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Hot North Dakota Land Market Cools Off

TAGS: Soybeans
Hot North Dakota Land Market Cools Off
Values up only 8% in 2013 compared to 42% in 2012.

The hot farm land market in North Dakota cooled off significantly during 2013, according to Andrew Swenson, North Dakota State University Extension Service farm management specialist. "Land values showed about an 8% increase from the previous survey, compared with a 42% increase during 2012," Swenson says. "It is quite possible that land values peaked in the last few months of 2013, when the financial impact of lower crop prices became more evident, especially in the Red River Valley, where two major crops, corn and sugar beets, had negative returns, on average."

Swenson's estimate is based on a January 2014 county survey commissioned by the North Dakota Department of Trust Lands.

Hot North Dakota Land Market Cools Off

According to the survey, land values in the northern Red River Valley region declined 4% (to $3,283) from January 2013 to January 2014 after a 56% increase the previous year.

All other regions had positive year-to-year results, with the lowest being 3% (to $4,319) in the southern Red River Valley counties and (to $2,058) in the northeastern region.

"Unless crop prices have a significant rally, it is likely that next year's survey will confirm that the historic 11-year run in land values, averaging an annual increase of 15%, is over," Swenson says.

The reality of crop price declines was abrupt. In 2013, net farm income dropped more than 80% in the Red River Valley and approximately 50% in the rest of the state, according to results from those enrolled in the Farm Business Management Education program.

Estimated average cash rent per acre of cropland in North Dakota from 2008 to 2014. Source: NDSU

"In addition, 2014 projected crop budgets were sobering," Swenson says. "Producers and their bankers are more cautious about jumping on the land escalator. However, if interest rates remain low and cash prices stabilize above $4 per bushel for corn, $11 for soybeans and $6.50 for wheat, it is possible that land values may have a soft landing."

The largest increase in cropland values (January 2013 to January 2014) was about 28% (to $1,278) in the southwestern region, nearly 15% (to $1,738) in the north-central region and 13% (to $1,523) in the south-central region. Three regions, east-central (to $2,490), southeastern (to $3,183) and northwestern (to $950), had increases of 8 to 10%.

"The survey indicated that land rents, as typical, did not change as much in%age as land values," Swenson says. "On average, cropland rents increased about 4% (January 2013 to January 2014)."

EPS - Estimated average per-acre values of cropland in North Dakota from 2008 to 2014. Source: NDSU

Surprisingly, the largest increase was 8% (to $124.20) in the southern Red River Valley. The average rent increased about 7% (to $60.10) in the south-central and (to $38.50) southwestern regions. Rents increased 4 to 5% (to $49.90) in the north-central, (to $56.70) in the northeastern and (to $96.80) in the southeastern regions. Crop land rent only increased by 2% (to $66.90) in the east-central region and had slight declines (to $34.70) in the northwestern region and (to $89) the northern Red River Valley.

Swenson issues one caution: Values and rents are averages for large multicounty regions. Prices can vary considerably within a region because of soil types, drainage and location.

Source: NDSU

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