Custom grazing strategies in today’s market

Market signals over the past year have increasingly pointed to a narrowing price slide, with heavier feeder cattle gaining value relative to lighter calves.

Mississippi State University Extension Beef Cattle Specialist Justin Rhinehart notes that the trend, and the incentive for producers to keep cattle on forage longer, might provide opportunities for land owners or managers to offer custom grazing services. Full story:

For a stocker operator, Rhinehart says providing custom grazing services can create regular cash flow without the initial cost of owning the cattle. The enterprise does not, however, provide the same opportunities owners might have to increase margins on cattle through management or marketing decisions.

For stocker operators considering whether to provide custom grazing as a service, the first step is to project a realistic cost per unit of gain. Rhinehart reminds landowners to consider every possible cost including, but not limited to, fertilizer, rent, labor, facilities, interest on operating capital, taxes and insurance. Demand for custom grazing, he says, will be limited if these costs add up to more than the potential customer’s breakeven calculation affords.

While the traditional fee structure for custom grazing is based on cost of gain, Rhinehart notes that the arrangement places almost all of the environmental and health risk on the grazer. For another option, he refers to a recent survey of custom grazers in Iowa showing a trend toward stocker grazers charging a per-head, per-day rate with incentives for better cattle performance. These arrangements reduce risk for the grazer, while also potentially benefitting cattle owners. If, for example, an owner wants to target market premiums for thinner “hard yearlings,” the grazer can manage toward that goal without sacrificing potential income due to lower gains.

Another potential opportunity for grazers is to engage in “three-party management arrangements.” These typically involve absentee land owners who can maintain their investment and generate revenue by renting land to a custom grazer who backgrounds calves on a contract basis. Rhinehart says the arrangement can work especially well for owners who maintain their land for recreation and wildlife, as they are likely to provide consistent access and not sell the land without advanced notice. This type of arrangement also provide an alternative for landowners who are exiting beef production but wish to maintain ownership of the land and see it remain in production.

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