NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

January 21, 1999

Average N.D. Agricultural Land Value Increases; Six Counties See Decrease

The latest analysis of North Dakota's agricultural land values shows a increase, based on a statewide average, of slightly more than 3 percent, from $236.83 per acre to $243.99 per acre. However, the average value of agricultural land in six counties decreased for the 1999 assessments, says an agricultural economist with the North Dakota State University Extension Service.

"Cavalier, Eddy, Foster, Morton, Ramsey and Sioux counties showed decreases," says Dwight Aakre, extension farm management specialist at NDSU. "These six counties all reported an increased acreage of pasture land relative to cropland. That switch had the effect of lowering the average value of all agricultural land."

Increases generally ranged from less than 1 percent in Logan, McKenzie and Towner counties to about 6 percent in Hettinger, Nelson and Richland counties. Barnes County realized the greatest increase from 1998, a 7-percent jump from $318.05 per acre to $340.75.

The North Dakota Legislature has assigned the task of calculating the value of agricultural land by county to the NDSU agricultural economics department, Aakre says. These annual calculations are then provided to the North Dakota Tax Department.

Unlike residential, commercial and centrally assessed property, which are assessed based on market value, the assessment for agricultural land is based on the value of production, Aakre says. Officials at the county and township levels of government determine the assessed values of individual tracts of land using the NDSU county-wide averages.

Some tracts will be more valuable and some less valuable than the county average, Aakre says. But the total assessed value of land within a county must come within 5 percent (plus or minus) of a predetermined figure, which is the county's average value for agricultural land multiplied by the total acreage.

The NDSU analysis uses a seven-year average (the most recent nine years minus the high and low years) to calculate total gross returns on agricultural land. The landlords' share of gross returns is determined according to a formula outlined by the North Dakota Century Code, Aakre says. The landlords' share of gross returns is then divided by the annual capitalization rate to derive the average per acre land value for each county.

Also prescribed by state law is the calculation to determine the annual capitalization rate. It represents a 10-year average of interest rates charged for loans on agricultural land. Aakre says the capitalization rate peaked during the 1993-94 period at 11.40 percent and has been dropping ever since.

"The rate for the 1999 assessment is 9.77 percent, down from 10.14 percent last year," Aakre says. "As the capitalization rate declines, the result is higher estimated land values if productivity remains constant."

For the 1999 assessment, 32 North Dakota counties would have had lower land values if the capitalization rate had not changed because the average value of the crops and livestock produced in those counties dropped from 1998.

Aakre concludes, "Since 1994, more than half the increase in the estimated value of agricultural land in North Dakota has been due to the falling capitalization rate."

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Source: Dwight Aakre (701) 231-7378

Editor: Dean Hulse (701) 231-6136

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