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Tri-State Neighbor photo by Barry Amundson Tom Jass, a farm manager and broker’s associate for Farmers National Co., stands in a soybean field that was part of a sale this past summer netting $9,050 per acre for 112 acres of rolling cropland about three miles southwest of Valley Springs, S.D. The “highly productive” land was in a location where land is not frequently available on the market. September 20, 2013 10:06 am  •   By Barry Amundson, Reporter              Tom Jass, a farm manager and broker’s associate for Farmers National Co. from Brandon, S.D., said he hasn’t seen the farm real estate market soften. Why? He has a simple answer: “I think people are bullish on agriculture.” Although double-digit increases in farmland sale prices have been the norm for the past two years in South Dakota and across the Upper Midwest, it might slow heading into the coming year, some predict. Jass, though, said it’s still a seller’s market. Although he doesn’t predict the 30.2 percent increases in cropland values in South Dakota last year to occur again, he does think prices are still on the way up. The increase that raised the average value of South Dakota cropland to $3,020 an acre was provided in an annual report issued last month by the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture. It was based on its survey of producers this summer. It’s similar to what was reported earlier this year by Larry Janssen, the now-retired Burton Pflueger and Bronc McMurtry in the 23rd annual SDSU Farm Real Estate Market Survey. That report said ag land values continue to boom for all land uses and regions of South Dakota. From 2012 to early 2013, Janssen, an economics professor at SDSU, said the increase was 33.6 percent, coming on top of a 26.8 per cent increase from 2011 into 2012. “They are the highest annual rates of increases in the past 23 years of the survey,” the report said. This coming year, however, with lower commodity prices along with uncertainty about future federal policies on deficit reduction, the farm bill, taxation and renewable energy, about 85 percent of survey respondents expected an increase of about 7.5 percent for cropland, compared to 5 percent for hay, pasture and rangeland. The continuing optimism, said the report, stems from the effect of high ag commodity prices on farm profits and cash rental rates, which are capitalized into increasing land values. Low interest rates also have been a catalyst, analysts say. South Dakota’s cropland increase was the second highest in the nation, behind only North Dakota at 41.2 percent. The national average was 13 percent. So what are some land sale prices as of late? Janssen said Brown County in Aberdeen has been a “hot spot” with a recent record sale of more than $10,000 an acre. Jass confirmed sales of $8,500 per acre for 154 acres, which included about 22 acres of “waste land” near Canton in Lincoln County in late June; $9,050 per acre for 112 acres of rolling cropland near Valley Springs in Minnehaha County; and $2,075 to $3,450 for four tracts of a more marginal 690 acres near Howard and Canova in Miner County, also in late June. In late winter, Jass said there was a sale of a quarter-section for about $9,200 an acre in Lake County and a sale of $9,500 for 80 acres, also in Lake County. Across the border in northwestern Iowa, there have been regular sales of $20,000 per acre for some land in the hotbed of agriculture in Sioux County, where cash-rich farmers compete for land to provide feed for their livestock and expand their operations. Another question is whether non-farmers are buying up the land. In a recent survey conducted by Ernie Goss, who oversees an economic index report from Creighton University in Omaha, he asked bankers to estimate the share of farmland sales made to nonfarm investors. Their answer: about 20 percent. In some states, Goss said, investor purchases were down dramatically. The index on farmland prices, meanwhile, declined in August, to 55.8 from 58.2 in July. It was the eighth drop in the past nine months. Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., said local farmers “have completely driven the nonfarmer investors out of the farmland market by elevating the prices over returns investors demand.” Meanwhile, Derrick Volchoff, a vice president of real estate operations at Farmers National Co., added that investors are sticking with land as a safe, long-term investment while farmers are putting cash from past yearly profits back into operations. Built-up cash reserves for farmers are prompting farm operators to buy premium land when it becomes available to add to their inventory and to accommodate the return of younger family members to farms. For both groups, economic uncertainty is still driving purchase decisions. Farmers are looking for premium land on which to expand, while investors might purchase properties based on price and projected return on investments. “Even with recent drops in crop size for farmers, profits are still at a level higher than in 2010,” Volchoff said. “Farm debt is still low in relative historical terms.” According to Volchoff, several issues in the U.S., such as healthcare and interest rates, are likely to affect economic trends and thus land inventory levels and sales activity once they are resolved. The direction of market and political issues probably will shape the rest of 2013. As the housing market improves, developers probably will begin to buy land for development. An accelerated farmland sell-off at the end of 2012 has left the cupboard somewhat bare and has led to low supplies of premium-quality property, according to Farmers National, the largest farmland and ranch land real estate company in the country. Last year’s rush, prompted by economic uncertainty and tax law changes, continues to have an impact into 2013. High-quality land is still in demand, and buyers are competing for top acres that are currently in short supply. Competition for land has kept values strong, averaging 20 percent higher values over comparable land in 2012. Much of the continued rise is from auction activity driving sale prices as purchasers vie for parcels of land. Mid- to high-quality properties are still seeing such rises in value, while lower-quality land values are staying steady. “Values are still going up, but the pace has slowed overall,” Volchoff said. Janssen said he has difficulty in foreseeing double-digit increases again from 2013 into 2014 as sales pick up later this fall and into winter. “But who knows?” he said. “Last year, we didn’t know for sure what would happen because of the drought. It just didn’t slow anything down,” Janssen said. Lower commodity prices are likely to slow it down from numbers of the past two years, he said. “I just don’t see how it can keep up. I think the issue will be to what extent is there a slowdown. Hopefully, it’s a slowdown and not a reversal. That would really throw things off kilter.” Jass also said there could be a slowdown in price increases, although he hasn’t seen such softening. “I don’t look for another 25 percent increase that we’ve been seeing the last few years. I’ve been in ag my whole life, and numbers have steadily gone up with a couple of blimps, but not those double-digit numbers,” Jass said. Continue reading →