South Dakota Agricultural Land Market Trends, 1991-2018: … · 2019-04-17 · Source: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2016 and earlier year reports.
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South Dakota Agricultural Land Market Trends, 1991-2018: Results from the 2018 SDSU Extension South Dakota Farm Real Estate Survey
Jack B. Davis | SDSU Extension Crops Business Management Field Specialist Shannon Sand | SDSU Extension Livestock Business Management Field Specialist
South Dakota Farmland Market Trends, 1991-2018IntroductionThe 2018 SDSU Extension Farm Real Estate Market Survey is the 28th annual survey of agricultural land values and cash rental rates by land use and quality in different regions of South Dakota. Reported are results of the survey and a discussion of factors influencing buyer/seller decisions and positive/negative factors impacting farmland markets. The publication of the survey findings was in response to numerous requests by farmland owners, renters, appraisers, lenders, buyers, and others for detailed information on South Dakota farmland markets.
The 2018 estimates are based on reports from 143 responses1 to the 2018 SDSU Extension survey. Responses are from agricultural lenders, Farm Service Agency officials, rural appraisers, assessors, realtors, professional farm managers, and SDSU Extension field specialists. All are familiar with farm real estate market trends in their localities.
Several modifications were made to the 2018 land value survey. The survey included monthly grazing fees for cow/calf pairs and yearlings. It also included irrigated land and expected capital return rates.
This report contains an overview and may or may not reflect actual land values or cash rental rates unique to specific localities or properties. Readers should use this report as a general reference and rely on local sources for specific details.
South Dakota Agricultural Land Values, 2018Procedures to estimate and report land values Respondents to the 2018 South Dakota Farm Real Estate Market Survey estimated the per-acre value of non-irrigated cropland and pastureland in their county. Responses for non-irrigated land uses are grouped into eight agricultural regions (Figure1). The six regions in eastern and central South Dakota correspond with USDA Agricultural Statistics Districts. In western South Dakota, farmland values and cash rental rates are
agronomySOUTH DAKOTA STATE UNIVERSIT Y®
ECONOMICS DEPARTMENTAUGUST 2018
Central South Dakota pasture
Photo credit: Taylor Grussing
Central South Dakota sunflower
Photo credit: Ruth Beck1 Responses are the number of survey schedules completed for one or two counties. A growing number of respondents completed separate survey schedules for
different counties. Each completed survey schedule was treated as a survey response. More details are provided in Appendix 1.
reported for the Northwest and Southwest regions. Land values and cash rental rates are reported only for privately owned land and should not be considered as estimated values for tribal lands or federal lands.
The average value per-acre and percent change in value were obtained for each agricultural land use in each region.
Regional differences in agricultural land values are primarily related to major differences in: 1) agricultural land productivity among regions, 2) per-acre values of cropland and pasture/rangeland in each region, and 3) the proportion of cropland and pasture in each region.
Statewide, an estimated 47% of privately owned farmland acres are cropland or hayland and 53% is rangeland or tame pasture. In summary, statewide cropland values are greatly influenced by values estimated in the North-central and the three eastern regions, while statewide pasture/rangeland values are heavily influenced by values reported in regions west of the Missouri River. The reduced number of responses in the three regions west of the Missouri River (South-central, Southwest and Northwest) continues to make it difficult to provide land value and cash rental rate estimates in these regions.
Cash Rental Rates of South Dakota’s Agricultural Land Respondents were asked about annual average cash rental rates per-acre in their locality for non-irrigated cropland and pasture/rangeland (all grass acres). Respondents were also asked to report cash rental rates in their locality for high-productivity and low-productivity land for these land uses. Cash rental rates for each are summarized in Figure 2 and Table 1. The same information is summarized by region and county cluster in Table 2. In some cases, there were too few reports to make cash rental rate estimates at the county cluster level.
The statewide change in average cash rental rates per-acre from 2017 to 2018 was positive for cropland and unchanged for pasture/rangeland (+$3.00 for cropland).
Average cropland cash rental rates increased in four regions (Southeast, Northeast, Central, and Southcentral) with the other regions unchanged or decreasing. Pasture/rangeland rental rates increased
slightly (+$2.00) in the Southeast region, but the other regions were unchanged or down (-$1.00 to -$7.00).
Average irrigated cropland cash rental rates were not collected in the 2017 year. However, a decrease in the rental rates in the Southeast, North Central, Central and Western South Dakota occurred between 2016 and 2018 (Table 1).
2018 cash rental rates – non-irrigated croplandAverage cash rental rates in 2018 for non-irrigated cropland varied from $33 to $204 per-acre in the Southwest and Southeast regions (Figure 1 and Table 1).• Rental rates in Minnehaha-Moody were the
highest average cash rental rates for cropland at $231 per-acre (Table 2)
• No cluster breakouts were available for the Southcentral, Southwest and Northwest regions (Table 2)
Crop = all non-irrigated cropland including alfalfaPasture = all grass land*** Insufficient number of reports to make regional estimates
Crop $***Pasture $***
Crop $126Pasture $50
Crop $118Pasture $50
Crop $166Pasture $69
Crop $193Pasture $75
Crop $204Pasture $66
Crop $33Pasture $16 Crop $89
Pasture $37
Figure 1. Average cash rental rate of South Dakota non-irrigated cropland and pasture/rangeland, by region, February 2017, dollars per acre.Source: 2018 South Dakota Farm Real Estate Market Survey, SDSU Extension.
2018 cash rental rates- irrigated croplandAverage cash rental rates in 2018 for irrigated cropland varied from $100-228 per-acre in the Southwest and Southeast regions (Table 1).• The Southeast had the highest average rental rates
for irrigated cropland at $228 per acre. • Western South Dakota’s average irrigated rental
Source: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2016 and earlier year reports.Statewide average rental rates are based on 2002 regional land use weights** In 2017 pasture land variable was redefined and includes all grass acres. Prior to 2017 this number includes all range, but not tame pasture.*** Insufficient number of reports to make regional estimates
Type of LandSoutheast
East
CentralNortheast
North
CentralCentral Western
dollars per acre
Irrigated land
Average 2018 rate $228 $219 $223 $178 $138 $100
High Productivity $262 $260 $259 $234 $175 $117
Low Productivity $185 $182 $194 $139 $95 $78
Average 2016 rate $299 $195 $216 $192 $188 $105
Average 2015 rate $261 $216 $228 $193 $167 $89
Average 2014 rate $299 $218 $226 $203 $222 ***
Average 2013 rate $270 $249 $237 $181 $194 $83
Average 2012 rate $229 $178 *** $181 *** $91
*** Insufficient number of reports to make regional estimatesSource: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2018 and earlier year reports.Statewide average rental rates are based on 2002 regional land use weights.
** 2017 pasture/rangeland variable has been redefined and includes all grass acres*** insufficient number of reports to make estimates at the county cluster levelNo county clusters are reported for the south-central, southwest, and northwest regions.
Table 3. Per-pair and Yearling Monthly rental rates for 2018Eastern Central South Central Western
dollars per month
Per Pair
Average value, 2018 $51 $43 $49 $37
High $63 $55 $62 $55
Low $37 $28 $36 $30
Yearling
Average value, 2018 $47 $35 $31 ***
High $58 $48 $43 ***
Low $29 $20 $25 ***
*** Insufficient number of reports to make regional estimatesSource: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2018 and earlier year reports.Statewide average rental rates are based on 2002 regional land use weights
2018 cash rental rates - rangeland and pasture Average cash rental rates per-acre reflect regional differences in productivity and carrying capacity of pasture and rangeland tracts. Average cash rental rates vary from $16 per-acre in the Southwest region to $75 per-acre in the East -central region (Figure 1 and Table 2).• Minnehaha had the highest average pasture/range
cash rental rate of $80 per-acre (Table 2)• No cluster breakouts were available for the
South-central, Southwest and Northwest regions (Table 2)
East Central South Dakota cropland
Photo credit: Anthony Bly
2018 Per pair and Yearling monthly grazing ratesAverage per pair monthly rental rates for 2018 range from $37 to $51 for the 2018 year. Average yearling rental rates were between $31 and $47 depending on location (Table 3).
Land Values and ChangesFor 2018, the statewide average cropland values were essentially unchanged with a +0.9% increase (Table 3). The pasture/rangeland land values have been redefined to include all grass acres. The average state value is up +3.0% for pasture/rangeland.
Cropland values The weighted average value of South Dakota’s non-irrigated cropland (as of February 2018) is $3,937 per-acre, a 0.9% increase from 2017 (Table 3).
Regional cropland values tend to gather in three groups.• East-central and Southeast regions average values
of $6,237 and $6,361 per-acre. • Northeast, North-central, and Central regions with
average cropland values varying from $4,546 to $3,347 per-acre.
• As of February 2018, per-acre cropland values averaged $2,125 in the Southcentral region, $1,207 in the Southwest and $1,369 in the Northwest region (Table 4 and Figure 2).
Cropland values from 2017 to 2018 were basically steady as a state average with a slight increase of +$34 (Table 4).
Irrigated cropland values experienced changes from -24.3% to 2.4% between the 2016-2018 years. • Southeast and East-central region values were
between $6,876 and $6,500 respectively • Western South Dakota had the lowest irrigated
land values with an average of $2,035 and a range of $1,575 to $2,488 (Table 4)
Pasture/rangeland (all grass acres)In February 2018; the value of South Dakota pasture/rangeland averaged $1,252 per-acre, a 3.0% increase compared to values from 2017.• East-central and Southeast regions $2,624 and
$2,829 per-acre. • Northeast, Northcentral and Central regions varied
from $1,712 to $2,178 per-acre.• The lowest pasture values per-acre occur in the
western side of the state varying from $781 to $1,240 (Figure 2 and Table 4).
Crop = all non-irrigated cropland including alfalfaPasture = all grass land
Crop $1,369Pasture $781
Crop $3,534Pasture $1,718
Crop $3,347Pasture $1,882
Crop $4,546Pasture $2,178
Crop $6,237Pasture $2,624
Crop $6,361Pasture $2,829
Crop $1,207Pasture $839 Crop $2,125
Pasture $1,241
Figure 2. Average value of South Dakota cropland and pasture/rangeland, by region, February 2017, dollars per acre.Source: 2017 South Dakota Farm Real Estate Market Survey, SDSU Extension.
Variation in Land Values by Land Productivity and County ClustersIn this section we report the February 2018 per-acre values of average productivity, high-productivity, and low-productivity cropland, and pasture by region and by county clusters within several regions (Table 5). • Minnehaha-Moody has the highest average
cropland value at $7,575 per acre (Table 5)• The Southwest region has the lowest average
cropland value at $1,207 per acre• No cluster breakouts were available for the
Southcentral, Southwest and Northwest regions (Table 5)
Substantial variation in per-acre land values occurs due to the difference in land productivity in each region as well as other economic factors, such as ease of farming, soil type, etc. (Table 5)• Minnehaha Moody for average productivity pasture
was $3,313 per acre.• In the Northwest region the average value of
Pasture is $781 per-acre (Table 4).• No cluster breakouts were available for the
Southcentral, Southwest and Northwest regions (Table 5).
Pasture/rangeland values varied greatly throughout the state. The values vary based on productivity access to roads, water, facilities, etc.
Rates of Return to South Dakota Agricultural LandThe gross rate of return (gross cash rent as a percent of land value) is used to estimate current rates of return to land. It is calculated from respondent’s reported average cash rental rates and their estimated values of leased land. This is a measure of the gross rate of return obtained by landlords, before deduction of property taxes and other landlord expenses. The 1991 to 2018 trend in the gross cash rent-to-value ratio is depicted in Graph 1.
In 2018, the statewide average gross rates of return (rent-to-value ratio) fluctuated somewhat across land use categories:• 2.4% for pasture/rangeland.• 3.5% for non-irrigated cropland.
This is the eighth consecutive year that the gross rates of return for cropland has been 4.0% or lower, compared to an average of 5.5% from 2000–2009 and 7.4% during the 1990’s (Graph 1). The gross rent to value ratio generally follows interest rates. It is expected that landowners and/or investors can borrow money to purchase land and pay back loans with fixed cash rent income. Thus, the relationship to rental income relative to the rental rate is a primary factor in understanding land values and changes.
Source: 2018 and earlier South Dakota Farm Real Estate Market Surveys*cropland now includes all alfalfa acres** 2017 pasture land variable has been redefined and includes all grass acresStatewide average land values are based on 2002 land use weights
Type of LandSoutheast East Central Northeast North Central Central Western
dollars per acre
Irrigated land
Average value, 2018 $6876 $6500 $5417 $4808 $4375 $2035
High Productivity $7652 $8071 $6667 $6823 $5425 $2488
Table 5. Average reported value per acre of agricultural land by South Dakota region, county clusters, type of land, and land productivity, February 2013 - 2018.
Agricultural Land
Type and Productivity
Southeast East Central
All
Clay
Lincoln
Turner
Union
Bon Homme
Hutchinson
Yankton
Charles Mix
Douglas All
Minnehaha
Moody
Brookings
Lake
McCook
Sanborn
Davison
Hanson
Kingsbury
Miner
dollars per acre
Nonirrigated Cropland
Average 2018 $6,361 $7,490 $5,359 $3,900 $6,237 $7,575 $6,165 $5,148
High Productivity $7,746 $9,162 $6,447 $4,800 $7,544 $9,256 $7,418 $6,179
Average 2017 $2,450 $2,688 $2,471 $2,175 $2,546 $2,960 $2,400 $2,518
Average 2016 $2,566 $2,567 $2,573 $2,550 $2,781 $3,253 $2,506 $2,667
Average 2015 $2,720 $3,500 $2,581 $2,264 $2,728 $3,233 $2,376 $2,556
Average 2014 $2,698 $2,873 $2,640 $2,500 $2,861 $3,135 $2,652 $2,719
Average 2013 $2,308 $2,713 $2,057 $1,950 $2,765 $3,093 $2,395 $2,748
Source: South Dakota Farm Real Estate Market Survey, SDSU Extension, 2015 and earlier.** Insufficient number of reports to make estimates by county cluster.
Average 2017 $2,011 $2,394 $1,771 $1,750 $1,150 $887 $650
Average 2016 $2,219 $2,528 $2,035 $1,750 $1,330 $715 $760
Average 2015 $2,101 $2,230 $2,313 *** $1,338 $852 $630
Average 2014 $1,828 $1,914 $2,079 $1,438 $1,187 $571 $436
Average 2013 $1,636 $2,050 *** $1,128 $994 $529 $444
*** No county clusters are reported for the south-central, southwest, and northwest region.** 2017 pasture land variable has been redefined and includes all grass acres* Significance of this variable could not be tested due to low response rates
Major Reasons for Purchase and Sale of FarmlandSurvey respondents were asked to provide a list of major reasons for buying and selling agricultural real estate in their localities. Most (over 85%) of the 2018 respondents provided one or more reasons for the purchase or sale of real estate.
From Graph 2, farm investment and expansion were the top reasons for purchasing farmland. • Of the total responses, 46% indicated farm
expansion as a key reason for purchasing land• Buying land as a form of investment accounted for
29% of responses • Purchasing land based on the location accounted
for 18% of responses • Other reasons accounted for 7% of responses
There were several different reasons for sellers offering land for sale. In 2018, estate settlement of farmers and ranchers emerged as the top reason for selling land (Graph 3).• 43% of the total respondents indicated estate
settlement as the most important reason for selling (Graph 3)
• Retirement accounts for 23% of the reasons for selling land
• Increasing liquidity came in at 17% as the third highest reason
Factors Influencing Farmland Markets in South DakotaRespondents to the 2018 annual survey were asked to list major positive and negative factors affecting the farm real estate market in their localities. These factors play important roles in explaining changes that occurred in the amount of farmland sold in the past
7%
46%29%
18%
Other
Expansion
Investment
Location
Graph 2. The most important reasons, among BUYERS for purchasing land in 2018
4%
43%
23%
13%
17%
Estate Sales
Retirement
High Land Values
Other
Increased Liquidity/Reduce Financial Stress
Graph 3. The most important reasons, among SELLERS offering land for sale in 2018
Other
Low Number of Sales
Low Interest Rates
Investments
High Yield
Farm Programs
Graph 4. POSITIVE FACTORS impacting the farm real estate market in 2018
10%
14%
43%
23%
9%
1%
Other
Low Margins
Lack of Cashflow
Economic Uncertainty
Graph 5. NEGATIVE FACTORS impacting the farm real estate market in 2018
year. Also it explains the direction of changes in rental rates and sale prices of farmland. Eighty percent of the survey respondents listed one to three positive or negative reasons (Graph 4).
For positive factors currently impacting the farm real estate market, (Graph 4)• Forty-three percent of participants indicated low
interest rates being a positive factor• Investment was the second most positive market
factor affecting farm market real estate purchases at 23%.
The decline in commodity prices dominated the negative factors in the real estate market. Economic uncertainty and lack of cash flow were also listed (Graph 5).• Seventy-six percent of respondents indicated low
margins as the main reason impacting farm real estate in 2018
• Of the respondents,14% indicated economic uncertainty as a negative factor affecting the farm real estate market
These graphs indicate the most frequently listed factors affecting the real estate market according to survey participants. Other factors effecting the real estate market include interest rates, demand, available cash, supply of land for sale, etc.
Longer Term Perspective on Farmland Market Changes, 1991 – 2018Since the amount of land devoted to production agriculture has changed little during this 28-year period, the supply of land is considered relatively fixed. As a result, changes in demand for land are the main factors driving its value and market price. Many factors, influence the demand for agricultural land in states, and yields of other risk free assets, or returns from risky assets.
Longer-term historical data from annual SDSU Extension surveys of agricultural land values and cash rental rates in South Dakota from 1991 to 2018 are located in Appendix Tables 2 and 3 of this report. Long-term trends in average annual cash rates of return are shown in Graph 1.
ConclusionGiven current agricultural prices and economic conditions, it will be important to understand that a large range of variability exists throughout the state, in regions and at the county level in terms of land values and rental rates. Land owners and producers will need to have a good idea of the productivity level of their land, as well as their budget requirements when determining rental rates and sale values.
These values and rates are regional and should only be used as a guide and are not an indication of values for specific properties.
List of References **Janssen, Larry. 1999. Agricultural land values in South
Dakota: a comparison of two surveys. SDSU Econ Research Report 99-1.
Janssen, Larry and Xuan Xu. 2003. Farmland leasing in South Dakota. Ag Expt. Station Bulletin 739. South Dakota State University, Brookings, SD.
Janssen, Larry; Kim Dillivan, and Bronc McMurtry. 2014. South Dakota agricultural land market trends, 1991 – 2014. SDSU Ag Expt. Station Circular 03-7000-2014. Brookings, http://igrow.org/up/resources/03-7000-2014.pdf
Janssen, Larry; Burton Pflueger, and Bronc McMurtry. 2013. South Dakota agricultural land market trends, 1991 – 2013. SDSU Ag Expt. Station Circular 03-7007-2013. Brookings, http://igrow.org/up/resources/03-7007-2013.pdf
Janssen, Larry and Burton Pflueger. 2012. South Dakota agricultural land market trends, 1991-2012. SDSU Ag Expt. Station Circular 03-3007-2012. Brookings, SD. http://igrow.org/up/resources/03-3007-2012.pdf.
U.S. Dept. of Agriculture. 2012 Census of Agriculture, South Dakota. v. 41.
U.S. Dept. of Agriculture. Economic Research Service. Agricultural Productivity in the U.S. http://www.ers.usda.gov/data-products/agricultural-productivity
U.S. Dept. of Agriculture. 2014. National Agricultural Statistics Service. “Land Values: 2014 Summary”, August.
** Reference citations for annual SDSU farm real estate survey reports from 2001 through 2011 are not listed above but were published in print and electronic format. These reports were published as SDSU Agricultural Experiment Station (AES) Circulars 266, 267, 268 269, 270, 271, 272, 273, 275, 276, and 278. Annual reports from 1991 through 2000 were only published in print format. Dr. Janssen and Dr. Pflueger, often in collaboration with an SDSU Economics student, were the co-authors of each annual report from 1991 through 2013.
Appendix I: Survey Methods and Response CharacteristicsThe primary purpose of the 2018 South Dakota Farm Real Estate Market Survey was to obtain regional and statewide information on 2018 per-acre agricultural land values and cash rental rates by land use and land productivity. In addition, we obtained respondents’ assessments of positive and negative factors influencing their local farm real estate market and motivations for buyer/seller decisions.
This year marked a year of changes for the SDSU Extension land value survey. The survey was condensed down to incorporate alfalfa hay into cropland, and pasture/rangeland now incorporates all grass acres including tame pasture. These changes were made to better reflect the current land use in the state. A post card detailing the changes and a QR code and written link was sent to 600 potential respondents at the end of February 2018, with a follow-up email two weeks after and an additional email the end of March. The survey links were also posted in the South Dakota Banker’s Association Newsletters and the American Society for Farm Management and Rural Appraisal (ASFMRA).
Potential respondents were persons employed in one of the following occupations: 1) agricultural lenders (senior agricultural loan officers of commercial banks or Farm Credit Service), 2) loan officers or county directors of the USDA Farm Service Agency (FSA), 3) Extension Service agricultural field specialists, and 4) licensed appraisers and assessors. Some appraisers were also realtors or professional farm managers, while some lenders were also appraisers.
Respondents were asked to report land values and cash rental rate information for non-irrigated cropland, rangeland/pastureland in their locality. Nearly one-third of respondents reported land market information for at least two counties. The number of responses exceeded the number of respondents as some persons (primarily appraisers and lenders) completed multiple survey schedules providing different land value and cash rental data for different counties in their trade territory. Overall, a total of 143 respondents provided 169 usable responses (Appendix Table 1).
Regional average land values by land use are simple average (mean) values of usable responses. Statewide average land values by land use are weighted by the
relative number of acres in each region in the same land use. All-agricultural land values, regional and statewide, are weighted by the proportion of acres in each agricultural land use. Thus, all-agricultural land values in this report are weighted average values by region and land use. This weighted average approach is analogous to the cost (inventory) approach of estimating farmland values in rural land appraisal.
This approach has important implications in the derivation of statewide average land values and regional all-land values. For example, the two western regions of South Dakota with the lowest average land values have nearly 61% of the state’s rangeland acres, 39% of all-agricultural land acres, and only 16% of cropland acres. Our approach increases the relative importance of western South Dakota land values in the final computations and results in lower statewide average land values.
The weighting factors used to develop statewide average land values are based on estimates of non-irrigated agricultural land use for privately owned farmland in South Dakota. It excludes agricultural land (mostly rangeland) leased from tribal or federal agencies, which is mostly located in the western and central regions of the state. Irrigated land is also excluded from regional and statewide all-land values. The land-use weighting factors were developed from county-level data in the 2002 South Dakota Census of Agriculture and other sources.
Regional average rental rates by land use are simple average (mean) values of usable responses. Statewide average cash rental rates for each land use are weighted by 1) the relative number of acres in each land use and 2) the proportion of farmland acres leased in each region based on 2002 Census of Agriculture data.
Appendix II. Historical Data on Agricultural Land Values and Cash Rental Rates by land use by region, SD, 1991-2017 (appendix table 2 and 3)Appendix Table 2. Average reported value and annual percentage change in value of South Dakota agricultural land by type of land by region, February, 1991-2018.
Type of LandSouth-
east
East
Central
North-
east
North
CentralCentral
South
Central
South-
west
North-
westSTATE
All Agricultural Land (nonirrigated) dollars per acre
Source: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2016 and earlier.Statewide values by land use are based on 2002 regional land use weights
Source: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2017 and earlier year reports.Statewide rental rates based on 2002 land use weights
** As of 2017 Pasture land including all grass acres is what is reported, prior to 2017 this number includes all range, but not tame pasture*** Insufficient number of reportsSource: South Dakota Farm Real Estate Market Surveys, SDSU Extension, 2017 and earlier year reports.
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South Dakota Board of Regents and the United States Department of Agriculture.