A Cross Sectional Study of Farmland Prices in South Dakota 1976-1984

Abstract

U.S. land prices experienced a skyrocketing trend with the increase of commodity prices during World War I, collapsed with prices in 1921, remained steady in the 1920\u27s, collapsed again with the farm prices in early 1930\u27s, recovered slowly as farm prices increased in the late 30\u27s and during World War II. In the lull between World War II and Korean War, farm prices and land values moved upward together. Consistent with the majority of regions in the United States, agricultural land prices in South Dakota also fluctuated during the first half of the twentieth century. South Dakota\u27s average farmland values increased from $39 per acre in 1910 to a peak of$71 per acre in 1920. Values then declined to a low of $12 per acre in 1941. Farmland prices then began another upward trend. South Dakota farmland values increased at a steady 3-5% annual rate from 1950 to 1973. From 1973 to 1981, farmland value increases accelerated to 17% per year with some year-to-year increases exceeding 25%. This boom in land values was directly related to rapid growth in export demand and major changes in international economic and trade policies. South Dakota farmland values peaked in late 1981 and early 1982 and have since declined. Changing federal economic policies and unfavorable export market developments have been the major contributing factors. It also has significant influences on the lending policies of the agricultural lenders, who usually are concerned with the security of their loan. Farmland prices influence property tax assessments, tax revenues, and publicly sponsored farm credit programs. Farmland price changes also have significant influence on investors who may wish to invest their capital in farm real estate. Various factors within and outside the domain of agricultural economy influence the change in farmland prices, e.g., expected returns, technological advance, location, tax policies and flexible exchange rates. In recent years, a strong dollar adversely affected the levels of agricultural exports commodity prices and farmland values. The factors that influence recent changes in agricultural land values in South Dakota are the underlying bases for this research effort