of time the pasture is used. This is measured by computing the animal unit months (AUMs). An AUM is the amount of forage required to support a 1,000 pound cow with a calf up to 4 months of age for one month. Table 2 can be used for figuring AUMs. For example, 10 cows (1,000 Ibs. each) and calves pastured for three months equals 30 AUMs (10 x 1.0 x 3). Note that forage consumption normally parallels the weight of the animal.

Table 2. Animal unit months by type and weight of animal.

Rent is figured by multiplying a rental rate per AUM by the number of AUMs. A rental rate per AUM can be figured by using the current hay price and the quality rating of the pasture. Four forage quality ratings are shown in Table 3.

Table 3. Pasture quality ratings

For example, let’s assume the pasture is brome (tallgrass) pasture. Also, assume the average grass hay price during the summer is $100 per ton. The rental rate per AUM is $20 ($100 x .20). If ten, 1,000 pound cows with calf by their side are pastured for three months, 30 AUMs of pasture are used during the summer. The rent is $600 (30 AUMs x $20 per AUM) for the summer.

Typical rates per AUM by county and region of the state are shown in Information File Cash Rental Rates.

Carrying Capacity

This method is based on the carrying capacity of the pasture. The rental rate per AUM is multiplied by the carrying capacity of the pasture in AUM’s per acre to estimate a pasture rental rate per acre for the whole grazing season. The rental rate per AUM is computed by either multiplying the hay price during the grazing season by the pasture quality factor (Table 3), or by using a typical rental rate from Information File Cash Rental Rates.

For example, a $100 grass hay price and a tallgrass pasture rating of .20 results in a rental rate per AUM of $20 ($100 x .20). A brome grass pasture may produce four AUMs per acre during the grazing season (Table 1). Multiplying the rate per AUM by the AUMs per acre results in a rent of $80 per acre ($20 per AUM x 4 AUMs).

Rent per Pound of Gain

With this method, pasture rent is based on the added weight the livestock gain while they are on pasture. This approach is best suited for stocker and feeder cattle rather than beef cows. To determine the rent payment, it is necessary for the cattle to be weighed or an average weight estimated before they are placed on pasture and after they are taken off pasture. This may not be practical in some situations.

Gain from pasture forage can be valued at about two-thirds to three-fourths the feed costs of gain in a feedlot. In a normal year the value of gain of livestock on pasture is from 50 to 60 cents per pound of gain. Rent is figured by multiplying the value of the gain by the total amount of gain.

For example, assume the average gain per animal is 1.25 pounds per day. The amount of gain for a month is 37.5 pounds (1.25 Ibs. x 30 days). If the rental rate is 50 cents per pound of gain, the rental charge for a month is $18.75 per head (50 cents x 37.5 pounds).

 

Don Hofstrand, retired extension value added agriculture specialist, agdm@iastate.edu
William Edwards, retired economist. Questions?