Agland values meteoric rise slowing down

Farm Forum

For now, at least, farmland prices in Brown County continue to tick up.

But, observers and ag officials said, that could well change if commodity prices don’t rebound in the months to come.

Data from South Dakota State University Extension shows a modest increase in state ag land values so far this year. But continued low corn prices, especially, could affect the market, officials said.

The slowdown in increased values makes topping a record sale in Brown County two years ago seem unlikely. But, Mary Worlie, Brown County director of equalization, said the price of farmland has largely to do with the quality of land.

Despite the recent slowdown, a 160-acre parcel located northwest of Groton sold for nearly $12,700 per acre in April, according to county records. The property is considered excellent farmland.

“When you’re dealing with farmland, you always have to take into account the quality of the land for sale,” Worlie said. “Sometimes the numbers don’t tell the entire story when you’re talking about land values.”

In November 2012, a 58-acre tract of land in Cambria Township, just north of Tacoma Park, sold for $13,000 an acre. That sale shattered the previous county record, which was from an October 2012 land sale that featured a 157-acre parcel of land near the Brown County Fairgrounds. That land sold for $8,300 per acre, according to county records.

In November 2013, a 155-acre parcel in Brown County sold for $9,232 per acre. By contrast, a 160-acre tract of land in Spink County sold for $4,200 per acre earlier this month, said Worlie.

Hot streak ends

Jim Thorpe of Thorpe Realty and Auction Inc. in Aberdeen said the record sale in 2012 was likely an aberration. Until early this decade, farmland prices in the area have, for the most part, increased steadily and predictably, said Thorpe. Then, they took off.

“Two years ago, we went up really fast,” Thorpe said. “We doubled the price per acre and nobody could keep up with that. Common sense would dictate that what we’ve seen lately would put pressure on the market, but nobody’s an expert. In 2012, there were people saying corn was going to $10 and people who said corn was going to $2.50. The people who said it was going way down ended up being right.”

When corn was selling for between $7 and $8 per bushel a couple of years ago, land prices were skyrocketing, too. But those numbers have fallen off lately with corn selling for less than $3 per bushel.

“There just isn’t enough data right now, but it’s hard think that land prices wouldn’t go lower,” Thorpe said. “You’re talking about going from $7.50 corn two years ago to where we are today — that’s a big change. Are we going to go lower? How much lower will it be? It’s a talker right now.”

According to the 2014 SDSU South Dakota Farm Real Estate Survey, which was sent out in February, there has been an average increase of 5.5 percent in reported cropland values for the region, including Brown and Spink counties this year, said SDSU Extension crops business management field specialist Kim Dillivan.

Though the survey — which includes information gathered from appraisers, real estate agents and others who work in the industry — still shows an uptick, it’s significantly lower than than the large increases a few years back. To illustrate, Dillivan compared this year’s total to the boosts of statewide non-irrigated cropland values in recent years:

• Between 2012 and 2013: A 38 percent increase.

• Between 2011 and 2012: A 29 percent increase.

• Between 2010 and 2011: A nearly 18 percent increase.

“There were some big increases in recent years, we think driven at least partially by the higher commodity prices,” Dillivan said. “This year, those prices, for the most part, came back down. The numbers we have for cash rents on cropland are also very similar — the percentages are almost identical. I can’t predict what will happen, but we certainly could see a decrease in our next report. My guess is that we’ll see cropland prices stay flat, for the most part, but we don’t know that yet.”

For 2014, Dillivan said the average price for cropland in the territory including Brown and Spink counties is $5,593 per acre. Land classified highly productive is valued at $8,149 per acre.

Market resilience

Thorpe said the repercussions of corn sitting in the $2.50 to $3 per bushel range could likely be absorbed by the land market for a year or so. After that, he said, a “major backing up” would likely be in order.

“We could absorb one year, but not two years, in my opinion,” Thorpe said. “Maybe we’ve hit bottom with the commodity prices, but maybe that’s wishful thinking, too. The thing about land is that it’s not highly traded — it only comes on the market every so often and there are a lot of factors that go into whether somebody will buy. The sales I’ve seen lately have been erratic. We should know a lot more about where we are right now in a month or so.”

Worlie agreed with Thorpe. She said land prices can be difficult to gauge because of factors like proximity to land already owned, family dynamics and the fact that a prospective buyer never knows when a piece of land will go on the market.

“Typically, land goes up for sale every 50 years,” Worlie said. “If there’s a piece of land next to your operation that is for sale, you may want to look hard at purchasing it, regardless of whether or not you think you might be overpaying.”

Activity for auction land sales in North Dakota, eastern South Dakota and western Minnesota has tightened compared to 2013, with more transactions moving toward private listings, said Terry Longtin, Farmers National Company area vice president and area sales manager, in the organization’s most-recent report.

Sales levels are now coming in anywhere from 10 to 15 percent below the high land values seen in 2012, said Longtin.

“I feel we are at a stabilizing place in the market,” Longtin said in the report. “For people wanting to sell, prices are still excellent, even if they are slightly down from a year ago. Our regional ag economy is a bit weaker than other regions due to lower commodity prices, high basis due to railroad transportation issues and reduced production in 2013. Overall, though, sellers are still seeing historically high price levels.”

Longtin added that he believes commodity prices need to rise about 10 percent to continue to hold current land values.

Chad Johnson, who farms south of Groton, said he hopes commodity prices begin to increase soon. That would likely affect land prices, he said. But he understands that it could be a waiting game.

“From what I’ve heard, land has declined quite a bit,” Johnson said. “Cash rents have been going lower, too. I think we’re probably not going to see land go for those $10,000-plus-per-acre figures that we had seen. I think we hit the high end on that and now we’re in a cycle.”

All sales not equal

Through October, Worlie’s department had 11 land sales that could be assessed in Brown County. That doesn’t include, for instance, sales from one family member to another that are often discounted. And, she said, it doesn’t exactly supply an abundance of statistical evidence.

“All farmland is not created equal and all sales are not equal,” Worlie said. “If you have a sale that occurs within a family, that’s very different than a sale that occurs on the open market.”

On the bright side, both Dillivan and Thorpe pointed to interest rates remaining relatively low on a cropland market that is likely in a correction.

“In the 1980s, things were a lot worse,” Thorpe said. “Interest rates have not gone up dramatically. People are talking about land prices around the coffee shop right now, there’s no question about that. But this is the cycle of the market and land prices will go off of what commodity prices are.”

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Average October corn, soybean prices per bushel for the past 10 years in South Dakota:

2014: Corn $2.81, soybeans $8.85.

2013: Corn $4.30, soybeans $12.20.

2012: Corn $6.97, soybeans $14.30.

2011: Corn $5.82, soybeans $11.40.

2010: Corn $4.45, soybeans $10.50.

2009: Corn $3.20, soybeans $9.40.

2008: Corn $3.90, soybeans $8.

2007: Corn $3.20, soybeans $8.17.

2006: Corn $2.61, soybeans $5.16.

2005: Corn $1.60, soybeans $5.30.

Source: South Dakota Office of USDA Agricultural Statistics Service.

Top value of ag land sold in Brown County per-acre

2014: $12,694

2013: $9,232

2012: $13,000

2011: $8,262

2010: $1,849