Farmland Value Trends Across the U.S.: South Dakota

There are at least three distinct land markets in the state. ( Stock image )

Written by Jim Dunlap, AFM, ARA

South Dakota is the land of infinite variety. Farmland east of the Missouri River; high plains rangeland west of the river, and the Black Hills on the western border. This alone indicates there are at least three distinct land markets in the state. However, when I read articles and published data on land value trends, they invariably address the state market as a whole. One published source calls the South Dakota market as down 1.5 to 2.5 percent, another calls the farmland market basically unchanged to down nearly 1 percent. Which is correct? Both of them! South Dakota does have an infinite variety in topography, land use, and value. Any generalizations are just that, and do not give you an accurate picture of what is happening in the current local market.

First, let's redefine the market a bit. East river farmland is basically at least two markets from east to west, both of which are segmented north to south. For this discussion let's just consider the eastern ½ of the east river market that borders Minnesota & Iowa. Like those states, this area has developed into primarily crop production land due to similar weather patterns and more consistent moisture in most of this area. The next segment of east river land continues west to the Missouri River and annually gets progressively less moisture the closer you get to the river. Lack of moisture during the growing season and more erratic weather patterns that affect crop production are typical of this segment of the SD market and impact land value. West river is also defined as at least two markets, the rangeland market of the high plains and the Black Hills market, which has other factors of influence beyond agriculture.

When market studies call the state wide market down 1 to 2.5 percent, there has to be winners and losers, it is not consistently down across the state. Looking back at 2017 crop production land sales, and comparing them to 2018 sales for the eastern half of the east river market, shows these to be pretty consistent year to year. In general, the very eastern part of the SD market dipped off of its highs in 2012/2013, and has maintained nearly consistent prices after the initial reaction to weaker commodity prices. Occasionally there are still land prices of five figures per acre, but most seem to have settled into a pattern from $7,000 to $9,400 per acre for the best ground and from $5,000 to $7,000 per acre for less desirable crop production land. This market is very sensitive to land that has drainage issues that are difficult or costly to repair; land with rock or land with below average productivity potential as estimated from USDA productivity indexes.

East river farmland in the next segment going west toward the Missouri River is much more variable due to less consistent moisture for growing crops, more areas of permanent pasture due to steeper topography or drainage, and the inability to count on consistent crops either because of moisture or from weather patterns, including hail. Crop production land in this segment of the market has generally seen weaker land prices. Cropland prices in this area have seemed to settle in the $2,500 to $4,000/acre range. These market sales, combined with the first group of east river sales will generally indicate somewhat weaker land prices for cropland.

East river grassland values are even more variable. Much of the east river grass pasture land all but disappeared when com prices hit $7.00/bushel. This has created a significant demand state wide for good grass pasture that has reasonable carrying capacity. Many of the east river cow/calf herds are moved many miles each summer to pasture when a producer does not have enough local grass for his herd. The result has been continued competition for good grassland sales when they are offered to the market, which has resulted in some premium in the east river grassland market. West river is primarily grass rangeland with pockets of crop production land near the river. No significant downtrend in sale prices for larger parcel grassland sales in the west river market were noted from the past year. Grassland sales are more defined by the carrying capacity of the grass being offered than any single quality factor seen in crop production land.

The land market has seemed to be in a transition for the last several years since commodity prices started to decline from their record high. Many articles continue to predict or state there is a decline in land values over the past several years. However, seed genetics; variable rate seeding and fertilizer application; more acres in minimum or no-till planting practices, rotational, intense grazing practices, and other operational changes now emerging in our state have made a tremendous difference in cost of operation and profitability, for particularly larger farms. This continues to counter the typical market anticipation of where the price of farmland will head in the future, and will require continued monitoring of the general economy and our land prices as sales occur to provide better trend-line data.