South Dakota Agricultural Land Values and Rental Practices: 1999

South Dakota State University Open PRAIRIE: Open Public Research Access Institutional Repository and Information Exchange Economics Commentator Department of Economics 7-21-1999 South Dakota Agricultural Land Values and Rental Practices: 1999 Burton Pflueger South Dakota State University, burton.pflueger@sdstate.edu Larry Janssen South Dakota State University, larry.janssen@sdstate.edu Follow this and additional works at: http://openprairie.sdstate.edu/econ_comm Part of the Agricultural and Resource Economics Commons, and the Regional Economics Commons Recommended Citation Pflueger, Burton and Janssen, Larry, "South Dakota Agricultural Land Values and Rental Practices: 1999" (1999). Economics Commentator. Paper 366. http://openprairie.sdstate.edu/econ_comm/366 This Newsletter is brought to you for free and open access by the Department of Economics at Open PRAIRIE: Open Public Research Access Institutional Repository and Information Exchange. It has been accepted for inclusion in Economics Commentator by an authorized administrator of Open PRAIRIE: Open Public Research Access Institutional Repository and Information Exchange. For more information, please contact michael.biondo@sdstate.edu. ECONOMICS COM MFNTA TOR JLwJL IWJL XT JL JL jfV SDSU South Dakota State University No. 398 Mv2U 1.999 SOUTH. DAKOTA AGR!CirLTURA.L LAND VALUES AND RENTAL PRACTICES, 1999 hy Burton Pflmger Extension Economist South Dakota's agricultural ia«d values Larry Janssen Economics Professor Average Land Value Summary increased l,9^b in 1998, which is the lowest annual percentage increase in the 1990s. The average value of agricultural land (as of Februarv' 1, 1998) varies from $735 per acre in the southeast region to $1 i.9 per acre in northwest South Dakota. These are key findings from .As of February 1, 1999, the estimated South Dakota all agricultural land value average was $325 per acre, an estimated 1.9% increase in value from one year earlier (Figure 1), the SD.su 1999 South Dakota Farm Real Estate Market Survey reports completed by 256 appraisers, lenders, and Extension agents knowledgeable of Iwal fannland market trends. This is the ninth annual S.DSU survey developed to estimate agricultural land values and cash rental rates by type of land in different regions of the State. Summaries of prior survey resuits were reported itt Figure 1. .Average value of South Etekota agricultural land, Febniary 1, 1999 and 1998, and percent change ffortn one year ago. F NORTX CEUTRAt ? MORTH NORTHWeST $374/acre [EAST SllS/acfg $i15.''acr9 S35ii'acre | - 34;^ \ earlier Econotmcs Commentator issues. CSKTRAl, S33Si'3cm \ $337.'acre • - — r - , ao; Respoitdents provided county land value and cash rental rate information by agricuitural land use. Responses grouped by regioit with average values for all cla.s.ses of land are provided in Figure I, Separate estimates of land value and cash rental rate information for nonirrigated cropland, irrigated land, hayland, rangeland, and lame pasture are provided in Figures 2-5. The information in this newsletter provides an overview of agricuitural land values and cash rental rat^ SASS/acfa"* g.9% * 3.5% 50UTHWSST $lg4/acr8 S153/acrs ! .2% Siais: SSSa-'acf® $31S'acf8 : EAST CeNTRAL $645aCf8 SOUTH csnrnAi. $372.''scre .S28Q/acfe ' 2.9tS • C'acrg S.4% V \ SOUTHgAST \ $?35/3ore $"66/ac-ra 4.0% Reglonai and staiewide average v^ues of agricultural ituidare lire weighted sverage.s of dollar value per acre and pereenl:chiinge by fsfi^mion of acres of each uon Irrigated larul use hy regitn). across South Dakota. We caution the reader to use this information as a general reference, while relying on local sources tor more specific details. Top; Average per-acre value—Feljrumy i, 1999 Midilfe: Average per aae value--Feta'uary 1,1998 Bolttsn; .Aonuai percent cshfige in pcr-acre laud value Source: 1999 South Dakota Farm Real Estate Market Survey, SDSU. According to SDSU survey responaies, agricuitural iand values increased from 1998 to 1999 In Figure 3. Average value of South Dakota rangeiand and tame pasture, by region, February 1999, southwest (+2.2%), nonh central (+6.9%), northwest (+3..5%), northeast (+0,4%) and east central (+5.4%0 regions. Decreases for other regions were; southeast dollars per acre. NORTHWEST \ (-4,0%), south central {>2.9%); and central Ranga $102 (-0,6%), Rastum $123 HOfiTH $241 i Paatare $256 ./ Agricultural land values are highest in the southeast, foiiowed by the east cetttral region. Cropland and hayland are the dominant land uses in these regions, which contain the most ptioductive land in South Dahota, I'he lowest average land values are found in the northwest and southwest regions. In each region, per acre values are highest for ijTigated land, followed in descending order by nonirrigated cropland, hayland or tame pasture, aitd native rangeiand (Figures 2 and 3). Withineach region, there is substantial variation in per acre land value by land use and land productivity. .Average nonirrigated cropland values range front S735 per acre in the southeast to $119 per acre in the northwest region of the state. Average rangeiand values vary from S405 per acre in the southeast region to $102 per acre in the northwest region of South Dakota. Figure 2. Average value of South Dakota cropland, irrigated land, .and hayland , by region, Februaty 1999, dollars per acre. nORTHWeST Crop HOBTH CENT«Al Srr. S44S* Hay Stea caaTRAL / / EAST Crop $435 /"' SOUTHWEST SOUTH CENTRAL Crop S246 irr, MORTH S20a $443" Hay i CENTRAL _irr. S432« | 5758 Hay $393 I iff, $913 y I Hay $663 9492 54926 t \ SOUTHEAST $1351 Crop - Uofifffigalee cropland no«th \ Ssnga ^arpe .52: Pasturs $31 I CENTRAL \ SOUTHWEST Rsngp $143 Pastura $151 han>3S $255 > Paslcr® $290 EAST ENTRAP i StJUTH aSBJfS i CENTRAL hange $220 Pasfor® $246 S0UTHSAS1 . .>3r!9$ 5405 Source' 1999 South Dakota Farm Real Kttaie Markit Surt'e\'. 1998. .Average Cash Rental Rate Somniary The cash rental market provides important infonnation on returns to agrlcuknral land. Nearly threefourths of South Dakota farmland renters and three-fifths of agricultijiral lar!dlofd,s are involved in one or more cash leases for cropland, hayland, or pasture'Vangefand. A majority of cash lta.ses are annual renewable agreements. Cash rental rates are quite variable among South Dakota regions. Within each region, the average annual cash rental rates are highest for irrigated land, foiiowed by nonirrigated cropland, hayland and pasturaYangeiand. For each land use, cash rental rates are highest in southeast and east central regions of South Dakota, and lowest in western South Dakota (Figures 4 and 5). Figure 4. Averagecash rental rate of South Dakota non-irrigated cropland and hayland, by region, 1999, dollars per acre. northwest NORTH $1690 L'PP gNTRAt $36,'30 520 $619 NORTH EAST JC Hay CENTRAL !rr ;•> irjtgaied ianU*' Hay ~ HaylsnP '' irrigated land vafue.s .yhown ibr tte northwest aivJ southwest regioas are based on the average value reported tor g^vity irrigated land in lx>th wesiem areas. " Irrigated land valuesshown for the centnil isnd aiuth-cenlrai regions are based <xi the average value reported In ix>lh regicnis. ; SAST CENTRAL »e __ Bgy SOUTHWEST L.'OP $19.50 $14.80 i SOUTH OfOp Hay $20.68 rop $56,00 Hay CENTRAL $27 90 $19.50 $22,1 EAST $40.10 N SOUTHEAST Cfuo P 583.20 $48,50 Crepiafie Seufce: South Daki>ta Farm Real flstate Market Survey, SDSU. HayiaPd Source: 1999 South Dakota Farm Real Estate Market Survey, SDSU Casfe rental rates for noniirigated cropland vary from an average of $63.20 peracre m southeastern South ag land, 6,4% for non-irrigated cropland, and 4,0% for rangeiand. Dakota to $ 16,90 in northwestern South Dakota, Rangeiand cash rental rates vary from an average of S26.80 per acre in the southeast region to $6,20 and $7.70 per acre in western South Dakota regions. From 1998 to 1999, cash rental rates per acre declined modestly in the southeast region for cropland (-$4.40) and pasture land (-$1,30), In all other regions, From 1991 to 1999, the difference between GROSS and NET rates of return to agricultural land ownership averaged 2.0 percentage points and varied from 1.5 percentage points to 2,4 percentage points across different regions and land uses. Most of the difference between gross returns and net remms was caused by property tax levies. cropland cash rental rates changes varied from -SI .00 to +$2,30 per acre, while changes in rangeiand cash rental rates only varied from -SO.SO to -<-$0.40 per acre. Hayiand cash rental rates declined slightly in eastern South Dakota and remained steady or increased slightly in the rest of the State, From 1991 to 1999, average reported cash rental rates for cropkmd, hayland and ra»»gc'arid incr&a.ssd in all regions. During this period, average cash rental rates for The current average net rate of return of 4,6% on all agricultural land in South Dakota is much lower than farmland mortgage interest rates of 7.5% to 10%. This implies that relatively large down payment requirements are necessary beforefarmland purchases can be expected to cash flow from net returns. A cautious approach to deht-ltnancing will be required to help farmland buyers avC'td ancthcr financial crtSis. cropland increased from 20% in the northeast region to 47% in the north central region. The average dollar amount of cropland cash rental rates increased from $3,40 to $4,80 per acre in the south central and western regions to $13.90 per acre in the southeast r^ion. Cash rental rates for hayland increased from less than S3 per acre in the northeast and southwest regions to $10 per acre in the southeast region. From 1991 to 1999, average cash rental rates per acre of rangeiand increased from nearly $2 per acre in western South Dakota to +$7.60 per acre in the southeast region. During this same period, average cash rental rates per Al..%1 (Animal Unit Month) also increased in all except the east central region. In most regions, average increases in AUM rental rates varied from $1 .SO to $3.50 per .AUM. Rangeiand rates per ALTVf in 1999are fairly unifonti across regions (Figure 5), Rates range from an average of SI5,40 per Al/M in the north central region to $18.80 per ADM in the northeast region. Rates of Retnra to .Agiieulturai Land The grt>ss rent-to value ratio (gross cash rent as a percent of reported landvalue) is a measure of gross rate of return to land, before deduction of prttptaty taxes and other landlord expenses. Gross rent-to-value ratios for 1999 averaged 7.7% for non-irrigated cropland and 6.4% for rangeiand. Respondents were asked to estimate set rates of return to a^icukural land ownership In their locality, given current land values. Statewide, the estimated net rate of returnto agricultural land averaged 4.6% for all Figure 5. Average cash rental rate of South Dakota rangeiand and pastureland by region, 1999, dollars per acre and dollars per AIM. "V nORTH CSXTRAl | NORTH NORTHWEST $t6.g0.'acre $6.20/acf€> S16.40('AUM i St5,40''AUM -• ' CENTRAC $t7 .80»'acfg „ / SOUTHWEST S7,70'acfe 1 !SOUTH j CENTRAU SiATO/ac^s SIS.Sa'AUM i l|i $t5.30/AOM j $18.50'AUM \ | £AST i $5$ to^acre ' 1 Sl8,8£i/AUM ; EAST J CENTRAt. $24.80/acm S1S.S0.'-AUM SOUTHEAST $S8S0.'acr8 SrS.SO/AUM 5 S<mfve.: 1999 South Dakota Fai-m Real Estate Market Sitrvev, SIISU. Af Land Market Expectatloaa, Fast aad Prospective Respondents are not optimistic about land value increases in the next 12 months. Only 30®/o of respondents expect aj^cultural land values to increase in 1999, with mostof these respondents expecting land value increases of 1%to 5%. Compared to the past 8 years of survey responses, this is the lowest proportion of respondents expecting land value Increases in the next 12 months. T his is a dramatic reversal from the 1998 survey, when three-fourths (three-fifths) of respondents projected increasingcropland (rangeiand) values in the next 12 months. A majority of respondents project NO CH^\NGE in land vaiues during 1999, Nearly 1.5% (Wo) of respondents forecast declining cropland (rangeiand) vaiues during 1999. Modest declinss in cropland values are projected by respondents in several regions., while rangeiand values are expected to hold steady or increase slightly in all regions. <.>veralL the average (mean) projected chanee in agricultural land values during 1999 is only -^0.5%. Respondents listed major positive and negative factors affecting the farm real estate market in their localities. 1 hese factors help explain changes in the amount of farmland for sale, sale prices, and rental rates. No specific item dominated respondents' list of positive factors. Investor interest, high crop yields, low interest rates, farm expansion, and hunting'recreation vvere the top five positive factors listed, accounting for 74% of responses. central and eastern regions of South Dakota, where crop yield in many counties havebeen considerably above long-tenn averages in recent years. Many respondents wrote that higher cropyields had partly offsetdeclining prices and helped stabilize land snarket conditions. Relatively low intsa-est rates and farm expansion continue to be listed as positive factors by njany respondents. However, in past years farm expatision was usually the most common factor li,sted. Hunting'' rcx;reation uses were often listed as positive factors by respondents located in east central, south central and central regions of the State. Lttwcommodity prices was the principal negative factor affecting farmland markets, according to 68% of responses. Other economic and financial items (low returns, higher input costs, no funds available) were also listed as neptlve factors. This i.s the first survey in the I990's where general economic and financial factors positive factor more frequently (24%) than any other were the predominant negative responses. In pastyears, .specific industry factors (low cattle prices) or weatherrelated facttxrs (flooding, prevettted planting, etc) were item. Investor interest was more than one-third of often listed as negative factors. For the first time, investors were listed as a responses from those located in the western and central regions. Many respondents commented that investor interest in and ability to purchase farmland was an important factor maintaining farmland prices in their locality. However, some other respondents (5% of negative responses) viewed investors as a neptive factor because they w^e able to outbid local farmers wanting to expand their operations and shutting out many beginning farmers from purchasing farmland. For more detailed information, readers are encouraged to contact the Economics Department Library (605-688-4142) and a-sk for SDSU --kES Circular C263, South Dakota Farmland Market Trends. 199 i 1999. ECONOMICS COMMENTATOk ECONOMICS DEP.ARTMENT South Dakota .Stttte Cniverstiy High crop yields wa,s the second ranked positive factor and was primarily !i,sted by respondents in north SOUTH DAKOTA STATE UNIVERSITY Economics Department Box 504A Brookings, SD 57(X)7 SDSl Address Sendee Reqaested BoxStWA Brookir.gs, SD 57007-0895 Phone; (605) 688-4141 F:«: (6050688-6386 B-ftiail; .Stovert-"<:i;i!ie,:-d.stato atiii 450 topics of thiA ne-^siguef were pfoUucaa a; a cost ofiessthan $500