Strong yields in North Dakota in 2016 provided a temporary relief to the downward pressure on land values and rents.
A decline in North Dakota cropland value of 1% was indicated by a January survey commissioned by the North Dakota Department of Trust Lands.
Andrew Swenson, North Dakota State University 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% 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% 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%, 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% (to $4,083), and the northwest region, increasing 3.8% (to $1,230). The east-central and north Red River Valley regions showed a 2.3% increase to $2,061 and $3,035, respectively.
The southwest region had the greatest decrease, 7% (to $1,326), followed by the south-central region with a 4.5% decrease (to $1,597). Regions with declines ranging between 2.7% and 3.6% 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% from January 2016 to January 2017, after a 3.4% decline the previous year. The greatest increases were 4.4% in the southeast region (to $99.80) and 3.8% in the northeast (to $58.40). There was about a 3.2% increase of cropland rent per acre in the south-central region (to $58.70).
All other regions showed an increase of 1% to 2%. 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.
Swenson believes that after three years of declining land values, 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%, 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, Swenson says.
Source: NDSU Extension Communications