High pasture prices hard for ranchers to swallow
November 21st, 2014
The national beef herd is down to the size it was in 1951. Shoppers have probably noticed the impact at the grocery store. Beef is more expensive, which has people switching to chicken and pork.
To raise more cattle and perhaps bring down meat prices, ranchers need more pasture. The trouble for many ranchers is grass has grown expensive.
Dave Wright grazes around 400 cows and their calves near Ewing in north central Nebraska with his son Isaac. On a cold, November morning he drove me to the edge of his ranch, bouncing over snow drifts and yucca plants. We got out of the truck to look at a neighboring pasture.
â€œKinda looks like this one only itâ€™s on the that side of the fence,â€ Wright said. â€œThe grass isnâ€™t necessarily greener over there. Itâ€™s still grass.â€
But when it sold last year, you would have thought it was prime real estate. Wright went to the auction hoping to pick up a section so he could expand his own herd, but he couldnâ€™t compete.
â€œIn 2000, I had bought pasture for $200 an acre. And in 2013, this pasture here that weâ€™re looking at across the fence over there sold for $1500 an acre,â€ Wright said. â€œJust an incredible, incredible price.â€
Pasture prices have been booming. Especially in states like Kansas and the Dakotas, or Nebraska where a state survey showed the value of grazing lands went up 24 percent last year, around 40 percent in some parts.
Cropland is still more valuable, but Mike Fritz, editor of the Farmland Investor Letter, says pasture is catching up for a couple reasons.
â€œSome might call it a perfect storm where you have less grass available and now thereâ€™s a time where thereâ€™s a lot competition to get control of grass either by buying it or leasing it,â€ Fritz said.
Mike Fritz says you can trace the reduction in grassland acres to the boom in corn prices. Across the Midwest, millions of acres of grassland were plowed under to raise crops.
â€œA lot of this land that has been converted to cropland was marginal land,â€ Fritz said. â€œIt has sloping soils or poor soils that arenâ€™t really productive for crops. So when prices are really high for grains itâ€™s probably more profitable to grow crops on it.â€
More corn and soybeans means less grass for cows, and itâ€™s right at the time when ranchers want to expand.
Drought caused ranchers to cull their herds, pushing up prices for remaining cattle. Now, many ranchers are grabbing up grass to raise more calves to sell next year, calves that might show up at the Shamrock Livestock Market in Oâ€™Neill, Nebraska.
â€œNever probably in the history of the cattlemen have they made as much money as theyâ€™ve made right now,â€ said Richard Schrunk, who manages the sale barn. â€œCalves are bringing probably an average of $1500 per calf. Wasnâ€™t too long ago a $700 or $800 calf was quite a calf. And theyâ€™re making double that.â€
Schrunk handles some real estate as a side-business. He sub-leases pasture he rents from local landowners.
â€œI have people call me all the time wanting grass,â€ Schrunk said. â€œI mean I wouldnâ€™t know how many acres I could rent if I had it. It would be unbelievable how much you could rent out.â€
And all that interest is bidding up prices.
There are places where the cattle herd has more room to grow. You can start with Texas and Oklahoma. Those states cut back herd numbers by the millions because of drought. Theyâ€™ll bounce back as pastures recover.
But ranchers like Dave Wright are selling calves at the highest prices of their careers. At a time when you would think heâ€™s banking profits, thatâ€™s not necessarily the case.
â€œWe have a lot of money come in our hands and we have a lot of money exit our hands,â€ said Wright. â€œThe trick is, how do we keep some of it to stay in our pocket?â€
Consumers may be paying more than theyâ€™re used to for a hamburger. Thatâ€™s how ranchers feel about what theyâ€™re paying for pasture.
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