Friday, May 14, 2010

What Does Grass Really Cost?

I think most cattlemen have come to realize that grass is not free, by any stretch of the imagination. Especially if you have tried to rent grass in the northern plains in the last several years. The increase in grass rental (and land value) has been increasing at a rate of 15-22% per year over the last several years. This drastic increase in value and associated rental rates has outpaced the rest of the country by at least 20%.

That being said, most operators still have no idea what grass truly costs a cow outfit (or stockers for that matter).

Digging into the SDSU Cow-calf Business Report from 2008, this data set can give us at least average costs of grass. You can view the entire report at:

Look under the "Enterprise Analysis" tab on the left, select "Cow-calf Business Reports"

Again, a couple of things to remember:

1) These are only averages, some grass is cheaper, some is more expensive depending on where you are.

2) This data set is heavily influenced by eastern South Dakota operators.


This table shows the average cost of grass on deeded acres on an acre and AUM basis.

You can see that the average cost of deeded pasture runs about $23.57 per acre and $20.49 per AUM.

If you translate that into cost/pair/day it equals about $0.95/pair/day and $0.58/steer/day.

…and if that didn’t make you just about vomit, take a look at the average cost of rented pasture…

Here you can see that the average cost of rented pasture is running about $44.62 per acre or about $38.80 per AUM.

If you translate that into cost/pair/day it equals about $1.81/pair/day and $1.03/steer/day.

I think a lot of guys assume that the cash rental rate is the cost of the grass, but that isn’t true because there are a lot of other costs associated with running cows on rented grass. On average the cash rent on grass in this data set is only about $26 per AUM, but there are a lot of other costs that go along with it.

The good news is that the 2008 costs are down slightly from 2007 and it looks like 2009 costs will be down from 2008.

It wasn’t but 8 years ago that I rented pasture for a set of cows and I thought the $0.35/pair/day it cost me at the time was highway robbery. I guess those days are gone.

Believe it or not, $20 AUM grass does pencil and so does $40 AUM grass. The major point here is that a person wonders how in the heck can an operator rent grass and make it pay? Let’s look:

If an operator runs 80% of his cows on deeded ground that on average costs him $20.49/AUM and runs the other 20% on rented ground that runs $38.80/AUM. The average cost of his grass spread over the whole herd is still only $24.15/AUM, which pencils pretty nicely, especially if he had to sell the other 20% if he could rent the grass.

The cost of the really expensive rented grass is dispersed over 100% of the herd, 80% of which were running on deeded ground that costs half as much to graze.

This concept is what is running the value of ag real estate through the roof. So the big can get bigger and the young can’t get in the door.

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