By Marc Schober, Colvin & Co. LLC

Agricultural land values increase 7.7% in South Dakota.

The land in South Dakota is still gaining value. A recent study by South Dakota State University revealed that South Dakota agricultural land values have risen 7.7% over the last year. This is the smallest increase over the past decade, but an increase nonetheless. Economic professors Larry Janssen and Burton Pfluger, who co-authored the publication, both blame the current economy as the single reason why values didn’t increase more.
 
Janssen said, “What they’re saying is, ‘Disaster isn’t around the corner,’ there’s some concern there, but people aren’t incredibly alarmed.” This smaller increase of agricultural land value obviously reflects how the economy is performing. The 2009 survey is based on reports from 227 respondents, including Farm Service Agency officials, rural appraisers, real estate agents, professional farm managers, educators and agricultural leaders.
 
The driving force behind farmland sales is farm expansion. Farmers need to farm more ground to turn a profit with rising input costs. Steve Dick, executive director for Agriculture United for South Dakota said, “To me, this amplifies what we’ve said all along – it’s nearly impossible for a young farm family to expand.” It’s difficult to raise enough capital to make a land purchase with these rising values.
 
South Dakota land value growth
 
Across the entire state, values rose from $1,041 to $1,121 in 2009. During each of the past eight years, values have risen over 10%, two of those years, values rose over 20%. Since 1991, agricultural land in South Dakota has risen five-fold and even rose 22.5% from February 2007 to February 2008. 

Cash rent increases
 
Cash rents have increased each year over the past decade as well. Janssen explains, “Land values in most of the rest of the decade increased between 10 and 20 percent per year, and what’s different this time is that cash rental rates have increased at an as-fast or faster rate.”
 
South Dakota land has proven that it can withstand this heavy recession. Compared to other investments over the past year, many investors would welcome a 7.7% increase in value, not to mention an asset that paid cash rent as well.
 
It is hard to find a solid investment that pays for holding on to it. Better land can be found in other areas besides South Dakota, but this state has exemplified how great farmland is as an investment. It will be interesting to see how farmland fares the rest of this economic storm. There hasn’t been a better time to invest in farmland. This year, farmland increased the smallest amount over the past decade. Steve Dick puts it well, “You know, they’re not making any more land.”

Click here to view the original article on the Farmland Forecast website.