NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
April 30, 1998
The average value of North Dakota cropland rose 1.5 percent during the past year and now stands at $436 an acre. Average cash rent also rose 1.5 percent, to $33.50 per acre, according to Andrew Swenson, farm management specialist for the North Dakota State University Extension Service, who bases his calculations on a recent survey by the N.D. Agricultural Statistics Service.
In view of last year's terrible farm economy and projected low farm profits again this season, some may wonder why land values and rents are still rising. The average value of North Dakota cropland is now at a 10-year high, though it is still well below the record high of $530 an acre in 1981.
"Although land values did decline in some regions, I'm surprised that they have held up so well statewide, considering the severe drop in net farm income in 1997," says Swenson. "That was the worst farming year since 1989 in most areas of the state, and probably the worst in a generation in some places. Yet land values went up in some of those same areas, which means there must be some offsetting factors."
Swenson speculates that four things may help explain why land prices are at their present level:
n CRP has tended to put a floor under prices.
n Interest rates are low and at current cash rents land is still providing a rate of return competitive with conservative investments.
n The state's economy in general is doing very well and historically land is considered a good hard asset, so more people who aren't farmers may be purchasing it.
n It's true that the dollar value of cropland has continued to climb, but the value in real terms—that is, considering inflation—has remained flat for the last ten years. In short, land values aren't quite so high as they may appear at first glance, compared to years past.
Cropland values ranged from $918 an acre in the south Red River Valley to $271 per acre in the southwest region of the state. Between those extremes were the northwest region at $326, the northwest central at $414, the northeast central at $410, the north Red River Valley at $768, the southeast central region at $427 and the southwest central region at $313.
Values were up everywhere except in the northeast central region, where they were down 3 percent, and in the northwest central region, down 1.5 percent. The biggest increase was 5 percent, in the south Red River Valley.
Average cash rents were up everywhere except in the northeast central region and north Red River Valley where they fell an inconsequential amount. They ranged from $59 an acre in the south Red River Valley to $22.70 in the southwest region.
"Typically, land values are greater in the eastern part of the state and decrease toward the west," says Swenson. "This is the first year I've noticed an exception: average cropland value in the northeast central region is slightly less than in counties lying to the west, in the northwest central region."
Because many farmers need to mend battered balance sheets before they can pursue land purchases aggressively, and because of the dim outlook for crop profitability, Swenson expects land values to stay flat or decline in the next several years, especially for less productive land and land that is difficult to farm.
"A very important factor affecting land value and rent in the next four years will be declining farm payments," he says. "In the year 2000, payments will be about 90 percent of current levels, in 2001 and 2002 about two-thirds of current levels—and then they will be terminated. If the economics of crop production does not improve before then, there will be a significant downward adjustment in cash rents at the end of the current farm bill.
"Producers should be cautious," he says, "about entering into any long-term rental contracts at current land rents."
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Source: Andrew Swenson (701) 231-7379
Editor: Barry Brissman (701) 231-7866
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Click here for a pdf version of this graphic.