SIOUX FALLS, S.D. (AP) — A rapid rise in South Dakota farmland values likely cannot be sustained, but a crash similar to the 1980s farm crisis is unlikely, industry officials say.
South Dakota farmland values have tripled in the past decade thanks to low interest rates and high commodity prices, the Argus Leader reported Tuesday. The value of agricultural land in the state has risen from $421 per acre to $1,374 since 2002.
Many in the industry remember a similar spike in the early 1980s, which was followed by a crash that devalued the land by half and led to widespread bankruptcies and bank closings.
Bill Chase, who farms near Huron, bought land in 1979, watched its value diminish by half over two years in the 1980s, then saw interest rates surge to 20 percent.
“I haven’t bought any land in six years,” said Chase 53. “And I know times are different, but I would be very careful. I would be concerned about getting too much leveraged and then having to face what we did in the 1980s.”
State Agriculture Secretary Walt Bones said market forces were different in the 1980s, with inflation driving up land values.
“You’d buy a piece of land, and the next year it was worth more and the next year even more,” Bones said. “So lenders would reflect that on your balance sheet. As a result, your net worth had appreciated because the land had appreciated, so you could borrow more, and people did borrow more.”
When land values dropped and interest rates skyrocketed, farmers didn’t have the means to handle that debt. Today, producers have built up more working capital, and banks are more cautious about lending, said Denny Everson, executive vice president of First Dakota National Bank in Yankton.
Chase said a dramatic dip in land prices would diminish a farmer’s net worth and make it more difficult for that farmer to get operating loans.
“It can still put a pinch on you,” he said. “Even if you have cheap interest on land, the other inputs — feed, fertilizer and fuel — will have higher interest rates.”
Industry officials say plummeting land values and crop prices are unlikely.
“Technology is driving our yields up two, three, four bushels a year. And the United States grows 40 percent of the world’s corn, and a third of the soybeans,” Bones said. “I don’t see that dramatic drop in commodity prices.”
Source: Associated Press
Posted by Haylie Shipp