How Much is My Grass Worth? Factors to Determine Lease Rates Kevin C. Dhuyve-er Department of Ag Economics Kansas State University [email protected] 785-­‐532-­‐3527 www.agmanager.info
Everything is in the words we use… 1
Everything is in the words we use… Which of the following quesYons are we trying to answer? •  How much can I pay for grass? •  How much do I have to pay for grass? •  How much is grass worth? •  How much should I pay for grass? 2014 Southwest Beef Symposium – Jan 9-­‐10, 2014 Clayton Civic Center – Clayton, New Mexico Different ways of determining rental rates… •  How much can I pay for grass? –  EsYmated based on value of gain/expected value of gain in a summer grazing program (or values of calves in cow-­‐calf) •  How much do I have to pay for grass? –  What are others paying (i.e., publicly reported rates) •  How much is grass worth? –  Calculated based on cost of gain from drylot program •  How much should I pay for grass? 2
Different ways of determining rental rates… •  How much can I pay for grass? –  EsYmated based on value of gain and non-­‐pasture cost of gain in two different summer grazing programs in the Flint Hills of Kansas –  Short-­‐season (SS) •  75 days (May 1 to Jul 15) •  ADG = 2.2 lbs (total gain of 165 lbs/head) –  Full-­‐season (FS) •  150 days (May 1 to Oct 1) •  ADG = 1.75 lbs (total gain of 262.5 lbs/head) How much can I pay for grass? -­‐-­‐ Value of gain Monthly average prices for western KS aucYons from 1992-­‐2013. Source: LMIC (similar data exist for Clovis and Amarillo). 3
How much can I pay for grass? -­‐-­‐ Value of gain Average Feeder Steer Prices -­‐ Eastern KS Summer Grazing
200
May-­‐500 lbs
180
what about the value of gain? Oct-­‐763 lbs
160
Price, $/cwt
Prices have been increasing, but Jul-­‐665 lbs
140
120
100
80
60
40
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
How much can I pay for grass? -­‐-­‐ Value of gain Average Value of Gain for Eastern KS Grazing
180
160
Value of gain, $/cwt
140
May-­‐500 lbs to Jul-­‐665 lbs
Avg = $63.34 (-­‐$1.41 to $129.95) May-­‐500 lbs to Oct-­‐763 lbs
Avg = $68.20 ($10.98 to $170.32) 120
100
80
60
40
20
0
-­‐20
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
4
How much can I pay for grass? -­‐-­‐ Cost of gain •  Non-­‐pasture costs based on historical projected budgets (total costs included) –  Short-­‐season (SS) •  Per head: Average = $50.93 ($35.45 to $81.61) •  Per cwt: Average = $30.87 ($21.48 to $49.46) –  Full-­‐season (FS) •  Per head: Average = $76.83 ($56.07 to $118.67) •  Per cwt: Average = $29.27 ($21.36 to $45.21) How much can I pay for grass? Return to Pasture (value of gain less non-­‐pasture cost)
100
SS ($19.46)
80
FS ($25.35)
$/acre
60
40
20
0
-­‐20
-­‐40
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
5
How much can I pay for grass? Return to Pasture (value of gain less non-­‐pasture cost)
100
SS ($19.46): Bluestem Report=$18.83 SS: +$1.73/hd cost = $18.83/ac 80
FS ($25.35): Bluestem Report=$16.01 FS: +$37.65/hd cost = $16.01/ac $/acre
60
40
20
0
What can be paid > what was paid -­‐20
50% (SS) and 65% (FS) of the Dme. -­‐40
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Different ways of determining rental rates… •  How much do I have to pay for grass? –  Only “need” to pay what it takes to get the land rented (what are others in the area paying?) –  Average rental rates reported by USDA/KAS •  State averages (1979-­‐2013) •  Bluestem pasture report (1978-­‐2013) (some missing years) –  PotenYal problems with reported averages •  Do the averages reflect your situaYon? •  Many reasons rates should vary from what others are paying •  Averages are likely biased relaYve to market for “new” land –  $/ac rates have li-le meaning (use for indexing?) 6
How much do I have to pay for grass? 2013 pasture rents at county-­‐level on a per acre basis. Do these average rates really have much value without knowing the stocking rate? Source: USDA NASS and KSU How much do I have to pay for grass? Pasture Rent per Animal Unit
18
16
NM
NM
TX TX
CO
OK
KS
14
$/month
12
10
8
6
4
Why do values vary so much by state? 2
Source: USDA NASS Prices Paid Survey 7
How much do I have to pay for grass? Per Head Pasture Rent
20
18
NM
TX
TX
CO
OK
KS
16
$/month
14
12
10
8
6
4
2
Source: USDA NASS Prices Paid Survey How much do I have to pay for grass? Cow-­‐calf Pasture Rent
24
22
NM
NM
TX
CO
OK
KS
20
$/month
18
16
14
12
10
8
6
4
Source: USDA NASS Prices Paid Survey 8
How much do I have to pay for grass? Average Kansas Pasture Rents in Flint Hills
28
Stockers
Cow/calf pair
Rent, $/month
24
20
16
12
8
4
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Kansas Ag StaYsYcs, KSU projecYons for 2010-­‐2012 How much do I have to pay for grass? Cow-­‐calf Pasture Rent
Per Head Pasture Rent
30
20
KS: NASS Prices paid survey
25
18
KS: KAS Bluestem report
16
KS: KAS Bluestem report
14
$/month
$/month
20
KS: NASS Prices paid survey
15
12
10
10
8
5
6
0
4
Bluestem survey > Prices Paid survey Prices Paid survey > Bluestem survey When looking at survey data to decide how much you have to pay, which data are used? 9
What factors drive these averages… •  Rate = f(year, feeder ca-le futures, corn futures) –  EsYmated models for the following (data from 1979-­‐2012): •  $/AUM •  $/month (cow-­‐calf) •  $/month (rented per head) –  Linear Yme trend, April FC futures in March, May CN futures in March, state dummy variables, log rent –  R-­‐square values 0.894 to 0.912 –  Time trend and corn price are posiYve and significant, feeder ca-le price is not significant (mulYcollinearity issue?) What drives these averages… Model-­‐predicted rents for 2013 and 2014* $/AUM $/mo (cow-­‐calf) $/mo (per head) New Mexico 2012 actual 12.50 n/a 14.00 2013 predic<on 13.06 15.35 15.65 2014 predic<on 12.05 14.58 14.60 2012 actual 14.40 n/a 12.30 2013 predic<on 14.24 14.54 14.15 2014 predic<on 13.14 13.81 13.20 Texas * Corn price = $7.70 (2013) and $4.45 (2014) Feeder ca-le price = $153 (2013) and $168 (2014) 10
Different ways of determining rental rates… •  How much is grass worth? –  Calculated based on cost of gain from drylot program –  SS/FS stocker programs versus drylot gain •  SS daily feed: 5 lbs hay, 8.65 lbs corn, 1.7 lbs sbm •  FS daily feed: 8 lbs hay, 7.25 lbs corn, 1.4 lbs sbm –  Cow-­‐calf (spring calving) versus drylot •  Daily feed: 26 lbs hay, 2.0 lbs corn, 1.0 lb sbm –  Monthly average prices for May-­‐Oct •  Difference vs Bluestem rental rate -­‐-­‐ $/hd, $/ac, % Prices of other feedstuffs have been up significantly… Price of Various Feed Ingredients
25
Corn ($6.03)
Hay ($3.56)
Price, $/cwt
20
SBM ($12.67)
15
10
5
0
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
11
How much is grass worth? Stocker Pasture Rent vs. Drylot Feed Costs -­‐-­‐ 150 days
300
50
$/ac diff ($17.54)
45
Pasture ($64.30)
250
40
Drylot ($135.00)
Cost, $/head
30
150
25
20
100
Difference, $/acre
35
200
15
10
50
5
0
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
How much is grass worth? Stocker Pasture Rent vs. Drylot Feed Costs -­‐-­‐ 75 days
140
30
$/ac diff ($6.06)
120
25
Pasture ($52.00)
100
20
80
15
60
10
40
5
20
0
0
Difference, $/acre
Cost, $/head
Drylot ($68.67)
-­‐5
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
12
How much is grass worth? Cow-­‐calf Pasture Rent vs. Drylot Feed Costs -­‐-­‐ 183 days
400
35
$/ac diff ($13.40)
30
Pasture ($113.51)
Cost, $/pair
300
Drylot ($214.80)
25
250
20
200
15
150
Difference, $/acre
350
10
100
5
50
0
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Different ways of determining rental rates… •  How much should I pay for grass? –  Very normaYve quesYon, thus there is not a “right” answer to this quesYon. –  However, if your rent has not changed for 5, 10, or 20+ years, likely you should be paying more than you are… 13
Feed costs are highly variable across producers… Distribution of 2012 Total Feed Costs (average=$487)
Distribution of 2012 Pasture Costs (average=$147)
30
24
27
21
Percent of operations
21
18
15
12
9
6
18
15
12
9
6
3
3
0
0
Pasture cost, $/cow
Total feed cost, $/cow
Do producers “trade-­‐off” one feedstuff for another? That is, do cow-­‐calf producers that have high pasture costs also have high total feed costs? Source: KFMA Beef cow-­‐calf 2012 enterprise data Rela<onship between pasture and non-­‐pasture costs 2012 Pasture and Non-­‐pasture Feed Costs
350
Average total feed costs = $486 300
Pasture cost, $/cow
Percent of operations
24
250
200
150
100
50
54.8% above average 0
0
100
200
45.2% above average 300
400
500
600
700
Non-­‐pasture feed cost, $/cow
Source: KFMA Beef cow-­‐calf 2012 enterprise data 14
Rela<onship between pasture and non-­‐pasture costs 2012 Pasture and Non-­‐pasture Feed Costs
350
300
(4.3%) Pasture cost, $/cow
(23.7%) (22.6%) 250
200
150
100
50
(24.7%) (6.5%) (18.3%) 0
0
100
200
300
400
500
600
700
Non-­‐pasture feed cost, $/cow
Source: KFMA Beef cow-­‐calf 2012 enterprise data Rental Rates – Non-­‐irrigated crop example •  Another way to obtain an esYmate of cash rental rates for non-­‐irrigated cropland –  BudgeYng approach that reflects expected returns to farming –  Marginal rental rate versus average rental rate •  Calculate crop share revenues based on long-­‐term profit expectaYon and apply a risk premium 15
KAS-­‐survey values of Kansas Non-­‐irrigated Cash Rents, 2013* * 19 counYes with no values reported were “filled in” with mulY-­‐county average values reported for the corresponding region.
Simple average across 105 counYes = $50.06 KSU-­‐Es<mated Kansas Nonirrigated Cash Rents, 2014* * EsYmated in December of 2013 based on county-­‐average yields and regional prices and using an equitable net share lease (adjusted for risk) approach. Simple average across 105 counYes = $85.91 16
Ra<o of KSU 2014 es<mate to KAS 2013 average* * Values reflect the amount the KAS 2013 value would need to be mulYplied by to equal the KSU esYmated value for 2014. For example, a value of 1.70 would imply the KSU esYmate was 70% higher than the KAS value. Average raYo = 1.71 (min = 0.91 and max = 3.46) Rental Rates •  Large differences between KAS survey and KSU-­‐
Lease esYmates. Why? •  Surveys reflect many things –  MulY-­‐year fixed rate leases (we don’t know lease terms) –  Differences in producYvity of land and tenant –  “RelaYonship” benefits for landowner •  Cash rent esYmates use expected prices –  Can and do change as we move forward –  Rents will adjust to reflect these differences •  Are things similar or different for pasture? 17
Summary… •  How much can I pay for grass and what is grass worth? Difference between what could be paid for grass and what grass is worth compared to Bluestem Report rate (all values are $/acre) Time period
Value of Gain
SS
FS
Alternative Feedstuffs
SS
FS
Cow-­‐calf
1994-­‐98
-­‐$7.35
-­‐$2.99
$4.25
$13.52
$11.26
1999-­‐03
-­‐$1.85
$9.85
-­‐$1.09
$8.58
$9.31
2004-­‐08
$15.02
$16.71
$5.28
$16.07
$11.81
2009-­‐13
-­‐$3.29
$13.80
$15.78
$32.00
$21.24
1994-­‐13
$0.63
$9.35
$6.06
$17.54
$13.40
•  ConflicYng forces impacYng pasture worth in 2014 – declining costs of other feedstuffs vs high price of calves… “Other” factors impacYng rental rates… • 
• 
• 
• 
• 
• 
• 
Stocking capacity (impacts rent per acre) Size of pasture Water availability Quality of fence Maintenance (e.g., water, fence, weed/brush control) CompeYYon in area (i.e., local demand) Landowner/tenant relaYonship •  Many factors impact what a given pasture is worth and what a producer can pay. 18
A new resource A new resource 19
A new resource For more informaDon and decision tools related to farm management, markeDng, and risk management go to www.AgManager.info Kevin Dhuyve-er 785-­‐532-­‐3527 [email protected] If interested in receiving weekly AgManager.info Update or any of our other Ag Econ newsle-ers via email, please let me know. 20