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

April 22, 1999

Average N.D. Cropland Prices, Cash Rents Decline

The average value of North Dakota cropland declined 1 percent during the past year and now stands at $435 an acre. Meanwhile, average cash rent dropped 2 percent, to $32.80 per acre, according to Andrew Swenson, farm management specialist for the North Dakota State University Extension Service.

Swenson bases his calculations on recent surveys conducted by the North Dakota Agricultural Statistics Service. He says the decline is significant because it breaks a trend of increasing land values that dates to 1988.

"If history repeats itself, this could represent the start of a long-term downtrend because the trend shifts in the past have extended several years," Swenson says. "For example, land prices increased sharply from 1973 to 1981, decreased every year from 1982 to 1987, and then increased from 1988 to last year."

The decline in land values is reflective of the depressed agricultural economy. In recent years, land values have held up due to farmer demand, resulting from producers' seeking to spread fixed machinery costs over more acres and their need to farm more acres—at thinner margins—to provide for family living expenses. In addition, interest rates have declined, and the rate of return from cash rent is still competitive with conservative investments. Also, the Conservation Reserve Program has tended to put a floor under prices.

However, the price of cropland ultimately must reflect the profitability of crop production on the land, Swenson says. In 1997, net farm income was the lowest since 1984, and last year, despite an infusion of federal emergency aid and record yields for five crops, net farm income was the third lowest in a decade. The outlook for 1999 net farm income is bleak as well.

Estimates for 1999 show that average cropland values now range from $907 an acre in the south Red River Valley to $264 per acre in the southwest region of the state. Between those extremes are the northwest region at $332, the northwest central at $384, the northeast central at $404, the north Red River Valley at $767, the southeast central region at $420 and the southwest central region at $298. Values are down everywhere except in the northwest region, which saw a 1.8-percent increase from the 1998 average value of $326.

Likewise, average cash rents are down everywhere except in the northwest region. The range of averages now is from $58.50 an acre in the south Red River Valley to $22.20 in the southwest region.

Looking to the future, Swenson says many farmers will need to mend battered balance sheets before they can pursue land purchases aggressively, and because of the dim outlook for crop profitability, he expects land values to stay flat or decline further during 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 years ahead will be declining farm payments under the current farm bill," Swenson concludes. "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 about entering into any long-term rental contracts at current land rents."

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Source: Andrew Swenson (701) 231-7379

Editor: Dean Hulse (701) 231-6136

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