$6 million sale of South Dakota farmland supports trend of rising land values statewide, experts say

A recent farmland sale in Codington County sold for the highest amount auctioneers Randy Owen and Mike Bergh have seen in the county in recent years.

The sale of four tracts of land boiled down to location and demand from the "right buyers," Bergh said. Topping the sales off at $12,000 an acre of land is one of the highest farmland sales in South Dakota in recent years.

"It's very notable. It's good dirt," Bergh said. "Land doesn't come up for sale in that country very often."

There were four tracts for sale:

• Tract 1, 154.6 acres at the northeast corner of 176th Street and 453rd Avenue has 144 cropland acres. The land has a Corn Suitability Rating of 90.4 (based on a 0 to 100 scale). It sold for $1.78 million ($11,500 an acre).

• Tract 2, 148.58 acres near the northeast corner of 177th Street and 453rd Avenue has 146.83 cropland acres. The land had a weighted average of 85 and sold for $1.6 million ($11,000 an acre).

• Tract 3, 142.47 acres on South Highway 81 on West 176th Street has 142 cropland acres. The land had a weighted average of 86 and sold for $1.7 million ($12,000 an acre).

• Tract 4, 79.5 acres about a quarter-mile south of 174th Street along 453rd Avenue has 68 cropland acres. Average weight of land was 74 and sold for $874,500 ($11,000 an acre).

The sale essentially settled an estate, with siblings who'd inherited the land selling off pieces for other investments. Neighboring farmers bought three tracts and an investor bought another tract.

Bergh and Owen were expecting to sell the land around $8,000 to $10,000 an acre, Owen said, and were surprised when prices peaked at $12,000.

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"With commodity prices where they're at and yields where they're at, this land is set exactly in the right spot if you're going to have an auction sale," Owen said. "It's set where there's a lot of powerful bidders and people capable of buying it."

Bidding started at $5,000 to open and went to $10,000 before the break, returning a little later with a few extra bids. The whole sale took little more than an hour, Bergh said.

Why so high?

Land values have gone up in the last year across the state, due mostly in part to low interest rates, a low supply and good yields in the past year, said Jack Davis, crops business management field specialist with SDSU Extension.

This Nov. 15 sale in Codington County, a high dollar amount - though not the largest Davis has seen in his nearly three decades at the extension, supports the notion that land values are rising across the state, he said.

"This year we've just seen land really jump," Davis added, though values aren't as strong as they were when they peaked around 2014. Value of land five in 2016 was $5,653 an acre across the state. Now it's $5,388 an acre in 2021.

The biggest land value is in the lower corner of the state. Values rose by 6.4% in east central South Dakota, which includes Minnehaha County, between 2020 and 2021, according to the South Dakota Agricultural Land Market Trends report from SDSU Extension.

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In the northeast region, which includes Codington County, and southeast region, which includes Lincoln County, values rose 3.1% and 3.2%, respectively, from 2020 to 2021.

Key elements driving changes in farm land values include cash rent, supply of land, interest rates and inflation, among other factors. But Davis said farmers and investors are choosing to invest in land sales as a stable and steady long term growth, even though the cash return is low, around 3%, he said.

"It makes sense for someone who has cash to go ahead and invest in land based on historic returns, even though cash return isn't all that great," he said. "It's stable growth."

While seeing another high farmland sale by the end of the year might be rare, Davis expects land values to increase over the next several years, based on limited supply across the state and low interest rates.

Crop prices should stay steady another year or two, Davis added. In the September World Agricultural Supply and Demand Estimates report, the U.S. Department of Agriculture estimated South Dakota's corn yields at 133 bushels per acre and soybeans at 38 bushels per acre, both down from 2020.

This article originally appeared on Sioux Falls Argus Leader: South Dakota land values rising, farmland sells for $12,000 an acre