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Rates of Return to Pasture and Cropland Diverge

BROOKINGS, S.D. - The gross rate of return to pasture versus cropland widened in 2018 to a 1.1 percentage point difference compared to 2017.

Pasture/rangeland gross rate of return reported in the 2018 survey is 2.4 percent and for non-irrigated cropland is 3.5 percent compared to 2017 rates of return at 2.8 percent for pasture and 3.5 percent for non-irrigated cropland.

The gross rate of return (gross cash rent as a percent of land value) is used to estimate current rates of return to land. It is calculated from respondent's reported average cash rental rates and their estimated values of leased land.

This is a measure of the gross rate of return obtained by landlords, before deduction of property taxes and other landlord expenses. The 1991 to 2018 trend in the gross cash rent-to-value ratio is depicted in Graph 1.

A chart with two lines depicting rent-to-value ratio percentages from 1990 to 2018.
Graph 1. Gross Rent-to-Value Ratio 1991-2018.

This is the eighth consecutive year that the gross rates of return for cropland has been 4.0 percent or lower, compared to an average of 5.5 percent from 2000-2009 and 7.4 percent during the 1990's (Graph 1).

The gross rent to value ratio generally follows interest rates. As interests rise we would expect land values to decrease greater than rental rates and the gross rate of return to land increase.

For more information, view the complete publication, South Dakota Agricultural Land Market Trends, 1991-2018.

South Dakotans can also contact the following SDSU Extension staff:

  • Jack Davis, SDSU Extension Crops Business Management Field Specialist
  • Heather Gessner, SDSU Extension Livestock Business Management Field Specialist 
  • Shannon Sand, SDSU Extension Livestock Business Management Field Specialist.

Disclaimer: The information in this article is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author(s) and South Dakota State University disclaim any responsibility for loss associated with the use of this information.