Brovold, Karen

Janssen, Larry

Pflueger, Burton

English

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South Dakota State UniversityOpen PRAIRIE: Open Public Research Access InstitutionalRepository and Information ExchangeEconomics Commentator Department of Economics6-20-1994South Dakota Agricultural Land Values and RentalPractices: 1994Burton PfluegerSouth Dakota State University, burton.pflueger@sdstate.eduLarry JanssenSouth Dakota State University, larry.janssen@sdstate.eduKaren BrovoldSouth Dakota State UniversityFollow this and additional works at: http://openprairie.sdstate.edu/econ_commPart of the Agricultural and Resource Economics Commons, and the Regional EconomicsCommonsThis Newsletter is brought to you for free and open access by the Department of Economics at Open PRAIRIE: Open Public Research AccessInstitutional Repository and Information Exchange. It has been accepted for inclusion in Economics Commentator by an authorized administrator ofOpen PRAIRIE: Open Public Research Access Institutional Repository and Information Exchange. For more information, please contactmichael.biondo@sdstate.edu.Recommended CitationPflueger, Burton; Janssen, Larry; and Brovold, Karen, "South Dakota Agricultural Land Values and Rental Practices: 1994" (1994).Economics Commentator. Paper 306.http://openprairie.sdstate.edu/econ_comm/306ECONOMICSCOMMENTATORSOUTH DAKOTA STATE UNIVERSITYNo. 337 June 20, 1994SOUTH DAKOTA AGRICULTURAL Average Land Value SummaryLAND VALUES AND RENTALPRACTICES, 1994byBurton Pflueger, Extension EconomistLarry Janssen, Economics ProfessorMs. Karen BrovoldSouth Dakota's agricultural land values increased3.5% in 1993, paced by strong increases in the Centraland North Central regions. Slight declines in agriculturalland values were reported in the Northeast and SouthCentral regions and no change was reported in the EastCentral region. The average value of agricultural land(as of February 1, 1994)varies from $581 per acre in theSoutheast region to $100 per acre in northwest SouthDakota. These are key findings from the SDSU 1994South Dakota Farm Real Estate Market Survey reportscompleted by 228 respondents (appraisers, lenders, andExtension agents) knowledgeable of local farmlandmarket trends.This is the fourth annual SDSU survey developedto estimate agricultural land values and cash rental ratesby type of land in different regions of the State.Summaries of the 1991, 1992, and 1993 survey resultswere reported in Economics Commentator issues ^99(June 29, 1991), #310 (June 22, 1992), and #321 (June1, 1993).Respondents provided county land value and cashrental rate information by agricultural land use.Responses were grouped by die regional locations shownin dl figures included with this newsletter. Averagevalues for all classes of land are provided in Figure 1.Separate estimates of land value and cash rental rateinformation for nonirrigated cropland, rangeland, tamepasture, hayland, and irrigated land are provided inFigures 2-5.The information in this report provides anoverview of agricultural land values and cash rental ratesacross South Dakota. We caution the reader to use thisinformation as a general reference, while relying on localsources for more specific details.Farmland values are a "barometer" of current andexpected returns in agriculture. During the agriculturalexport and finance boom from 1972 until the early1980's, farmland values rapidly increased. During thedepths of the farm finance crisis (1984 - 1987), farmlandvalues sharply declined. Farmland values reboundedsharply from 1987 to 1991 and have continued to increaseat a much slower pace for the past three years.As of February 1, 1994, the estimated SouthDakota all-agricultural land value average was $265 peracre, an estimated 3.5% increase in value from one yearearlier (Figure 1). Compared to USDA's recent report,the SDSU survey estimate of South Dakota's agriculturalland value is considerably lower ($265 per acre versus$388 per acre), and the survey's estimated 1993-1994increase is lower (3.5% versus 5.0%). One major reasonfor these differences is that the USDA farm real estatevalue series includes the estimated value of all agricul-Figure1. Average value of South Dakota agriculturalland, February 1, 1994 and 1993, and percent changefrom one year ago.*''NORTHWEST$199/acreS 97/acre+3.0%SOUTHWEST$123/acreS121/acre+ 1.6%State: $265/Acre$256/Acre+3.5%NORTHCENTRALS297/tcreS258/acre+15.1%CENTRAL$2S7/acre$235/icreSOUTHCENTRAL /XprfHEAST^,, ^-3.9% "fvr*—^ +3:5*NORTH,EAST$396/«crc''S401/acre-1.3%EASTJCENTRALlS499/acre$499/acre0.0%'Regional and statewide average value of agricultural land are theweighted averages of dollar value per acre and percentchange byproportion of acres of each land use by region.•Top: Average per acre value- February 1, 1994Middle: Average per acre value - February 1, 1993Bottom: Annual percent change in per acre land valueSource: 1994 South Dakota Farm Real Estate MarketSurvey, SDSU.tural land and farm buildings. The USDA estimate isbased on reporters' estimated value of "all agriculturalland" in their locality, while the SDSU all-land valueestimate is based on the relative amount and value ofdifferent agricultural land uses in each region.According to SDSU survey reports, agriculturalland values sharply increased in the North Central region(-1-15.1 %) and the Central region (-1-9.3%). Land valuesdeclined slightly in the Northeast (-1.3%), did not changein the East Central region, and increased modesdy(-1-3.5%) in the Southeast. Slight increases inagricultural land values were reported in the Northwest(4-3.0%) and Southwest (-t-1.6%). On the other hand,a slight decline in values was reported in the SouthCentral (-3.9%) region.Agricultural land values are highest in theSoutheast followed by the East Central region. Croplandand hayland are the dominant land uses (70%-74% offarmland acres) in these eastern regions, which containthe most productive land in South Dakota. The lowestaverage land values are found in the Northwest andSouthwest regions.In each region, per acre values are highest forirrigated land, followed in descending order bynonirrigated cropland, hayland or tame pasture, andnative rangeland (Figures 2 and 3). Within each region,there is substantial variation in per acre land value byland use and land productivity.Figure 2. Average value of South Dakota cropland, irrigated landand hayland, by region, February 1994, dollars perNORTHWESTSOUTHWESTCrap $218IiT. $447H«y $137NORTHCENTRALCrop $3S2IiT. $SMIby $235CENTRAL LCrap $331IiT. $537H«y $237SOUTHCENTRAL /NORTH,EASTCrap 54881Irr. 5883Hiy 5279]1EASTCENTRALCrap $590Irr. $790Hiy $409X^THe^iCrop = Nonirrigated croplandIrr. = Irrigated landHay = HaylandSource: 1994 South Dakota Farm Real Estate MarketSurvey, SDSU.Figure 3. Average value of South Dakota rangeland and tamepasture, by region, February 1994, dollars per acre.NORTHWESTRange S80PastureSOUTHWESTRange $ 85PastureNORTHCENTRALRange S184Pasture $200CENTRALRange $190Pasture $224NORTHEASTRange $228Pasture $251EASTCENTRALSOUTHCENTRALRangePastureSOUTHEASTRange $319Pasture $371Source: 1994 South Dakota Farm Real Estate MarketSurvey, SDSU.Average nonirrigated cropland values range from$661 per acre in the southeast, to $287-3382 per acre inthe central regions of the state, to $169 per acre innorthwest South Dakota. Average rangeland values varyfrom $319 and $283 per acre in the Southeast and EastCentral regions, respectively, to $149-3190 per acre inthe Central region, to $80-385 per acre in western SouthDakota.Average Cash Rental Rate SummaryThe cash rental market provides importantinformationon returns to agricultural land. Nearly three-fourths of South Dakota farmland renters and three-fifthsof agricultural landlords are involved in one or more cashleases for cropland, hayland, or pasture/rangeland. Amajority of cash leases are aimual renewable agreements.Cash rental rates are quite variable within eachregion and highly variable among South Dakota regions.Within each region, the average annual cash rental ratesare highest for irrigated land, followed by nonirrigatedcropland, hayland and pasture/rangeland. For each landuse, cash rental rates are highest in Southeast and EastCentral regions of South Dakota, and lowest in westernS.D. (Figures 4 and 5).Cash rental rates for nonirrigated cropland varyfrom an average of $51.90 per acre in southeastern SoutiiDakota to $14.90 in northwestern South Dakota.Rangeland cash rental rates vary from an average of$20.30-320.90 per acre in the East Central and Southeastregions to $5.40-$5.60 per acre in western South Dakota.From 1993 to 1994, average cash rental rates forcropland decreased $2.00 per acre in the East Centralregion and $0.70 per acre in the South Central region.Page 2Figure 4. Average cash rental rate of South Dakota nonirrigatedcropland and hayland, by region, 1994 dollars per acre.NORTHWEST514.00511.30SOUTHWEST517.60511.90NORTHCENTRALCrop S29.80Hay 517.00CENTRALCrop 525.00Hay 517.80SOUTHCENTRALNORTHEASTCrop 540.30Hay 523.60EASTCENTRALCrop 545.10Hay 531.40Crop 522.10Hay 515.50SOUTHEASTCrop 551.90Hay 539.50Source: 1994 South Dakota Farm Real Estate MarketSurvey, SDSU.Figure 5. Average cash rental rate of South Dakota rangeland andpastureland by region, 1994, dollars per acre and dollarsper AUM.NORTHWEST$5.60/acre$16.50/AUMSOUTHWESTS 5.40/acre$15.60/AUMNORTHCENTRALS13.40/acre$14.80/AUMCENTRAL _S16.30/acre$16.50/AUMSOUTHCENTRAL$11.20/acre$17.00/AUMNORTH.EAST$18.60/acre$15.60/AUJEASTCENTRAL$20.90/acreS15.00/AUMSOUTHEAST$20.30/acre$15.40/AUMSource: 1994South DakotaFarm Real Estate MarketSurvey, SDSU.Cropland cash rental rates were steady to $1.00 higher inmost other regions, and increased an average of $3.20per acre in the North Central region. Average cashrental rates for hayland increased in all regions except theEast Central and South Central regions.Rangeland rates per AUM (Animal Unit Month)in 1994 are fairly uniform across regions, ranging froman average of $14.80 per AUM in the North Centralregion to $17.00 per AUM in the South Central region(Figure 5). On an individual county basis, cash rentalrates vary from $12-$20 per AUM.Rates of Return to Agricultural LandGross rent-to-value ratios (gross cash rent as apercent of reported land value) are a measure of GROSSrate of return to land, before deduction of property taxesand other landlord expenses. Gross rent-to-value ratiosaveraged 8.0% for nonirrigated cropland and hayland,and 7.0% for rangeland. From 1992 to 1994, changes inthe gross cash rent-to-value ratio by region and land usewere minimal.Respondents were asked to estimate NET rates ofreturn to agricultural land ownership in their locality,given current land values. Statewide, the estimated netrate of return to agricultural land declined from S.8% in1992 to 5.5% in 1994. Net rates of return wererelatively stable from 1993 to 1994.Market Forces and Market OutlookMajor reasons for higher reported land values aregood livestock prices, lower interest rates, competitivebidding/farm expansion pressures, and buyer perceptionthat farmland is a good investment. The 1993 crop yearwas cited as a reason for increased land prices in somelocalities where yields were excellent. It also contributedto stable or reduced prices in locations plagued by flood,early frost, late harvest, or poor quality crops.The major reported reason for purchasing farmreal estate was farm expansion (48%). The second andthird reasons for purchasing farmland are for investmentpurposes and lower interest rates, respectively. A varietyof other reasons - including starting fanning, tractlocation, favorable crop/livestock prices, and purchasingland for hunting purposes ~ were also mentioned.A major reason for landowners selling farm realestate was retirement (44%). Other reasons include estatesettlement, financial and cash flow pressure, andfavorable market conditions for selling agricultural land.Overall, farm expansion is the major reason forpurchasing farmland, while farm retirement or estatesettlement are the major reasons for selling farmland.These major reasons for selling and buying farmland havebeen dominant since the 1950's. Also, financialposition/pressure is an important motivation for manybuyers and sellers, and is a contributingfactor to marketweakness in some localities.Most respondents project slightly increasingagricultural land values during 1994 due to improved subsoil moisture during the last two years. Many respon-Page 3SOUTH DAKOTA STATE UNIVERSITYEconomics DepartmentBox 504ABrookings, SD 57007Address Correction RequestedPage 4dents commented that lower long-term interest rates,reduced yields on other investments, and favorablecrop/livestock prices should stabilize or increaseagricultural land values in the next 12 months.For more detailed information, readers areencouraged to contact the SDSU Economics Departmentor the authors and ask for SDSU AES Circular No. 257:South Dakota Agricultural Land Values, and Cash RentalRates: 1994.ECONOMICSCOMMENTATOREDITOR; DonaldC. Taylor, Agricultural EconomistECONOMICS DEPARTMENTSouthDakotaState UniversityBox 504ABrooldngs, SD 57007Phone: (605) 688-4141475 copies of this newsletter were produced at a costof less than SI00

South Dakota Agricultural Land Values and Rental Practices: 1994

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South Dakota Agricultural Land Values and Rental Practices: 1994

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