Cattle Industry Losing Steam

From "Beef"
By Mike Fritz

Private grazing rates across the western U.S. inched up just 1.4% over the past year to $14.70/animal unit month (AUM) as of Jan. 1. That's down sharply from the prior year's 5% pace and the smallest annual increase since 2006, according to the latest USDA January Cattle Survey.

More downward pressure on lease rates is expected as the impact of the global economic slump crimps consumer demand for meat and ranchers respond to weakening operating margins by making deeper herd cuts.

“Grazing-rate increases over the past three years were being driven by higher cattle prices,” notes Walt Richburg, national director of J.P. Morgan Farm and Ranch Management in Forth Worth, TX. He oversees 1.3 million acres of ranchland in Arizona, Colorado, Montana, Texas, Oklahoma, New Mexico and North Dakota.

“Three years ago, a 600-lb. weaned steer would bring $1.20/lb.; now you are getting just 90¢/lb. Cow-calf operators are projected to lose $70/cow,” he adds.

Dry conditions in many parts of the U.S., high feed costs and attractive cull-cow slaughter prices prompted a higher than expected 2% cut in the U.S. cattle herd last year to 94.5 million head.

In January, a flood of cull-cow shipments to San Angelo Packing Co., San Angelo, TX, created a two- to three-day processing backlog, says Vernon Fritze, a cattle buyer for the packer. If dry weather persists over the next 60 days, Fritze predicts another big influx of cows from Texas, Louisiana, Alabama and Mississippi.

The contracting cattle herd means there are 883,600 fewer beef cows and replacement heifers competing for pasture than a year ago. The U.S. beef herd is expected to continue to contract through 2010.

Up in Nebraska, California
The western region's firmest pasture markets are in Nebraska and California, where rates rose an average 8.7% to $25/AUM, and 7.9% to $17.80/AUM, respectively, over last year.

Lease rates climbed in Nebraska, despite a 2% drop in state cattle numbers. The escalating grazing rates may be a by-product of producers moving cattle from droughty southern states to Nebraska, notes economist Bruce Johnson at the University of Nebraska-Lincoln. Cattle of absentee owners require more oversight by landowners and these duties are reflected in higher grazing fees.

USDA's survey reflects state averages. Local rental rates vary widely based on such factors as forage quality, proximity to roads, the availability of stock water, size of the acreage, lease term and landowner services. Charges for counting, checking health and water, providing salt and minerals, and maintaining fences vary with each situation.

Table 1 reports average grazing rates for three common pricing methods: per AUM, a cow-calf basis, and per head. An AUM is the amount of forage needed to sustain one cow and calf, one horse, or five sheep or goats for a month.

The January survey shows that grazing rates contracted in Colorado, Idaho and Washington and held flat in Kansas, New Mexico, Oklahoma and Texas. All except New Mexico and Texas posted net declines in year-over-year cattle numbers.

Ranchers who run cattle in proximity to federal grazing lands benefit from a “spillover effect” of the below-market rates charged by federal agencies. The Bureau of Land Management and the Forest Service left the federal grazing fee for western pasturelands unchanged again this year at $1.35/AUM. The fee, which took effect March 1, is the lowest rate allowed under the current formula. The fee applies to more than 26,000 grazing permits and leases on public land administered by the two agencies.

These federal leases set a lower bar for the grazing rates that private landowners can charge. This is why private grazing rates in Nebraska's western Panhandle region — which backs up against federal grazing land in Wyoming — lag behind the rates in other parts of Nebraska, Johnson says.

At the state level, grazing fees on state-owned trust lands moved up and down, depending on whether tracts are leased via rate formulas or competitive bids. In Oregon, state officials cut 2009 grazing rates 3.2% to $4.90/AUM for the 638,000 acres of arid to semi-arid state rangeland in central and eastern Oregon. However, a new fee formula likely to be in place for 2010 would raise grazing fees about 46%.

Flat in Colorado
In Colorado, state grazing lease rates are flat at $10.78/AUM in the northeast to $9.13/AUM in the southwest. The Colorado State Land Board is due to adjust its grazing rate formula in 2010.

Like cropland, the pasture leasing market is bifurcated between the negotiated and competitive-bid markets. In Oklahoma, the Commissioners of Land Office annually solicits lease bids for a portion of the 475,000 acres of pasture owned by the state School Land Trust. In northwest Oklahoma, competitive lease bids on grazing land run $13.50 to $19/AUM in Harper, Woodward, Woods and Ellis Counties, says Keith Kuhlman, director of the Commissioners of Land Office. That's well ahead of the $9/AUM state average reported by USDA. In October, a 13,235-acre pasture tract in Cimarron County fetched $20.14/AUM for a five-year lease.



To see a map depicting the five-year change in cattle-grazing rates for 17 Western states

To see results of the Federal Reserve Bank Survey of Pasture & Ranchland Lease Rates

Continue on Page 2

Moving north to the Kansas Flint Hills, net rents to landowners for bluestem pasture are expected to hold even at $15-$26/acre, says Mike Holder, Chase County Extension. Custom-grazing fees for the early intensive grazing period are running unchanged at $65-$75/head for 550-lb. calves to graze for 90 days.

Feedlot costs have eased to 70-85¢/lb. of gain, narrowing the appeal of grass pasture. Holder figures it now costs 55-60¢/lb. of gain on grass, including the extra transportation costs and higher weather and health risks associated with pasture.

In Nebraska, net grazing rates on state-owned land are generally 17-19% higher in the eastern and western Sandhills, reports Ron Vance, field supervisor with the Nebraska Board of Educational Lands and Funds. State leases for sandy soil pasture range from an average $28/AUM in the western Sandhills, to $35/AUM in the eastern Sandhills.

Dropping in South Dakota
In South Dakota, which rents nearly 750,000 acres of pastureland in the northwest quarter of the state via competitive bids, officials look for grazing rates to drop. Fewer cows, lower cattle prices, tighter credit limits, improved pasture conditions — especially immediately west of the Missouri River — have reduced demand for pasture.

“We don't expect to see as much interest from neighbors or outsiders to challenge existing lessees,” says Mike Cornelison, a land agent with the South Dakota School and Public Lands office in Pierre. “Margins are tighter, so they will have to watch what they bid this year.”

The state nudged its minimum bid from $11/AUM in 2008 to $11.07. Last year, a young cow-calf producer determined to expand his pasture base bid $102.41/AUM for 160 acres of grass in eastern Potter County.

In Missouri, cattleman John Beltz reports that open-land pasture is fetching about $25/acre or $8/head/month, with the producer maintaining fences. That rate has been stable for several years, says Beltz, who runs 225 cows and 600 stocker cattle on pasture annually in Howell and Texas Counties.

Mike Fritz is editor and publisher of Farmland Investor Letter®, a monthly subscription newsletter providing farmland market intelligence for landowners and investors. Reach him at m_fritz@charter.net or visit www.farmlandinvestorletter.com.

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Interesting Note: While ranchers can graze their private cattle on public lands for less than $20.00 per head per year, our govt pays these same ranchers to "allow" the grazing of some 22,000 wild horses on these same lands, but pays the ranchers $500 PER HEAD per yr to allow them to do so...this is YOUR taxpayer dollars we are talking about here. Get the cows off of our public lands and let the wild horses stay and graze for free,...as it should be.

For more on the wild horse crisis, click on title above to go to;
SaveOurWildHorses


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