A new normal?

WHITE, S.D. -- Norris Patrick isn't in the market to buy or sell any land, but he'd like to see land values moderate from the go-go prices six months ago.

Patrick farms with his grown sons, Tony and Terry, just to the northeast of White, S.D., about four miles from the Minnesota line. The family milks 50 cows and have another 150 stock cowsand 100 ewes. Their corn, oats, alfalfa and pasture are largely marketed through the livestock.

Patrick emphasizes he has about 1,200 acres of cropland and pasture -- "paid for." He paid $200 an acre for some land in 1977 and in the early 1980s, he bought some land for $500 that probably would bring $3,000 today, he says.

"I feel for the young people," he says of the high values. "It's going to wreck our industry."

Patrick, who is president of the Brookings County Farmers Union, says that although land values may be expected to come down some as commodity prices moderate, he worries "big land buyers keep getting bigger, you'll have plantations of the North, where somebody else is working on them," he says. "I'm concerned this land will not end up in young peoples' hands."

It's unclear how much the recent declines in crop prices and high inputs may affect conditions in 2009 and beyond, but here is what some of the experts are saying.

Softening? Stabilizing?

Paul Reisch is an appraiser with the Farm Credit Services of America in the Watertown, S.D., office. He covers seven counties, mostly in South Dakota and occasionally spilling into Minnesota.

"I'd say values have probably doubled over the past five years," Reisch says, noting that the $2,000- to $4,000-per-acre price range would cover most of the cropland in his trade area.

"We had a sale of a quarter at over $5,800 in Brookings County this past summer," Reisch says. "It was a combination of one of the best pieces around with the 'perfect storm' of commodity prices and the outlook at the time. The tenant wanted it, could afford it and was going to have it. Somebody took him that far."

Soil in South Dakota has a state rating -- a percentage rating that compares any piece of land with the state's best, which would be 100 percent. Most of the best land in Reisch's area ranks in the high 60s to mid-70s. Many appraisers also use a separate county rating.

Since mid-October, the land market has been a "real mixed bag," Reisch says.

"From one sale to the next, you might have one that sells like before and one that can't get a bid," Reisch says. "Then you'll have one that sells, but is kind of soft. And then you have some 'no-sale' auctions, even though you have a pretty good bid.

"Sellers have a mindset -- a price they want. Some have a high-water market sale in mind for their area. In their mind, they're, 'I ought to get that price.' But they take it to an auction and don't get that price. In the community, that becomes a no-sale. In my world, that might be a market indicator even though they're not willing to sell."

In the first week of December, there were three auctions in the Florence-Bradley area of western Codington County-eastern Clark County of South Dakota. Six tracts sold in three auctions. Three of the parcels sold -- one good "short quarter" was $3,200 an acre. Most bidders were local, but one was from Sioux Falls, S.D.

Just as significantly, three other tracts in the group had bids of $2,000 to $2,500 and were "no-sales."

"I think those bids were still higher than they would have been a year ago," Reisch says.

He notes that there was a lot of land available in the past four months in western Hamlin and eastern Clark counties. One short quarter there -- 155 acres with highways on either side of it -- went for $4,075 an acre Dec. 8. That same piece brought $2,200 in April 2006.

The influence of cross-border and distance purchases are affected by the size of the parcels, Reisch says.

"Where you see it is when you have a section or two sections up all together. You can get people 100 miles away that are interested. But they're not going to travel that far to farm just a quarter," he says.

Jim Peterson, a partner in Burlage-Peterson Realty in Brookings, S.D., operates mostly in Brookings and surrounding counties.

Peterson underlines the "huge variety" in land in the area, ranging from 100 percent tillable to Conservation Reserve Program and Wetlands Reserve Program land. There is some irrigated land, but little of that changes hands.

Generally speaking, South Dakota land values have increased 30 percent to 40 percent in the past three years because of a number of factors, including low interest rates, good yields regionally and financial results local processing. The South Dakota Soybean Processors plant in Volga and several ethanol plants in the area, including VeraSun in Aurora, are the biggest.

The November to January period is typically a slower period for land sales, he says.

"The sales we've had since harvest started -- and we haven't had that many -- we've maybe seen a leveling of the price," Peterson says. "I guess we've had a couple of parcels that didn't sell, but we've had other sales where the prices held in there pretty well. I've also attended a couple of sales where the land didn't get sold. You maybe get into a situation where the bid wasn't what the landowner was expecting or what they thought it would be worth two or three months ago."

Impacts on land rentals

Land rents are harder to put a finger on.

Reisch has worked as an appraiser in northeast South Dakota since 1985, first in Aberdeen and now in Watertown. Early on in that time, hunting land was not much of a factor in the market.

"Water and 'junk' was worth zero," he says, but he acknowledges that it's now in the $400- to $800-an-acre area.

Reisch isn't clear on the influence of recreational land in the wake of the economic downturn, but he thinks the "appetite may not be as strong" for it, just as demand is lessening for various other "toys."

Information on these rental transactions is more difficult to acquire. There are a few cash rent auctions, but much of this is coffee shop reports.

"My sense is that in August and September, it appeared people who made deals obtained very significant increases," Reisch says. "It's my sense now that it's stabled up, but that what people offer in 2009 may be similar or maybe up a little from 2008. I don't think they'd repeat the significant increases like they did in August and September deals."

Reisch has a verified report of people in Deuel County paying $175 per acre in a rental auction for land that came out of the Conservation Reserve Program.

Otherwise, "I would say that our best ground would probably be in the $150 to $200 at the top end of the rent," he says. "I think a lot of our land would bring $100 to $150."

Reisch says that, historically, landowners could get a 5 percent to 7 percent return on investment for what they could rent cropland out for, less taxes. In the first six months of 2008, the higher-priced cropland changed that picture, so the top returns became 3.5 percent to 4 percent.

"At some point, you're going to have a peak," Reisch says. "Everybody guesses what it is. The higher it goes, the less chance it's going to keep going."