Montana Land Values, Leases of Public Land, and Conservation Easements

Recently I read where the USDA allocated $23M towards sage grouse habitat enhancement and it reminded me that many people that are looking to purchase land or sell land sometimes do not realize the impact of what these programs have on land values on ranch property in eastern Montana. In short, anytime a government entity is offering sums of money for your agreement to set private land aside, change the way you operate, plant other species of vegetation for so called “wildlife habitat”, there will ALWAYS be strings attached. These restrictions are encumbrances on the land, and are many times placed in perpetuity. Any restrictions in ownership results in lower value at sale time, and can reduce the value as much as 50%, depending on the restrictions.

I have had the opportunity to sit in on varous conferences where today’s wildlife biologists and wildlife enthusiasts will contend domestic livestock are ruining the landscape. It is apparent to me they have not studied the positive affects of cattle and sheep on the landscape, as has been proven by Alan Savory in his development of holistic range management. (See: Where rangeland is healthy, is where you will find wildlife. And the abundance of wildlife is found generally on ranchland privately owned. Thus, the desire for Uncle Sam to want what you have and “make it better” to me is hypocritical.

The real estate investor should also be aware that leases of land from Bureau of Land Management (BLM), the State Department of Natural Resources (DNRC), and the Forest Service are continually changing their range/grazing management plans to focus on wildlife and especially certain species of wildlife that are determined as “threatened” or “endangered” species. This appears to be in reaction to the pressures of urban sentiment propogated by wildlife groups and can result in counter productive results for agricultural production. For example, it was determined many years ago that cross fencing rangeland to accomplish a pasture rotation system would enhance carrying capacity. Now, part of the $23M allocated for sage grouse habitat will be used to tear those fences out. Why?? Because the wildlife biologists believe the sage grouse flies to low to clear the fences, and commit suicide by running into them. The ranchers who are on the ground daily, will tell you the biggest threat to the sage grouse are predators. Therein lies the controversy. Wildlife programs such as the one cited follows an agenda, and has little to do with the species.

Many eastern Montana ranches include leases from these government agencies, and while the lease rate may be attractive in comparison to a private lease, future grazing may be limited, should items like cross fencing be removed. This issue needs to be greatly considered when looking to purchase a ranch with a high concentration of public lands leased. BLM leases are ten year leases and are valued from $80/AUM to $120/AUM (Animal Unit Month) when purchasing a ranch, as those leases require the private land to be adjoining to have “standing”. Where the difference in total ranch value will come in is if and when BLM intends to reduce those AUM’s in their grazing plans for the purpose of protecting or enhancing wildlife, according to their current propogated belief. As a potential investor of ranch real estate that includes a public lease, you would be wise to ask your real estate agent about the current status of the lease and who you need to contact in the respective government offices that can provide current information on the lease.

On the positive side, livestock prices will be strong for several years to come, as the challenges of producing livestock increase. It is simple economics of supply and demand. The sheep market experienced over 100% increase in live value in 2010. Cattle prices have increased significantly as well. Numbers of breeding stock have not increased for several years, indicating the number of producers are retiring and fewer of the next generation are taking over, while the world demand of red meat remains stable to increasing. There is great opportunity ahead that will reward investors and those interested in pursuing a lifestyle of ranching. Deeded land with no encumbrances and/or deed restrictions will be in more demand and command a higher value as public lands become more restrictive.

Some of the best working cattle ranches in the country are located in Southeast Montana and are coming on the market as current generation of ranchers retire. If you are interested in visiting more about the significant impacts driving land values in eastern Montana, contact me. I enjoy talking about Montana land and livestock. ~J.T. Korkow, Mills Auction and Real Estate.

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