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April 7, 2005 North Dakota Cropland Values Increase Rapidly to All-time High A recent survey indicates that North Dakota cropland values increased about 11 percent in the last year. “Values have increased at an accelerating rate each of the past five years and last year smashed the previous record high of about $530 per acre set in 1981,” said Andrew Swenson, North Dakota State University Extension Service farm and family resource management specialist. “Cropland rents also increased, but at a more modest rate.” Swenson bases his calculations on surveys conducted in January by the North Dakota Agricultural Statistics Service. Therefore, any land value changes this spring are not captured. The annual percentage increase in cropland values was the greatest in nearly 30 years. The strongest increase, 26 percent to $947 per acre, occurred in the north Red River Valley region. The southwest and southwest-central regions had increases of 13 percent to $376 and $418 per acre, respectively. The south Red River Valley at $1,141, the southeast-central region at $599 and the northwest-central region at $476 represented increases between 8 percent and 11 percent from the previous year. Cropland value in the northwest and northeast-central regions increased 6 percent to $380 and $499 per acre, respectively. Swenson cautions that the values are averages for large, multicounty regions. Land values vary considerably within a region. Land rents increased at a much lower rate, about 2.5 percent statewide. than land values. The largest increase was 9.5 percent to $53.30 in the north Red River Valley region. In the previous year’s survey, this was the only region that showed a decrease. In addition, rent variability typically is greatest within this region because of differences in land productivity. Cash rents increased about 5.5 percent to $34.60 in the northwest-central region. The southwest-central and northwest regions experienced increases of about 3 percent to $29.40 and $26.70 per acre, respectively. Cash rents stayed approximately the same in the northeast-central ($34.40), the southwest ($25), the southeast-central ($39.40) and the south Red River Valley ($62.50). Swenson expects land values to increase again this year, but at a slower pace. “Beyond this year it is hard to tell,” Swenson says. “Land values have increased every year since 1988, except for slight declines in 1998 and 1999. However, history has shown that the value of farmland does not always increase. North Dakota farm real estate values declined nearly 70 percent over a 21-year period from 1920 to 1941. In recent history, cropland values dropped 40 percent over a six-year period from 1981 through 1987.” Farmers have pursued land aggressively because of decent farm profit, low interest rates and the desire to spread fixed costs over more acres. However, land values seem to be increasingly propelled by issues beyond farm level economics. “Most Realtors agree that more outside investor money is going into North Dakota land,” Swenson says. “Some investors are dissatisfied with the stock market and are looking for diversification into real estate.” Land values have been bid up at a faster rate than land rents. This indicates a willingness to accept a lower return from land than in the past because of unsatisfactory returns available from competing investment opportunities. There has been strong demand for land to be used for recreational purposes. This may have a greater impact on rangeland, but is certainly a factor in Conservation Reserve Program and marginal cropland. Another important factor cited by realtors are people buying farmland to use Section 1031 exchanges to defer capital gains taxes. “Other than speculation, it is hard to understand why farmers would be bullish on land in the near-term because of the current outlook on crop prices, spiraling production costs and the uncertainty surrounding future federal farm subsidies,” Swenson says. “Important predictors of future land values will be interest rates and the health of the economy. A rise in interest rates makes debt-financed purchases of land more difficult and increases producer costs, making it more difficult to support current rent levels. If land rents do not rise in concert with interest rates, the attractiveness of farm land will decline, compared with interest-bearing investments.” ### Source:
Andrew Swenson, 701) 231-7379, aswenson@ndsuext.nodak.edu
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