Pasture values continue to escalate

Cattle Market & Farm Reports, Editorials
Aug 15, 2005
by WLJ

— Rental rates climb, also.
— Calf pressure from corn costs, not pasture
Pasture values across the major cattle grazing regions of the U.S. continue to rise and along with that, another uptick has been seen in average pasture rent, according to USDA’s National Agriculture Statistics Service (NASS). While land values bode well for those looking to sell all or a portion of their land, it could become a hindrance to cattle producers looking to expand their operation or buy more “seasonal” grazing acres.
Market analysts said they don’t expect calf prices this fall to decline directly because of increased rental rates, however, profits could decline because of the extra cost to graze cattle. Most market onlookers said the possible price increase of other feed resources—in particular corn—could wreak more havoc on calf and yearling prices this fall.
According to the agency’s 2005 Agricultural Land Value Report, the southern Plains region of Oklahoma and Texas has an average pasture land value of $695 per acre, up $71 from last year. In the Northern Plains states of Kansas, Nebraska and the Dakotas, per acre value is $325, compared to $279 the previous year. The average pasture price in the Mountain region—Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming—was $346, compared to $302 last year. In the Pacific region—California, Oregon and Washington—the average pasture value is $1,120 per acre, up $100 from 2004.
According to NASS, the 17 states in those four regions account for over 85 percent of the total privately-owned pasture acres in the U.S. The western state with the highest valued pasture land is California, valued at around $1,750 per acre.
Along with the bump in land values this year, USDA also indicated that pasture rent has increased as well. The average rent for pasture in the northern Plains is $12 per acre per month, compared to $11.80 last year. In the southern Plains, average pasture rent is around $8.40 per acre, 30 cents more than 2004. The average pasture rent for Mountain states is $3.80, up from $3.60 last year. Pacific states have an average rent of $13.50 per acre, steady with last year, according to NASS. However, California reported a 50-cent increase in pasture rent, coming in at $12 per acre.
For the 17 most western states, not including Alaska and Hawaii, the average pasture rent this year is approximately $9.42 per acre, two percent higher than the $9.25 average rent last year.
According to Chris Bastian, agricultural marketing specialist with the Department of Agriculture and Applied Economics at the University of Wyoming, the jump in pasture value this year was due to historically high feeder and stocker cattle prices and additional competition coming from non-agriculture buyers.
“There is a strong correlation between cattle incomes and pasture values. When prices for calves and yearlings are where they were last year, producers will be more active in looking at and purchasing land. High prices also increase their willingness to pay more for that land,” Bastian said.
He also said there has been a significant increase in the amount of “urbanites” that are looking at getting out of metro areas and buying smaller tracts of pasture or rangeland with the thought they will regain their privacy.
“In a lot of instances, 120 acres of pasture can be broken into several 20-, 30-, or 40-acre parcels, which are in demand by a lot of buyers coming out of the city,” Bastian said. “In most cases, these people have more money to spend on purchasing these tracts, thus bumping up overall pasture values, nationwide.”
In analyzing the impact of higher pasture values and rental rates on this fall’s calf market, Bastian and several of his colleagues felt any price decreases would be the result of increased corn prices and some possible pressure from additional Canadian cattle being weaned starting in October.
“I don’t think a lot of prospective calf buyers this fall will be in the market for additional pasture, particularly after paying record prices last year and prospects for higher priced corn looming. Cow/calf producers that sold cattle for those prices will be the ones in the market for higher priced pasture,” said Greg Abernathy, consultant with NP Livestock Services, Grand Island, NE.
Moving further west, several sources said that renting pasture was still cheaper than buying it and that both stocker operators and cow/calf producers would lease more pasture instead of purchasing it outright.
“Even paying $35 per month (per cow), it’s cheaper to run a cow or cow/calf pair on leased land than it is to pay for pasture right now,” said Allen Torell, professor of rangeland sciences with New Mexico State University.
According to Torell, stocking rates across much of the Southwest and Intermountain West range anywhere between 8-25 head per section. As a result, the economics of buying pasture for the sole purpose of running cows isn’t very economical.
“Appreciation of pasture land alone has out-returned the running of cows by five to eight times over the past six years, or longer,” Torell said. “If producers are relying on cattle to return their investment, it will be a long time before that happens, in most cases 10-15 years. If pasture value continues to increase, it will be even longer.”
Market impact
Market analysts indicated that stocker and feeder cattle markets could be softer in the fourth quarter of this year and first quarter of 2006, however, most said the extra cost of running cattle on pasture wouldn’t be a primary reason for that happening.
Instead, more price pressure is expected to come from a projected increase in corn price because of a fall in corn production this year. Most analysts have indicated that a nationwide average yield of 145 bushels per acre will keep corn prices mostly steady with prices seen most of last year and the first half of this year. However, a lot of analyst projections are that corn yields will fall below 140 bushels and that corn prices could start getting upwards of $2.50 or more. Additionally, yields of 130-or-fewer bushels could force prices over $3.
“The fall calf market really depends on where the corn situation goes the rest of this year,” said Bastian. “There is a lot of corn damage in Illinois, but other Corn Belt states are still unknown. We will know more when USDA comes out with its next production report.”
As a rule of thumb, most analysts say that for every 10 cents of movement in the corn price, a reverse move of $2-5 per cwt is usually noted in feeder cattle prices. If corn hits $3 later this year, that could mean calf prices could range anywhere between 12-30 cents per cwt below current levels.
The next crop production report was scheduled to be released last Friday, Aug. 12, a day after WLJ went to press. — Steven D. Vetter, WLJ Editor

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