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     Thursday, October 30, 2014

Introduction

Custom grazing is an arrangement in which one person provides the pasture, water and grazing management expertise for another person's livestock. Custom grazing is commonly done with stocker cattle, but can also involve cows with calves at side.

When getting started, start small and ensure success with fewer animals and lower stocking rates. It is better to get a smaller return with limited grazing than to over-graze and send cattle home early or in less-than-acceptable condition.

Because it is crucial to have a continuous supply of good-quality forage, a custom grazier should know the stocking rates for his/her land. An experienced custom grazier will know the land's actual production capacity, allowing him/her to fine-tune the system to ensure successful grazing.

A managed grazing system will be needed to ensure that optimal forage quality and quantity can be maintained throughout the grazing season.  Contact your nearest Saskatchewan Agriculture Regional Office or the Agriculture Knowledge Centre (1-866-457-2377) for help estimating your stocking rate or implementing a grazing management plan.

What class of cattle to graze

Cow-calf pairs

With cow-calf pairs, forage quality is not as critical as with grasser/stocker cattle. The grazing fee is usually based on a daily rate ($/day). When calculating a daily rate, consider the weight of the cows and the size of their calves. The larger the animals, the more grass they will consume. In some situations, it may be necessary to charge an additional fee for large calves ($/season).

Stocker/Backgrounders

Grazing grasser/stocker cattle can be a challenge. Quality of forage is important because fees for this class of animal are usually based on weight gain (¢/lb. of gain). In some situations, however, a contract based on a flat per diem fee for grazing may be more practical. The custom grazier should work with the owner to ensure that the animals are vaccinated, healthy, and have not just been weaned. This will reduce stress on the animals and make the transition to their new environment much smoother.

Condition, type and quality will affect the average daily gain of stocker cattle. Generally, steers will gain better than heifers. Younger cattle will gain faster than older cattle, and cattle with less condition will gain at a faster rate once they are on pasture than cattle that are fleshy.

The custom grazier may find that it is easier to manage livestock that come from one source or a few sources than from many different sources. When cattle arrive from many different herds, they tend to assemble into familiar groups and become difficult to herd. It is also easier to build a relationship with fewer livestock owners than with many.

Extra care should be taken when dealing with groups of calves recently purchased from sale barns. They may have been exposed to additional stressors and pathogens, and may not perform as well as animals coming from a single source.

Replacement Heifers

Grazing yearling heifers can present many of the same challenges as grazing grasser/stocker cattle; however, rapid weight gain isn't as critical for replacement heifers. The contract is usually based upon a flat fee per day of grazing ($/day). If breeding the heifers is part of the arrangement, the owner will usually supply the bull.

Determining how to charge

Daily rate

Custom grazing cow/calf pairs and replacement heifers is usually charged on a daily rate. For inexperienced custom graziers of grasser/stocker cattle, it may be beneficial to charge on a daily rate until they gain experience. Charging a fixed per-day-per-animal rate is less risky for custom graziers, especially if they do not know the quality of cattle they are grazing. Mature bulls eat more than cows; therefore, a fee of 1.5 times the cow/calf grazing rate is suggested.

Payment per pound of weight gain

Once a new custom grazier becomes familiar with grazing grasser/stocker cattle, he or she may decide to take on more risk and charge by the pound of weight gain. Payments based on weight gain during the contract period are usually preferred by stocker cattle owners. The grazier should have access to a legal scale so cattle can be weighed in and weighed out. It is important to minimize animal shrinkage losses during working and transporting livestock when being paid on a weight basis. An agreed upon pencil shrink may be applied to such final weight.

Shrink is the amount of weight an animal loses during sorting, transportation, standing, weighing or any change of environment that causes a degree of stress. It is the difference between the gross body weight before handling and the net sale weight. The majority of shrinkage occurs within the first few hours of handling, sorting, loading and standing. When in transport, the degree of weight loss levels off until it is triggered again by unloading, sorting, standing, mixing and fasting. For more information on shrink, refer to the Saskatchewan Agriculture publication Economic Losses Due to Shrinkage available through the ministry's website at http://www.agriculture.gov.sk.ca/, or from your nearest Saskatchewan Agriculture Regional Office or the Agriculture Knowledge Centre at        1-866-457-2377.

Combination of the two methods

Some custom graziers may choose to use a daily rate in combination with a payment based upon weight gain. For this system to work, the custom grazier may request a minimum daily charge per animal, plus an additional fee based upon weight gain over a predetermined threshold. Charging a minimal value per day guarantees the custom grazier a portion of his total return, while the per-pound payment provides an incentive to maximize weight gain on each animal grazed.

Determining what to charge

It is not enough to simply charge "the going rate."  A grazier should determine his or her individual costs as part of setting up a custom grazing operation.  The example provided in Table 1 allows a grazier to determine the "break even" or profit point.

The key to determining a "break-even" value is determining carrying capacity and balancing it with costs.  Simply add up the costs per acre and assign the value to the carrying capacity.

Cost calculations should include establishment costs amortized over the life of the stand, property taxes, fence construction and maintenance, water development and maintenance, fertility, weed control and labour. The cost of things such as salt, minerals, and veterinary supplies are usually charged back to the cattle owner.  A custom grazier may also include a return on investment for deeded land as well as a return on the fencing and water development.

Assign the production costs to the carrying capacity expected on the pasture.  Standard industry practice is to measure carrying capacity in Animal Unit Months or AUMs.  One AUM is essentially the amount of feed required to maintain one 1,000 lb. cow (i.e. one Animal Unit or AU) for one month.

The expected yield can be very difficult to establish, especially on new pasture.  The document Initial Stocking Rate Recommendations for Seeded Pastures in Saskatchewan, available on the ministry's website, may provide some guidance.  Stocking rates can also be determined by examining the yield history of the pasture, assuming that the past stocking rates past are known and that those rates were sustainable.  Keep in mind, however, that the pasture's grazing yield can be 50 to 60 per cent less than its hay yield, due to the animals trampling and defecating on the crop.

Once the carrying capacity is determined, assign these yields to the pasture costs.  Divide the cost per acre by the carrying capacity.  Remember that a cow will eat and excrete her own weight in forage in a month.  For example, a 1,300 lb. cow is valued at 1.3 AU, requiring 1.3 AUM for feed.  Consider that a large calf may also need to be assigned an AUM value.

To this amount, add a daily labour charge per cow to arrive at a final daily grazing fee per cow. A sample calculation for custom-grazing cow/calf pairs is provided below.

Table 1: Determining a "break even" value for custom grazing

Determination of your costs per acre

This section determines your cost of pasture on a per-acre basis.

 

Land (including water and fence)

   Value of land per acre multiplied by the desired rate of return on investment

    $300/ac. x 5 % = ($250/ac. was too low a value)

Taxes

Fertilizer

Other expenses (excluding labour)

Forage establishment cost/expected years of production

  $50.00/10 years

Total cost per acre

Sample Costs

 

 

 

 

$15.00

$  4.00

$  0.00

$  0.00

 

 

$  5.00

$24.00 (A)

Your Costs

 

 

 

 

 

 

 

 

 

 

 

                (A)

 

B. Determination of your pasture's carrying capacity

This section determines the number of days that a particular weight of cow with or without calf can graze on one acre without a detrimental effect on the forage.

 

Initial Stocking Rate Recommendations for Seeded Pastures suggests an initial stocking rate of 1.7 AUMs/ac. for a two-year-old meadow brome stand in good condition in the Dark Brown soil zone. 

 

=1.7 aum/ac. divided by the weight of cow on pasture

=1.7 aum/1,400 lb. cow =  1.2 month of grazing for that cow/calf pair

 

= 1.2 months of grazing x 30 days/month =  the grazing days per acre on a two-year-old stand of meadow brome in the Dark Brown soil zone for a 1,400 lb. cow with or without calf.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36 days (B)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

________(B)

C. Grazing fee per day based on your cost of production

This section determines a daily grazing rate per individual animal based on your costs.

 

A/B  ( $24.00/36 days)

 

 

 

 

 

$ 0.67/day (C)

 

 

 

 

 

_________(C)

D. Your labour fee

This section determines your labour charge based on the number of cattle you are grazing.

 

Hourly labour rate x hrs./day ÷ no. of cattle

 $15.00/hr. x one hr./day ÷ 100 cow/calf pairs

 

 

 

 

 

 $0.15 /pair (D)

 

 

 

 

 

__________(D)

E. Total fee per cow/calf or grasser per head per day

C + D =

 

E = $0.82/day

 

__________(E)

Facilities and Equipment

Custom grazing requires facilities suitable for handling livestock that both minimize stress on the animal and ensure worker safety. Cattle-handling facilities do not have to be expensive, or new. What is important is that they are well-designed, can withstand repeated use by large animals, and provide protection for both animals and workers.

Fences are a major investment, and one that can make or break an operation. Time spent designing an efficient fence layout will eliminate problems in the future and facilitate easy movement of animals. Refer to the factsheet Fencing Costs on the ministry's website under Production/Livestock Handling.

There must be an ample supply of water at all times. Pumping water to troughs instead of allowing cattle to drink directly from streams, sloughs or dugouts will improve herd health and weight gain, and protect the riparian environment.

A good-quality scale that can be certified for commerce is a wise investment, although a truck scale in a nearby community may be sufficient for weighing animals at time of arrival or departure.  It is important for both the grazier and the owner to agree upon the scale that is being used.  A scale can be used not only to routinely weigh a group of cattle but also to compare different groups of cattle on different forages, and to monitor which forages produce better gains at different times of the year.

The Contract

The long-term success of custom grazing depends on both the owner and the grazier making money. A written contract should clearly define the responsibilities of each party and how they will handle any problems that arise. The respective responsibilities of the livestock owner and custom grazier are summarized below. It is impossible to cover all possible considerations, so it is recommended that both parties seek legal advice as to the specific terms and conditions that should apply to a specific contract.

Livestock owner's responsibilities

Prior to delivery, the owner should provide the custom grazier with a description of the type of animals being delivered as well as their number. The owner should brand and tag the cattle, vaccinate and treat them for parasites and pay the costs associated with the breeding bulls (vaccinations, breeding soundness evaluations and transportation). Should the livestock need to be placed under quarantine, the owner should bear all costs.

From time to time, cattle will die while in the care of the custom grazier. Both parties should decide how death loss will be handled before the cattle are put on pasture. There is no specific formula for handling death loss. In some cases, the custom grazier may accept responsibility for any losses above a pre-determined mortality rate, while the owner would accept financial responsibility for any losses below that rate.

Custom grazier's responsibilities

The custom grazier is responsible for providing forage and water to the cattle and maintaining their health. Salt and minerals should be available at all times, and can be either billed back to the livestock owner or included in the grazing fee.

Cattle would be shipped on a date pre-determined by the owner and custom grazier. This will depend upon weather and pasture condition. If the custom grazier perceives pasture conditions to require early take-out, he or she may notify the owner within an agreed number of days prior to the custom grazier's proposed grazing termination and shipping date.

The custom grazier is responsible for keeping the pasture in a condition that is satisfactory and safe for the purposes of keeping cattle, including keeping fences in good repair. He or she should monitor the animals, and treat sick or injured cattle and inform the owner. The custom grazier should regularly communicate with the owner regarding the condition and performance of the cattle, and allow the owner the right to inspect the cattle during the grazing season.

The custom grazier may want to have some control over the condition of the cattle when they arrive on pasture, and exclude cattle that are sick or that will perform poorly on pasture.

 

Collecting payment

It is important to specify the payment terms in the written contract. The custom grazier may ask to have an initial deposit in order to guarantee that cattle will be delivered to the pasture. The deposit can be held by the custom grazier and applied against the final invoice. Alternatively, or in addition to the deposit, the custom grazier may request a portion of the total price on a monthly basis (i.e. cents/day x 30 days) to provide steady income for the custom grazier and avoid putting a large cost burden on the owner at the end of the contract.  The balance owing to the custom grazier will be determined at the end of the term or upon termination of the agreement, whichever comes first, and all outstanding charges are payable in full prior to the release of the cattle to the owner.

If cattle are not picked up at the end of the grazing season, the contract should stipulate any additional charge or penalty for this late pick-up.

Resolving Disputes

Either party may terminate the agreement by giving written notice to the other party. The owner may immediately terminate this agreement in writing if, in the opinion of the owner: a) the grazier fails to provide satisfactory service; b) the grazier fails to comply with any term or condition of the agreement; or, c) the grazier becomes bankrupt or insolvent.

Any disagreement between the owner and grazier may be submitted to arbitration if a mutually satisfactory settlement cannot be reached. The arbitrator should be selected prior to the grazing season and identified in the contract.

Summary

Producers need to consider all their options when looking to custom graze cattle. It is important to consider both the class of cattle that will be grazed and the custom grazing charge. In order to generate a profit, a custom grazier needs to calculate his or her own production costs based upon expected forage yield.

Fence and water development are two important investments when custom grazing.

A functional livestock handling facility is also required to load or receive animals as well as to treat any that may be sick. Access to a scale is required when payment is based upon weight gain.

Prior to entering into a custom grazing agreement, it is essential to have a written contract that specifies the responsibilities of each party. The contact should also specify the payment terms.

References:

Fischer, D.B. 1998. "Contract Heifer Raising". College of Agricultural, Consumer and Environmental Sciences. University of Illinois at Urbana-Champaign.
Initial Stocking Rate Recommendations for Seeded Pastures, Saskatchewan Agriculture publication.
Johnson, T. 2005. "Grazing Contracts for Livestock."  Livestock Business Guide. National Center for Appropriate Technology.
Judy, Greg. 2002. No Risk Ranching: Custom Grazing on Leased Land. Green Park Press. ISBN 0963246089. 236 p.
Phillip, L.E., P. Goldsmith, M. Bergeron, and P.R. Peterson. 2001. "Optimizing Pasture Management for Cow-calf Production: the Roles of Rotational Frequency and Stocking Rate in the Context of System Efficiency." Canadian Journal of Animal Science. 91(1) pp. 47-56.
Teegerstrom, T., G. D'Souza, P. Osborne, and K. Jones. 1997. "To contract or not to contract." In Agriculture and Resource Economic Review. 26(2): 205-15.



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