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N.D. Cropland Values Follow Grain Prices

Estimated average cash rent per acre of cropland in North Dakota from 2005 to 2011. Estimated average cash rent per acre of cropland in North Dakota from 2005 to 2011.
Estimated average per-acre values of cropland in North Dakota from 2005 to 2011. Estimated average per-acre values of cropland in North Dakota from 2005 to 2011.
Buyers and renters should not be blinded by the many positives and ignore potential negative outcomes that could occur.

A strong uptrend in North Dakota cropland values and rents started in 2004 and accelerated with higher grain prices starting in 2007.

Grain prices peaked in 2008. Farm profit was the highest in a generation, and land values increased 20 percent that year. However, crop prices declined into 2009, and the increase in land values slowed substantially.

“Unfortunately, from 2003 to 2008, production costs rose to record highs,” says Andy Swenson, North Dakota State University Extension Service farm management specialist. “Costs nearly doubled for many crops, which necessitated higher prices to make a profit.”

At the beginning of 2010, expectations were modest and it looked like land values would be relatively flat. They were flat through the first half of the year, but then circumstances for grain producers took an abrupt positive turn. Prices rallied because of less world grain production than expected and, with strong yields, North Dakota producers were able to take advantage of it. Land values and rents were reignited, and annual increases of nearly 20 percent for land and 10 percent for rent were indicated in a January 2011 survey.

Swenson bases his calculations on surveys conducted by the North Dakota Agricultural Statistics Service.

What does the future hold?

“Many economists have been wondering whether we have been working toward a bubble in the farm real estate market,” Swenson says. “If that is the case, we certainly blew the bubble bigger in 2010.”

However, Swenson thinks that 2010 was a lesson in how difficult it is to predict land values. There are many factors involved, but the big three on the demand side are projected profitability, financial capacity of potential buyers and interest rates. All came back into alignment about midway through 2010 to fuel the land market. All remain aligned for 2011. However, it can change quickly, especially profitability, as grain prices demonstrated in a positive way during 2010.

“In these heady times, buyers and renters should not be blinded by the many positives and ignore potential negative outcomes that could occur from a bumper world crop and/or a downturn in the world economy, a poor production year in North Dakota or rising interest rates,” Swenson says.“Also, the cost of raising a crop in 2011 will be the highest ever.”

North Dakota land values have increased by an annual average rate of about 12 percent during the past eight years, according to the January surveys from 2004 through 2011.

“There have been two instances during the past 100 years that have had similar periods of continuous, strong increases in land values,” Swenson says. “There was an eight-year period (1942 through 1949) that had average annual increases of 10 percent and a nine-year period (1973 through 1981) that averaged a whopping 18 percent annual increase.”

The largest increase in cropland values (January 2010 to January 2011) was 25 percent (to $1,202 per acre) in the east-central region, followed by increases of 24 percent (to $883) in the south-central region and 23 percent (to $2,628) in the southern Red River Valley. Cropland values increased 22 percent (to $920) in the north-central region, 21 percent (to $724) in the southwestern region and 20 percent (to $1,062) in the northeastern region. The northern Red River Valley had a 16 percent (to $1,792) increase and the southeastern and northwestern regions had 12 percent increases to $1,660 and $590 per acre, respectively.

“Land rents, as typical, did not change as much in percentage as land values,” Swenson says. “On average, cropland rents increased about 10 percent. This was a strong increase from the prior year’s 2 percent upward move.”

As with land values, the strongest increase (15 percent) occurred in the east-central region. The average rent is $51.70 per acre. Land rent rates increased an average of 11 to 12 percent per acre in the north-central region to $44, southern Red River Valley to $94.70, southeastern region to $74.90, northern Red River Valley to $71.60 and south-central region to $42.

The northeastern region increased 7 percent to $45.20 per acre. The southwestern region increased 6 percent to $33.10 per acre and the northwestern region had the smallest increase at 5 percent to $32 per acre.

Swenson cautions that the values and rents are averages for large multicounty regions. Prices can vary considerably within a region because of soil types, drainage and location.

NDSU Agriculture Communication

Source:Andrew Swenson, (701) 231-7379,
Editor:Rich Mattern, (701) 231-6136,
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