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North Dakota Land Values Rise 20%

Ag Statistics survey shows biggest percentage increase since 1974.

North Dakota land values increased 20% in 2007. 20% increase in land values in North Dakota in 2007.

Average cropland values rose approxiamtely $140 per acre to nearly $800 after increasing roughly $50 per acre for the previous four years, according a survey conducted by the North Dakota Agriculture Statistics Service.

"Last year's increase indicates an extremely strong land market," says Andrew Swenson, NDSU Extension farm management specialist. "In fact, there is only one other period, 1973-1980, in the past 60 years that can match it. Last year's percentage increase was the greatest since 1974."

The increase in rents, averaging 10%, also was very high historically, although the rate of increase was much lower than for cropland values.


"Looking at historic data, one could make the argument either way about the future direction of land values," he says. "One could argue that a bubble is forming because land values have broken record highs each of the past three years and the rent-to-land value ratio is similar to historic lows, which occurred in 1981, just prior to the last crash in land values.

"Conversely, it could be argued that the rent-to-land value ratio could return to more historic norms by rents rising, not land falling," he says. "Also, in today's dollars after adjusting for inflation, the 1981 cropland value equates to over $1,200 per acre, which is far above current land values. Lastly, the worldwide demand for North Dakotan-grown crops, whether for food or energy, looks strong into the future."

He adds that as with any market, predicting what land values will do next year is impossible; however, no one can deny that the momentum is strong. Some positive factors are ability to pay, interest rates and projected profitability. Last year was probably the most profitable in a generation for crop producers, which enhanced their ability to pay for land. Also, current interest rates and projected crop profitability are attractive.

Some unforeseen circumstances would have to occur to put a halt on the upward trend in land values, according to Swenson. The enthusiasm for land may be tempered, though, by the fact that projected profitability does not always translate into realized profitability. Major concerns going into the 2008 crop year are costs that are far above previous historic highs and dryness in most of the state. The rise in production costs during the past several months has been unprecedented and increases financial risk if crop yields and/or prices decline. Crop prices would be affected adversely if ethanol production becomes unprofitable, the global economy contracts or a strong increase occurs in production worldwide.

Regional differences

The largest increase in land values was in the south-central and south-eastern regions. The south-central region had very profitable crop production in 2007 after suffering drought in 2006. The average cropland value increased 30%, to $625. Land values in the southeastern region increased 27%, to $1,146. This region has experienced the largest increase during the past five years.

Cropland values at the opposite ends of the state -- the north Red River Valley and the southwest -- increased 23%, to $1,307 and $528 per acre, respectively. The average value of cropland in the northeast was $706, a 20% increase.

The increase in cropland values ranged from 14% to 17% in the northwestern, east-central, north-central and southern Red River Valley counties to $451, $730, $634 and $1,689 per acre, respectively.

The rate of increase in per-acre cropland rents was the highest in the southeastern region, 17% to $59.60, and in the south-central region, 15% to $33.30. Rents increased 10% to 13% in the east-central, southwestern, north Red River Valley and northwestern regions to $42, $29.40, $59.60 and $30.20, respectively. Rents increased 7% to 8% in the southern Red River Valley, north-central and northeastern regions to $72.90, $37.60 and $39.40, respectively.

Swenson cautions that the values and rents are averages for large multicounty regions. Prices can vary considerably within a region, he says.

Source: NDSU Extension Service

TAGS: Extension
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