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Published August 13, 2012, 10:37 AM

Pushing 30

Farmland values and rental rates continue to soar nationally, more in the Northern Plains than anywhere else.

By: Mikkel Pates, Agweek

FARGO, N.D. — Farmland values and rental rates continue to soar nationally, more in the Northern Plains than anywhere else.

Annual regional increases are nearing the 30 percent level in North Dakota and surrounding states, according to the National Agricultural Statistics Service annual farm real estate survey report, issued Aug. 3.

The “all land and buildings” category for U.S. farms averaged $2,650 per acre in 2012, according to the annual survey. That’s up 10.9 percent from revised 2011 levels.

The Northern Plains led the way with increases from 2011, at 26.7 percent, while the Southeast had the biggest decline — 4.1 percent.

“Those are pretty strong increases in the Northern Plains,” says Andrew Swenson, a farm management economist with the North Dakota State University Extension Service.

The survey is consistent with other surveys on land values, including one by the North Dakota Agricultural Statistics Service released in January that offers county-by-county break-downs.

Results in the NASS Aug. 3 report are based on a survey taken during the first two weeks of June, using 11,085 land areas, averaging about one square mile.

The national report on cropland showed the Corn Belt had the highest real estate values, at $5,560 per acre. U.S. cropland values increased by $450 an acre, or 14.5 percent, to $3,550. Northern Plains values increased 31.1 percent and 18.5 percent, respectively. U.S. pasture values increased 4.5 percent to $1,150 per acre. With competition from corn, values in the Northern Plains increased by 21.9 percent.

Here are regional highlights.

All cropland

Northern Plains (Kansas, Nebraska, North Dakota and South Dakota) cropland values increased by 30.4 percent to $2,360. Nebraska led the way with a 35.8 percent increase, but North Dakota posted a 29.8 percent increase to $1,350 per acre and South Dakota had a 24.7 percent increase to $2,320 per acre.

Lake states (Michigan, Minnesota and Wisconsin) cropland values increased by 16.9 percent, led by Minnesota, with a 24.6 percent increase to $4,050. Mountain states increased 5.2 percent, including an increase of 5.7 percent for Montana, to $853 per acre.

Within South Dakota’s 24.7 percent increase in cropland values overall, the nonirrigated land increased by 24.3 percent. No similar statistics were reported for North Dakota or Minnesota because of the relatively few irrigated acres. Within Montana’s 5.7 percent increase in cropland values, nonirrigated land increased 7.9 percent.

Average North Dakota pastureland values increased 19.5 percent to $490 per acre. South Dakota averages increased 25.5 percent to $590 per acre. Minnesota pastureland values were up 7.1 percent to $1,500 per acre. Montana pasture value increased 7.5 percent to $570 per acre.

Land rentals

A separate, related NASS report on cropland rental values was released the same day.

North Dakota cash rent on nonirrigated cropland increased to an average of $57 an acre, up from $51 in 2011. Irrigated land rent went to $155, up from $132. Pasture rent increased 4 percent to $14 an acre.

Minnesota nonirrigated cash rent increased to $150 an acre, up from $135 in 2011. Irrigated land cash rents increased to $200 an acre from $160. Pastureland average rent was $24.50 per acre, up from $21.50.

South Dakota nonirrigated cash rents went to $93 per acre, up from $78 in 2011. Irrigated land rented for $165 an acre, up from $140 per acre a year earlier. Pastureland rents averaged $17.50 per acre, up from $16.

Montana nonirrigated farmland was $23 per acre, down from $23.50 in 2011. Irrigated land rented for $80 an acre, up from $72 an acre in 2011. Pastureland went for $5.90 per acre, up from $5.60 the previous year.

Nonirrigated cropland rental rates have more than doubled in 10 years.

Swenson says people continue to wonder how high the land values will go, or whether the bubble will burst anytime soon, as it did in the high-tech market around 2000 and the housing market in the late 2000s.

The price of land could falter if commodity prices come down or interest rates go up.

The last big collapse happened when farmland values peaked at $530 per acre for cropland in North Dakota in 1981 and started dropping in 1982. Prices dropped to $318 per acre in 1988, the first of two years of drought in North Dakota, Swenson says.

Swenson sees a few factors influencing farm land values and rental rates. First, much of the farm land purchased in recent years has had a sizeable down payment.

“Farming has been strong in the past few years,” Swenson says. “To have a lot of land come on the market there’s got to be a reason.”

Second, commodity prices seem to be steady heading into 2013 because of the drought in 2012.

Third, if the 2013 crop is large, it could put downward pressure on land values, especially if some of the demand for feed is down because of liquidation of livestock herds.

Last, land values tend to go up and drop faster than rental rates do. This lag is partly a result of multi-year contracts and partly of landlords and renters wanting a stable arrangement.