Ag land values decline
Historically high corn prices and historically low interest rates led to land sales with record high prices across northeast South Dakota just a few years ago.
Now, land prices, though still strong, seem to be leveling out, according to Farmers National, a farm management company that works with landowners and investors.
That has a lot to do with the prices of both crops and cattle, but more so crops, according to Brian Mohr, area sales manager with Farmers National. He estimates that 75 percent of the value of land is determined by crop prices, the remaining 25 percent by cattle prices.
South Dakota State University’s 2016 Farm Real Estate Market Survey backs up that claim, suggesting the changes in the value of ag land “reflect the sharp declines in crop prices and returns compared to record prices and returns for beef cattle.”
Corn prices moved above $8 a bushel in 2012. That’s when a 58-acre tract of Brown County farmland just north of Tacoma Park sold for $13,000 an acre. Mary Worlie, Brown County director of equalization, believes that’s still a record price.
Since 2012, however, SDSU Extension reports that the cash price of corn has decreased 52 percent, most recently averaging $3 or less per bushel.
With prices like those, the value of high-quality land has decreased by an average of $400 per acre in North Dakota and $100 per acre in South Dakota, according to Farmers National’s 2016 survey.
Worlie also believes land prices are trickling down, although she can recall some ag land selling for between $7,000 and $9,000 per acre in the past year or so. It’s almost natural for prices to dip, she said.
“Grain’s down, cattle’s down, so the land will go down as well,” Worlie said.
SDSU’s market survey, which includes several different regions of South Dakota, shows that all land values decreased by 2.4 percent from 2015 to 2016. From 2014 to 2015, the value increased just 1.4 percent. But in the three prior years, prices increased as much as 33.6 percent, the report says.
It’s important to note that all land is not created equal, Worlie said. She believes the best land could still sell for the prices it did in 2014 and 2015.
According to the survey, non-irrigated land in the north central part of the state had an average value of $3,182 per acre in February, a 2.4 percent decrease from one year prior when the average was $3,226 per acre. At 7.1 percent, the northeast section of the state is seeing steeper declines — dropping to an average value of $3,661 per acre from $3,940 per acre.
Irrigated land across the state, however, is averaging $8,000 per acre.
Supply vs. demand
Mohr said there is a “very low supply” of ag land in northeast South Dakota that’s being sold, while demand is moderate.
“Only about 1 percent of the good land in this area trades hands each year,” he said.
It’s because the supply is low that the land market is stable, Randy Dickhut, senior vice president of real estate operations at Farmers National, said in a news release. However, he said, different factors could surface in the next few years that could move land prices in either direction. They include low or high crop and livestock profits, interest rates and profitability forecasts.
Good, mostly tillable parcels remain in demand and sell well at auction, Mohr said.
The most-productive land holds its value best, Worlie said.
“If there’s weakness in the market, it’s going to be in the poor, less-productive land,” she said.
Mohr agrees, saying “marginal” land is hard to sell these days.
A Farmers National survey shows farmers and ranchers who have purchased land in the last decade are now being less aggressive, as their profits are down. Lenders are also being more careful.
As acreage prices increased, the return on investment slipped, according to Farmers National. Now, as prices soften, the company notes that investors are moving back into the land market.
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