Notes From Nelson

Grazing lease rates are always a topic of discussion. What's the magic number that should be paid/charged? Obviously there is no “magic number” for rental rates. Determining rental rates is not an exact science. Local demand and supply conditions, anticipated market conditions, and even long standing working relationships can have a bearing on rental rate negotiations. It is in the best interest of both land owners and renters to establish and record rental agreements that are equitable.

The success of the lease depends on meeting the needs of all parties. Both the land owner and livestock owner legitimately seek to recover their direct and opportunity costs.

From the landowner's viewpoint, there are a number of things to be considered. If the property comes with improvements (fences, corrals, water developments, etc.), they are worth something in terms of lease value. If the landowner is doing the fence maintenance, providing electricity for the wells, providing salt, checking the stock on a regular basis, etc., these items are also of value in terms of the lease amount. And, of course, the landowner wants to have the property taxes as well as opportunity costs (what he/she could be making if his/her money was invested in other ways rather than in grazing land) covered by the lease amount. And, of course, everyone wants to make a little profit.

From the livestock owner's viewpoint, there are also a number of things to be considered. A livestock owner's business and management reputation, animal husbandry skills, range management practices and abilities, etc., are worth something to the landowner in terms of lease value. If the livestock owner is maintaining the fences (which party is supplying materials?), paying for well electricity, etc., those factors need to be considered when determining the lease amount. The livestock owner's opportunity costs also need to be considered – does the rental grazing property join the operation, or is it several miles away; are improvements in good repair or will extra time and effort be required to make them useable; is the range in good condition; is pasture plant species present suitable to needs; is available water distributed for best grass utilization; etc. All of these things need to be discussed and considered in lease rate negotiations.

Other than the lease rate, perhaps the most important aspect of any pasture lease is the stocking rate. Clearly specifying the stocking rate in the lease agreement helps avoid disagreements between both parties and maintains the quality of the grass stand.

Grazing leases can be by a “number of animal basis”, “an AUM (animal unit month) basis”, “a per acre basis”, or on a “weight gain basis”. Whatever the method used, it is in the best interest of both parties to develop a lease agreement that achieves maximum economic returns to all resources while maintaining the grass stand and quality.

An equitable lease needs to be favorable to both parties. The landowner needs to be fairly compensated for the use of his/her property and improvements. At the same time, the livestock owner should not be expected to pay excessive lease rates just because his calves sold well last year.

For further information on leases, or for sample lease contracts, contact the Extension Office.