Profit Tips Article Archive

Keep Carbon in the Picture: Modifying the cut and carry system

After a recent trip to Ethiopia, I began thinking about how farming on the steep, terraced hillsides of the rural highlands there might relate to agriculture across the rolling plains of South Dakota. As part of the Farmer-to-Farmer Program, jointly sponsored by USAID and Catholic Relief Services, I had the opportunity to speak with nearly 300 smallholder farmers about fertility and soil health.

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Ag Land Values Decrease Statewide on Average

From 1991 to 2015, agricultural land values in South Dakota, and in most other major agricultural production states, appreciated each year. In 2016 on average all agricultural use land decreased in South Dakota except rangeland, which will be discussed in a future article.

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Decrease in Gross Cash Rent to Value Ratio: What does it mean for SD land investors?

The current average cash rent to value rates of return on agricultural land in South Dakota remain very low. The rent to value (RTV) ratio is calculated by taking the cash rent per acre divided by the land value per acre. This calculation is an approximation for how rapidly an asset will pay for itself. The 2016 average RTV of land value was 2.7% for all agricultural land. Categorically, the average was 3.3% for cropland, and 2.4% for rangeland. During the 1990s, the same ratios were 7.4% for all agricultural land, 8.0% for cropland, and 6.8% for rangeland.

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Working Capital for South Dakota Farms

Many farms in South Dakota built working capital and financial reserves between 2009 and 2012, a recent period of relatively high returns. Since 2013 the strong working capital position has been on a downward trend. Figure 1 shows average working capital positon per acre of farms enrolled in South Dakota Center for Farm and Ranch Management (SDCFRM) program.

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Key Corn Production Costs Trends and Rent

Crop production costs have not adjusted to the decrease in revenues received from them. The major costs (direct and fixed) which include seed, fertilizer, machinery, management and labor and cash rent, have not decreased as much as the revenues that farm operators have received in recent years. The costs for 2015 did decline from 2014 with most of the decrease coming from fertilizer and cash rent. Cost control will need to continue in 2017 as revenues are down and Agricultural Risk Coverage (ARC-CO) payments will likely decrease.

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Crop Insurance Considerations

The variable moisture levels and growing conditions have led to wide disparity in crop progress and conditions. Farmers with crops that are either stressed by a lack of rain or being considered for alternative uses should consider the type and level of crop insurance coverage they purchased. Most field crops in South Dakota are covered by Federal crop insurance sold by private insurance agents. The most common product is Revenue Protection (RP). In several counties in Western South Dakota, dryland corn may be covered by Noninsured Crop Disaster Assistance Program (NAP), which is administered by the USDA’s Farm Service Agency.

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Crop Rental Rates Down for Second Year in 2016

This past year crop rental rates declined state wide compared to 2015. In 2015 the average rental rate for cropland across South Dakota was $145.10 per acre in 2016 the average was $141.00 per acre. This is a 2.8% decrease in the cropland rental rate state wide. This follows up a 3.3% decrease in 2015 as well. Some regions, such as the Northeast had greater decreases (12%), while others such as the Southwest had lower decreases (1.9%). The continuation of the decrease in crop rental rates is likely due to the current economic conditions.

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