Soaring land values are expected to drive up rent for cropland this year, according to preliminary data from the South Dakota State University Farm Real Estate Market Survey.
Rents in the northeast section of South Dakota, including Brown County, are expected to increase by $30 to $40 an acre, said Burton Pflueger, SDSU economics professor and one of the authors of the annual survey.
"That is based on 20 percent of what we hope will be the (survey) response rate," he said. "That is not specific to any one county or piece of land."
The increase in rental rates is a logical consequence of increased land values. Land is an investment and landowners seek a return on their investment, he said.
Land values in South Dakota have increased every year since the farm crisis of the 1980s, but in the past few years have increased dramatically.
"Agricultural land values continue to boom for all land uses and in most regions of South Dakota," according to the 2012 survey. "The most recent annual (2011 to 2012) increase of 26.8 percent for all agricultural land values in South Dakota is the highest annual rate of increase in the past 22 years of the survey."
Land values will continue to increase from 2012 to 2013, Pflueger said.
In the past six months there have been several record land sales in the region, including two Brown County land sales that fetched $13,000 an acre. Other records were a $10,500 an acre land sale in Marshall County and a $8,200 an acre land sale in Spink County.
A common guideline for rent is three to four percent of the value of the land, said Jim Thorpe owner of Thorpe Realty and Auction. Rent for
$6,000-an-acre land at 3.5 percent would be $210 an acre.
"I have seen land rented from anywhere from one to six percent of its value," Thorpe said. "It all depends on what the parties decide."
Pflueger said that while three to four percent is a common benchmark, that number should not be a prescription.
"There are a lot of factors that determine a rent price," he said. "The rate is going to be what the landlord needs for a return on their investment and what the tenant is able to pay."
A few landowners have turned to rent auctions as a way to maximize their investment.
Recently in Marshall County, a rent auction was held for land north of Britton. The land had been purchased by St. Claire Farms of Tulare. The rent auction was announced in the Britton Journal.
Jan Vold, owner of Vold Auctioneers and Realty, said he could not comment on any rental auctions in the area, the prices paid or the parties involved.
Reba Mette, of Mette Appraisals in Britton, said she is aware of a couple of rent auctions in Marshall County and several in Roberts County.
Typically, rental rates are arrived at by private negotiations between the landowner and the renter, she said.
"Rents usually go up a little slower than ag land values," she said. "But if a long-term renter doesn't want to pay the increase, there are usually three to five farmers behind them that will pay it."
Thorpe said that rental auctions are very rare.