Riding the tilt-a-whirl of ag land values

The dizzy tilt-a-whirl of rising South Dakota agricultural land values may be slowing, but the challenge of keeping pace is enough to make people queasy.

Two recent reports, one in late July by Farm Credit Services of America (FCSA), and another in August by the U.S. Department of Agriculture (USDA) provide the latest insight into this real estate market.

Farm Credit’s July 18 report covering the first six months of 2023 said there are “signs that the real estate market is stabilizing” as the state’s land values increased only 4.6% in the last six months. 

Every six months, Farm Credit sends its real estate appraisers out to value the same “benchmark” farms to gauge market conditions. 

“Year-over-year values rose 14 percent compared to 21 percent and 17.3 percent” for the same periods in 2020 and 2021, the report said. 

USDA’s 2023 Land Values Summary, released annually in early August, said South Dakota’s statewide cropland value was up 12.9% from August 2022. Cropland values jumped 18.9% the prior year, and the report said values have jumped about 50% since 2020.

That’s slightly higher than Farm Credit’s five-year change of 42.4% and 10-year change of 44.1%. 

A third report, South Dakota Agricultural Land Market Trends, 1991- 2023, produced by South Dakota State University, showed a five-year cropland value increase of 45.7%.

Pasture values increased 8.9% with a two-year increase of about 26.4%, the USDA said. SDSU’s report had a 21.5% two-year increase.

Interestingly, Farm Credit’s five-year crop increase of 42.4% was only slightly more than its 10-year change of 44.1%. 

That’s because land prices spiked in 2012 and 2013 when corn prices shot above $7 a bushel for the first time. 

During 2012 and 2013, land values jumped about 45%, according to SDSU’s report.

Values then began a seven-year, 23% decline before the latest surge from 2021 to 2023. 

SDSU’s report said values then jumped 43% from the start of 2021 to 2023.  

Strong commodity prices again drove the land value increases, along with record low interest rates. The Ukraine War is further inflating world crop prices as Russia effectively cut off the flow of crops responsible for feeding about 400 million people in Africa and Asia. 

A rapid rise in interest rates, which rose to a 22-year high earlier this month, seems like it would slow land prices. But that does not seem to be the case. 

“There is lots of cash on balance sheets and overall leverage is down significantly,” said Tim Koch, executive vice president of business development for FCS America, in the organization’s July press release. “So even if profit margins, on average, return to break-even levels, the overall financial strength of some producers will lead them to stay in the real estate market. We still could see instances of aggressive bidding for the right farm in the right location.”

One of those was in Codington County between Watertown and Lake Kampeska. It recently was placed under contract for $14,500 an acre, topping the county’s previous high of $12,500 an acre about six months earlier. 

Hamlin County also saw its first $12,500-an-acre sale, and that land involved some pasture pushing crop acre values toward $14,000 an acre. Numerous sales in the range of $11,000 to $14,000 an acre have occurred in Lake County and Brookings County, which also recently saw a sale at $16,500 an acre. Another in Minnehaha County sold for $21,500 an acre. 

Where are prices headed? 

“The other driver in real estate is farm profitability and the overall financial health of agriculture, which has been extremely strong,” Koch said. “Profitability and optimism in agriculture have more than offset the negative pressures.”

Auctioneers, Realtors and real estate appraisers all remain bullish, but eventually the tilt-a-whirl will stop, and riders will head for the Ferris wheel.