Pasture rents poised for increase

Oct 1, 2010
by DTN

In Texas, there are a lot of good reasons for landowners to keep pasture rental rates steady. One of the biggest is called an agricultural use exemption and without it, landowners can see property taxes go up about tenfold.

Clay Rightmer and his family are longtime ranchers near Muldoon, TX. They have a 500-head cow/calf operation on a combination of owned and rented land. In addition, the family has a land sales side to their operation. Taken together, Rightmer is in a great position to follow the issue of rural land values in his state. He says while you might expect pasture rents to be on the increase given today’s higher land prices, that hasn’t been the case in his part of the world.

“Here it has a lot to do with the growth of the population in Texas and our tax laws. Landowners want to maintain the agricultural use exemption on their land. We see a lot of land sales to absentee landowners, and they need a local person to maintain the land and keep it in agriculture. It’s a big deal, because without that, their property taxes can go up by about 10 times,” says Rightmer.

That means it’s often in the landowner’s best interest to keep cash rents low once he or she finds a rancher they know will take care of the land. And in more and more cases these days, Rightmer adds, no money is changing hands at all.

“We’re seeing more share basis arrangements between cattlemen and landowners,” he says. “With this arrangement, the landowner actually has a partnership on the cattle. It’s more of a barter agreement in a sense. This also helps people who want to move into the community one day, maybe when they retire, get assimilated. Because they are, in a sense, already a local rancher.”

In Kansas, where average cash rents are about three times what they are in Texas, Kevin Dhuyvetter sees more of a tie between higher beef and corn prices, and pasture rents.

Dhuyvetter is an agricultural economist with Kansas State University. He follows land prices and rents in the state and says while there have been no big changes yet in pasture rental rates, cattlemen could see them ahead.

“Historically, there is almost always a positive relationship between feeder cattle prices and pasture rents here,” he says. “When cattle prices are higher, pasture owners generally get more in rent. Also, when feed prices are high, cattle feeders have an incentive to put as much gain on cattle outside of the feedlot as possible, if that can be done at a lower cost. So even though cattle numbers are down now, that doesn’t necessarily mean demand for pasture is down.”

Average cash rent for an acre of pasture in Kansas now stands at $15.50 compared to $6.10 in Texas.

Dhuyvetter says when adding in productivity levels, a common rent for a cow/calf pair is about $130, with considerable variability around that average.

Kansas is common to most parts of the country in that pastureland values have gone up fairly dramatically (9 percent annually over the past five years) while pasture rental rates have increased just 3 percent per year on average.

Dhuyvetter says when you think about what has been going on in the land market, these differences aren’t all that surprising. This is the way it should probably pencil out.

“The reason we don’t see a more direct correlation is simply that much of the increase in land prices has nothing to do with agriculture, or more specifically land productivity for grazing. Much of the increase has been due to things like hunting leases, investment, wind energy or just urban sprawl.”

A look at the latest USDA “Land Values and Cash Rents” report shows average pasture value is $1,070 for 2010. Average per-acre cash rent for pasture land is just $11. States well above that average include Iowa ($40 per acre), Illinois ($39 per acre), Wisconsin ($32 per acre), Pennsylvania ($25 per acre), Georgia ($24 per acre), Minnesota ($24 per acre), Missouri ($24 per acre), North Carolina ($24 per acre), Alabama ($19 per acre), Tennessee ($19 per acre) and Virginia ($19 per acre). — DTN