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Published April 28, 2014, 11:24 AM

Maintaining the rental rate increase

Even sharply lower grain prices didn’t stop the long upward push in North Dakota cropland rental rates. But continued poor prices or poor yields this fall will cause rates to stabilize or even decline, officials say.

By: Jonathan Knutson, Agweek

Even sharply lower grain prices didn’t stop the long upward push in North Dakota cropland rental rates. But continued poor prices or poor yields this fall will cause rates to stabilize or even decline, officials say.

Many counties across the state saw a 5 to 8 percent increase in per-acre cropland rental rates from 2013 to 2014, according to a recently released survey commissioned by the North Dakota Department of Trust Lands.

The annual survey, conducted in late January by the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture, is used by some North Dakota farmers and landlords to help set farmland rental rates.

Rates have risen across the state since 2007 because of high crop prices and strong farm profitability.

Crop prices and profit margins have plunged in the past year, however, leading farmers and others to wonder whether rental rates would fall, too.

A year ago, spring wheat averaged $7.80 per bushel and corn averaged $5.72 per bushel at area grain elevators surveyed weekly by Agweek. This year, spring wheat averages about $6.90 per bushel and corn $3.90 per bushel at the elevators.

The most recent annual rental increase “is a bleed-over from the higher crop prices we had before,” says Bob Wisness, an Arnegard, N.D., farmer and president of the North Dakota Grain Growers Association.

Farmland rental rates often are described as “sticky,” which means they’re relatively slow to rise and fall in response to changes in farm profitability. So the 2014 increase doesn’t yet fully reflect the drop in crop prices and farm profitability, Wisness and others say.

Another factor in play, at least in some counties, was the double-digit percentage increase in rental rates from 2012 to 2013. That increase reflected the combination of strong crop prices and generally excellent yields across most of the state in 2012.

Typically, rental-rate increases tend to be muted in areas that experienced a major increase the previous year, says Andy Swenson, farm management specialist with the North Dakota State University Extension Service.

That’s apparently what happened in some counties in the northern Red River Valley of North Dakota, where rental rates generally rose only slightly or even fell in 2014 after big increases a year earlier, he says.

Sugar, corn

Plunging sugar prices also affected rental rates in the northern Red River Valley, where sugar beets are a major crop, Swenson says.

On the other hand, Swenson says he was surprised to see continued increases in rental rates in the southern Red River Valley, an area where sugar beets and corn are raised and already saw substantial increases.

Richland County, in extreme southeast North Dakota, typically leads the state in average per-acre cropland rental rates. One reason is that the county’s climate is well-suited for corn, which normally grosses more money per acre than most other crops grown in the state.

An acre of Richland County farmland rented for an average of $135.60 in the 2014 survey, up from $129.50 in the 2013 survey and $82.20 in the 2008 survey. Using those numbers, a 100-acre field that rented for $8,220 in 2008 rented for $12,950 in 2013 and $13,560 in 2014. That’s an increase of $5,340, or 65 percent.

Keep in mind the survey numbers are averages based on responses from about 2,000 ag producers statewide. Factors such as drainage, size of the field and local competition for land affect rental rates within each county. Also, the survey numbers only reflect cash rents and don’t include other compensation, such as crop shares or per-head fees, that producers might pay.

Pasture, hayland

The survey found that pasture and hayland rental rates across the state have risen substantially in the past year. For instance, in Morton, a west-central North Dakota county where cattle are particularly important, the average 2014 rental rate for pasture was $18.90 per acre, up from $17.70 per acre a year ago.

Unlike what’s happening with grain prices, already strong cattle prices have soared to record highs in the past year, increasing ranchers’ incentive and ability to pay more for land, Swenson and others say.

Also, as Julie Ellingson, executive vice president of the North Dakota Stockmen’s Association notes, some land once used for pasture or hayland has been converted to cropland because of high crop prices.

So, there’s more competition to rent the pasture and hayland that remains, she says.

The future direction of pasture and hayland rental rates will be determined by how profitable ranching is, she says.

Likewise, farm profitability will determine cropland rental rates, Swenson says.

Low crop prices will stress profit margins, especially if yields are below average this fall, and work against further increases in rental rates, he says.

Wisness says recent “extraordinary years” in farm profitability have caused rental rates to rise.

“That’s not going to continue unless this is another extraordinary year,” he says.

The National Ag Statistics Service will issue a state-level survey of cropland rental rates for North Dakota and other states on Aug. 1.

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