NDSU Extension Service - Mercer County

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N.D. Sees Very Large Increase in Land Values

North Dakota, land values

Submitted by Craig Askim, Extension Agent, Agriculture and Natural Resources

North Dakota cropland values increased by about 42 percent during 2012, according to Andrew Swenson, North Dakota State University Extension Service farm management specialist.

His estimate is derived from the published results of a January 2013 county- level survey commissioned by the North Dakota Department of Trust Lands. The 42 percent increase is similar to the 46 percent increase reported by the North Dakota Chapter of the American Society of Farm Managers and Rural Appraisers.

"The question is whether this huge increase has capped a 10-year rise in land values, which has been the largest in the past 100 years,” Swenson says. "North Dakota cropland values are now the highest ever, even when adjusting for inflation."

The drivers that have pushed land values have been grain prices from 2007 to present.  Also, yields generally have been strong. For example, the three highest wheat yields ever have occurred within the past four years and high commodity prices in general.

Swenson believes 2012 was the apex in North Dakota crop production profit because stored soil moisture provided much better yields than expected. At the same time, prices soared due to a drought in the Corn Belt. Another factor in driving land values has been low interest rates.

If a general rise in interest rates occurs, being able to cash flow land purchases with debt capital becomes more difficult. Also, certain fixed-return investments may become more attractive relative to investing in land.

"This perfect storm of high crop prices and yields and low interest rates driving land values higher will not continue indefinitely," Swenson says. "In fact, there are strong indications that 2013 crop prices will be significantly lower than in 2012. In addition, government subsidies for agriculture are expected to diminish, if not in 2013, then most certainly in 2014."

For example, direct payments average about $10 per cropland acre in North Dakota. If they are eliminated, the eventual impact on average land values could be a reduction of $200 to $300 per acre. However, Swenson does not expect an immediate sharp drop in land values, even if crop prices, yields and/or interest rates turn somewhat less favorable.

The survey indicates that land rents, as typical, did not change as much in percentage as land values," Swenson says. "On average, cropland rents increased about 12 percent, which was a very strong increase from a historical perspective.  "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.

In Mercer County

The survey shows that non-irrigated crop rental rates rose from an average of $36.60 in 2011 to $37.30 in 2012 however; the five year average from 2008 to 2012 was $33.50. Pasture rates rose from an average of $14.30 in 2011 to $15.10 in 2012, with the five year average at $13.90. Alfalfa hay land rents rose from $26.60 in 2011 to $27.50 in 2012 with tame hay rental rate rising from $21.40 in 2011 to $22.40 in 2012, all about a 9% to 10% increase.

However; non-irrigated land values increased from an average of $532.00 in 2011 to $584.00 in 2012. Pasture land rose from $379.00 in 2011 to $413.00. Alfalfa hay land rose from $606.00 in 2011 to $660.00 in 2012. While tame hay land rose from $541.00 in 2011 to $620.00 in 2012.

For more information go to http://www.nass.usda.gov/nd/.

Source:  Andrew Swenson, (701) 231-7379, andrew.swenson@ndsu.edu

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