North Dakota cropland values flat to down

This information taken from an NDSU Extension press release.

A report recently released  by the North Dakota State University (NDSU) Extension program illustrated a decline in North Dakota cropland value of 1 percent.

Posted 4/14/2017

By Melissa Anderson

The report released in a January survey commissioned by the North Dakota Department of Trust Lands was another indication of just how badly the North Dakota agricultural community has been hit by the recent slump in agriculture.

Andrew Swenson, NDSU Extension Service farm management specialist, derived regional and state average cropland values and rents from the published results of the county-level survey.

Earlier reports suggest a greater loss of land value during 2016. A June 2016 U.S. Department of Agriculture survey showed a 7 percent decline in North Dakota cropland values, and a report by the North Dakota Chapter of the American Society of Farm Managers and Rural Appraisers indicated an 8 percent decline during 2016.

Swenson suggests that one reason the January survey indicated a more modest decline could be that it more fully reflected the impact on land values and rents from stronger-than-expected 2016 net farm income due to record corn and soybean yields. Soybeans and corn shattered previous record North Dakota yields by 14 and 20 percent, respectively. Also, soybean-harvested acreage was a record and corn acreage was the third highest in history.

The most recent county-level survey indicated that cropland values (January 2016 to January 2017) were the strongest in the south Red River Valley region, increasing 5.5 percent (to $4,083), and the northwest region, increasing 3.8 percent (to $1,230). The east-central and north Red River Valley regions showed a 2.3 percent increase to $2,061 and $3,035, respectively.

The southwest region had the greatest decrease, with only 7 percent (to $1,326), followed by the south-central region with a 4.5 percent decrease (to $1,597). Regions with declines ranging between 2.7 and 3.6 percent were the northeast (to $1,704), the southeast (to $2,827) and the north-central (to $1,682).

The survey indicated that average cash rent per acre for cropland increased by about 2 percent from January 2016 to January 2017, after a 3.4 percent decline the previous year. The greatest increases were 4.4 percent in the southeast region (to $99.80) and 3.8 percent in the northeast (to $58.40). There was about a 3.2 percent increase of cropland rent per acre in the south-central region (to $58.70).

All other regions showed an increase between 1 and about 2 percent. The average cropland cash rent per acre increased to $38.40 in the southwest, to $89.60 in the north Red River Valley, to $67.60 in the east-central region, to $36.40 in the northwest, to $124.60 in the south Red River Valley and to $51.20 in the north-central region.

After three years of declining land values, Swenson believes that the land market still is adjusting in the aftermath of an 11-year period, from 2003 through 2013, when cropland values averaged an annual increase of 15 percent, the strongest sustained run-up in cropland values during the past 100 years.

“Producers are in a dangerous financial environment because crop prices have dropped faster than production costs,” says Swenson. “Agriculture is a competitive industry, and during several years of strong crop prices, which peaked in 2012, producers were willing and able to spend more on production inputs, including land.”

He adds, “On average, this resulted in a doubling of production costs per acre over an eight-year period, from 2004 to 2012. Overall production costs peaked in the 2013 to 2014 time frame and have been declining but not fast enough to project profits. Strong yields in 2016 provided a temporary relief to the downward pressure on land values and rents. However, producers cannot bank on record yields each year and face continued pressure to reduce production costs, somehow, unless crop prices strengthen.”

The expectation of higher interest rates is another negative to land values. Higher interest rates not only increase a producer’s borrowing costs on operating loans but also typically decrease what land buyers are willing to pay to achieve a higher desired rate of return.

The decrease in ag land value could not have come at a worse time as the state and by extension counties, face budget woes. Cavalier County budgets in dollar amounts that are then translated into mills. Cavalier County Auditor Lisa Gellner explained that  The lower the values are for taxable properties such as ag land, as well as commercial and residential properties, the more mills it takes to cover the budget.

“If values are lower, more mills are needed to reach the dollar amount budgeted,” Gellner said.

Taxes have always been an area of concern, and some may wonder if as a result of the decrease in value, taxes will go up. Gellner addressed this by stating that tax increases would be  dependent on the dollar amount needed to fulfill the budget, as well as the total taxable value as a whole for the county.

While ag land values have yet to be to be reviewed to determine if the 2017 values have declined, residents of the county can take comfort in knowing that their tax dollars go towards maintaining necessary items of life such infrastructure and public school.

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