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Published July 16, 2010, 12:05 AM

Ag land values continue to rise

A South Dakota State University Report on agricultural land market trends shows that, despite a tough economy, the price of farm land continues to rise in South Dakota. The “Agricultural Land Market Trends, 1991-2010” real estate survey states that as of February, the average value of all agricultural land statewide was $1,179 per acre, a 5.2 percent increase over 2009.

By: Ross Dolan, The Daily Republic

A South Dakota State University Report on agricultural land market trends shows that, despite a tough economy, the price of farm land continues to rise in South Dakota.

The “Agricultural Land Market Trends, 1991-2010” real estate survey states that as of February, the average value of all agricultural land statewide was $1,179 per acre, a 5.2 percent increase over 2009.

Statewide increases were highest for non-irrigated cropland, which averaged $2,030 an acre and increased 6.8 percent over 2009 figures. Hayland averaged $1,195 an acre, an increase of 4.6 percent. Rangeland averaged $540 in 2010, a 1.6 percent increase.

Taking a broader view, the report noted that agricultural land values have doubled since 2004 and have increased five-fold since 1992.

The report was written by SDSU economics professor Larry Janssen and State Extension Specialist Burton Pflueger.

Janssen said the report delivered “no major surprises, other than the fact that land values are still increasing 5 percent overall state-wide — a little higher for cropland and a little lower for pasture land.”

Janssen said follow-up conversations with market professionals corroborated the survey data.

“Considering all the bad economic news that we hear nationwide, I thought maybe more of it had spilled into South Dakota in terms of affecting agriculture, but apparently it has not.”

But the 5.2 percent average increase figure — the slowest rate of increase since 1996, when values increased 4.4 percent — also shows that the value engine is slowing after nearly a decade of double-digit value increases. In two years — 2004 to 2005 and 2007 to 2008 — average land values increased more than 20 percent.

“The biggest factor in those years was that falling interest rates lowered the cost of money and pumped up all real estate markets,” Janssen said. The ethanol boom was another contributing factor.

The average value of all land was highest in eastern regions, ranging from $2,712 in the east-central region, to $2,447 in the southeast, to $2,006 in the northeast region. This is the first year, said the report, that the value of all land averaged more than $2,000 an acre in all three regions.

The highest increases occurred in the survey’s north-central region, which is comprised of Brown, Spink, Edmund, Faulk, McPherson, Campbell, Potter and Walworth counties — counties where land prices were more moderately priced. Prices averaged $1,673 an acre in 2009 and $1,945 in 2010 for non-irrigated cropland. The average per-acre price was $1,088 in 2006.

Land prices were among the highest in the three county groups that comprise the east-central region.

In Minnehaha and Moody counties, non-irrigated cropland averaged $4,298 an acre in 2010, up from $4,068 in 2009. In Brookings, Lake, and McCook counties, land that sold for an average of $3,099 in 2009 went for $3,419 in 2010. Sanborn, Davison, Hanson, Kingsbury and Miner counties saw prices increase from $2,295 an acre in 2009 to $2,536 an acre in 2010.

Land rental rates are also tracking upward, Janssen said, which gives further support to high land values.

Land values can’t stay high if rental rates are going in the opposite direction, Janssen said. “But what we’re finding is that cash rents are continuing to remain steady or are increasing in most areas.”

Rising land rental prices can make things tougher on renters, Pflueger said, “but if you rent the right land at the right price, you can still make a profit on it.”

High crop yields have enabled farming operations on rented land to do well.

Good crops and generally good climatic factors are also doing their parts to support the market, Janssen said.

It would probably take a major drought to break the upward trend, he said, though value increases will likely remain in the single digits. “A drought pocket here or there is not going to do it,” he said.

“The state collectively has not had a major setback in commodities in terms of yields in the past seven or eight years,” he said, “and that’s obviously another factor that keeps the rest going up.”

He was less certain if the values for pasture or grazing land would continue to rise.

Justin Dean, auctioneer and sales associate for Crane Realty, of Mitchell, deals regularly with farm properties. He said that the increases in the 5 percent range are realistic.

“Sale prices have definitely leveled off. Five percent is right in there, but it depends on the property. With good property, you never know what it’s going to bring,” Dean said.

Other findings:

n Cropland values increased at a higher rate than other agricultural land.

n From 2009 to 2010, cash rental rate per acre increased an average of $2.75 an acre for cropland, $1.35 an acre for hayland and declined $1.20 an acre for rangeland.

n Average rates of cash return on ag land are lower in 2010 than in any of the past 20 years. The current land value, or net return, for all agricultural land is 4 percent. In the 1990s, the same ratio averaged 7.4 percent.

Seen in the broader context of the economy, Pflueger said, “that return is still stronger than what a lot of people were drawing out of the stock market.”

n Land values and rental rates differ greatly by region and land use.

n Farm expansion and investment potential continue. Retirement, estate sales and realization of gains from high sale prices were listed as the major reasons for selling farmland.

n Between 52 to 58 percent of the respondents — depending on land use — expect no change in land values in the next year, 26 to 31 percent expect increasing land values, and 15 to 18 percent forecast declining land values.

n The complete report is available at the following website: http://agbiopubs.sdstate.edu/articles/C276.pdf.

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