Summary: The 2015 SDSU Farm Real Estate Market Survey report contains information on current agricultural land values and cash rental rates by land use in different regions of South Dakota, with comparisons to values from earlier years. Key findings are highlighted below.
Agricultural land value changes in the past year reflect the sharp declines in crop prices and returns compared to record prices and returns for beef cattle.
During the past year (from 2014 to 2015), all-agricultural land values increased 1.4%, compared to an increase of 6.1% from 2013 to 2014 and increases varying from 16.5% to 33.6% in the three previous years. Cropland values declined 4.8% this past year compared to an increase of 5.4% from 2013 to 2014 and annual increases varying from 17.7% to 37.8% in the prior three years. Rangeland and pasture values continued to increase at double-digit rates which was above the increases of 7.9% and 4.0%, respectively, from 2013 to 2014 and similar to the double-digit rates from 2010 to 2013.
Cash rental rates for cropland and hay land declined statewide and in several regions, while cash rental rates for pasture / rangeland increased. Statewide, from 2014 to 2015, average cash rental rates per-acre decreased $5.00 for cropland and $2.25 for hay land, and increased $3.00 for rangeland. Cash rental rates for all land uses increased in western South Dakota and decreased or held steady in the southeast region. Cropland cash rental rates declined in all regions east of the Missouri River, while pasture / rangeland cash rental rates increased in almost all regions of South Dakota. Current average rates of cash return on agricultural land in South Dakota remain very low.
For 2014 the average ratio of gross cash rent to current land value was 2.9% for all-agricultural land, 3.4% for cropland, and 2.6% for rangeland. During the 1990s, the same ratios were 7.4% for all agricultural land, 8.0% for cropland, and 6.8%for rangeland.
Agricultural land values and average cash rental rates differ greatly by region and land use.
In each region per-acre values and cash rental rates are highest for irrigated land, followed in descending order by non-irrigated cropland, hay land, tame pasture, and native rangeland. For each land use, per-acre land values and cash rental rates are highest in the east-central or southeast region and lowest in the western regions of South Dakota.
The average value of non-irrigated agricultural land (as of Feb. 2015) in South Dakota is $2,505 per-acre. Non-irrigated agricultural land varies from $5,186 per-acre in the east-central to $737 per-acre in the northwest region. Average non-irrigated cropland values per-acre vary from $6,329 in the east-central to $3,895 in the central and $1,193 in the northwest region.
Average rangeland values vary from $2,727 per-acre in the east-central to $630 per-acre in the northwest. Within each region, differences in land productivity and land use account for substantial differences in per-acre values.
The highest non-irrigated cropland values and cash rental rates continue to occur in the Minnehaha-Moody county cluster where the average value of cropland in 2015 is $7,837 peracre and average cash rental rate for cropland is $244 per-acre. Cropland values average $7,138 per-acre and cropland cash rental rates average $240 per-acre in the Clay-Lincoln-Turner-Union county cluster.
At the regional level, average cash rental rates per-acre for non-irrigated cropland in 2015 vary from $204 in the east-central region to $43.60 in the southwest region. Average rangeland and pasture rental rates vary from $76.50 per-acre in the east-central region to $18.30 per-acre in the southwest region.
The longer-term trends in land values, cash rental rates, and cash rates of return are closely related to key economic factors affecting demand for agricultural land. These demand factors include economies of size, net farm income, agricultural productivity, and land as an investment. Specific factors important in South Dakota include:
1. Technology changes in agriculture that expanded the geographic range of corn and soybean production, along with rapid development of ethanol production in South Dakota.
2. Sharp declines in farm mortgage interest rates from early 2001 to late 2004 and continued relatively low mortgage interest rates.
3. General economic conditions of low inflation rates in most years.
4. Persistence of farm expansion, via land purchase or leasing, as the major response to pervasive economies of size in production agriculture.
5. Substantial increase in use of crop insurance for yield or revenue protection along with other federal farm program provisions.
From 1991 to 2014, agricultural land values increased more rapidly than the rate of general price inflation in all regions of South Dakota. Continued increases in cash rental rates provided underlying support for increases in land values. These basic economic factors, along with relatively low mortgage interest rates, attract interest in farmland purchases by investors and by farmers expanding their operations. During the past year, 2014 to 2015, land values and cash rental rates by land use were greatly affected by the sharp declines in crop prices in contrast to record high beef cattle prices.
Farm expansion and investment potential continue to be cited as the major reasons for purchasing farmland. The major reasons for selling farmland are realizing gains from high sale prices, settling estates, and retirement from farming.
Low mortgage interest rates, high livestock prices, and relatively good crop yields were the three most cited positive factors in the farmland market. Declining crop prices, especially for corn and soybeans, dominated the negative factors influencing the farm real estate market. Rising input costs and economic uncertainty, including interest rate risks, were other negative factors.
The booming market psychology of recent years, especially for cropland, has been replaced by concern on adjusting cash rents and land purchase prices to declining crop prices and lower prospective returns. Respondents continue to remain more optimistic about rangeland markets.
More than half of respondents forecast decreases in cropland values for next year, while one-half of respondents forecast increases in rangeland values. Among respondents forecasting changes, the ratio of positive to negative forecasts is 1:3 for cropland compared to 3:1 for rangeland values. There is a lot of concern that cropland values and cash rental rates will decline further, while rangeland values and cash rental rate forecasts assume continued optimistic conditions.
Agricultural Experiment Station, South Dakota State University
Janssen, Larry; Davis, Jack; and Inkoom, Sarah Adams, "South Dakota Agricultural Land Market Trends 1991-2015" (2015). Agricultural Experiment Station Circulars. 335.