North Dakota sees very large increase in land values

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

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, even exceeding what occurred from 1973 to 1981," 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 well-documented. Grain prices from 2007 to the present have been much higher than any year prior to 2007.

Also, yields generally have been strong. For example, the three highest wheat yields ever have occurred within the past four years. This combination has provided several years of strong profit for crop producers, which has fueled their financial ability and desire to buy land.

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.

A factor that has been just as important in driving land values has been low interest rates.

Interest rates to finance land purchases are attractive, while returns and confidence on alternative investments have been weak.

Ten years ago, an acceptable return on land investment (cash rent minus real estate taxes divided by land value) was about 6 percent. Now it is about 3 percent. If buyers insisted on a return of just one percentage point more, to 4 percent, land values would have to drop by one-fourth, assuming constant cash rents and real estate taxes.

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.

"Obviously there has been very strong interest in land," Swenson says. "Many producers and investors have the financial wherewithal to bid on land, which will tend to underpin land values. After the strong increase in land prices, any softening could be seen as a buying opportunity."

The largest increase in cropland values (January 2012 to January 2013) was about 60 percent in the east-central region (to $2,295 per acre) and the northeastern region (to $1,990), followed by increases of 56 percent (to $3,427) in the northern Red River Valley and 47 percent in the north- central region (to $1,517). There was a 30 to 40 percent increase for the northwestern region (to $867), south-central (to $1,343), southern Red River Valley (to $4,180) and southeastern region (to $2,925). The smallest increase per acre, about 23 percent, occurred in the southwestern region (to $1,001).

"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."

The largest increases in land rent, nearly 19 percent, occurred in the south- central region (to $56 per acre) and the northern Red River Valley region (to $90.90). The average rent increased 17 percent (to $65.50 per acre) in the east- central region. Cropland rents increased about 15 percent in the northeastern region (to $54.40) and the southeastern region (to $92.20) and increased 14 percent in the southern Red River Valley (to $114.70). The smallest increase in land rent rates, 4 to 5 percent, occurred in the northwestern region (to $34.90), north-central region (to $48.10) and southwestern region (to $36.20).

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.

Prev 1 2 Next All

Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...

Comments (2) Leave a comment 

e-Mail (required)


characters left

Tim DeKrey    
Steele ND  |  April, 04, 2013 at 11:02 PM

I am 57 years old and worked in ag lending in the 80's to support my farming habit, most of my friends who survived the times are firmly convinced " it's over " we just don't know it yet.$ 5.00 wheat$ 4.00 corn $ 8.00 beans coupled with 6-8% interest will chew up the best balance sheets as next year if these prices materialize crop insurance will only cover about 1/2 of expenses. I don't know how many operations can sustain $150.00/acre plus, cash losses for very long. Were going to soon return to 'Last man Standing"agriculture.

farms  |  April, 08, 2013 at 02:55 PM

it's daunting. what i fear is the "hedge-funds" & what-have-you , will scoop up land on the distressed side. AT THAT POINT, no individual will be able to buy farmland. the big money funds will own it all. then look out. your food will cost a lot more. people read the news and think farmers are getting rich. not so. it's the 20 big food processing companies and Monsanto. and all the big money funds. sad to see what's coming. the end of ownership of the land by the citizens. very sad/

Smooth Wall Grain Bins

Meridian’s SmoothWall bins are the ultimate storage bins, used to handle and store fertilizer, grain, feed and seed, and extend ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form