April 12, 2002

2002 Crop Land Values and Rents Increase in North Dakota

A recent survey of crop land values and rents showed the greatest annual percentage increase since 1997, according to Andrew Swenson, extension farm and family resource management specialist at North Dakota State University. However, Swenson says, land values from 1998 through 2001 were generally flat, with 1998 and 1999 actually showing small declines on average.

Swenson bases his calculations on surveys conducted by the North Dakota Agricultural Statistics Service.

The 2002 per acre crop land value in the north Red River Valley region jumped 10 percent to $750, after declining five of the previous six years. The values in the southwest central region at $338, and the northeast central region at $399, increased 6 percent and 5 percent, respectively, from 2001. The values in the south Red River Valley region at $898, the southeast central region at $437, and the southwest region at $292, all increased between 2 and 3 percent. The northwest central region at $406 had a more modest increase of less than 2 percent. The northwest was the only region to experience a decrease in the crop land value, $338, and the cash rent, $25.30. Both declined 1 percent from 2001.

Swenson believes the reasons for the increases are three-fold. "First, net farm income in 1999 and 2000 were much improved from the 1997-1998 period. Although average net farm income for 2001 declined over 30 percent, as estimated from North Dakota Farm Business Management summaries, it was probably not fully realized at the time of the January land value survey," he says.

There also tends to be a lag in the response between net farm income and land values. For example, last year Swenson says he was surprised at the increase in land values in the northwest and northwest central regions because the profitability of the major enterprise, durum, had been challenging. "This year, however, the delayed response was evident as those regions posted the poorest land value performance," he says.

"A second reason for the increase in land values is that farm real estate is providing a higher rate of return than many alternative investments," he says. A third reason is the ongoing trend towards larger farms as producers bid to acquire more land in an attempt to spread fixed costs over more acres and to gain market power for purchasing inputs.

Swenson predicts land prices will be relatively flat the next few years, with more downside risk than upside potential. "The price of cropland ultimately must reflect the profitability of crop production. Projecting crop profitability is as difficult as predicting the weather and the health of world economies, the major determinants of supply and demand for food, respectively," he notes.

Prices are projected to remain low for the 2002 crop year, but a positive is that certain input costs are likely to be lower. Government farm policy, currently in debate, is a major determinant of land values. Federal subsidies have provided about 100 percent of net farm income the past four years, replacing income lost due to low prices. Subsidies are based on production and land, thereby providing an incentive for producers to acquire more acres. "Obviously, any reduction in federal support would be negative for land values," Swenson says.

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Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu

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