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Location, competition key factors in ag land sales

FARGO, N.D. -- There is still money chasing North Dakota agricultural land, but there are important differences by region and locale, ag appraisers say.

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From left: Ag land specialists Ryan Haugen of Haugen Farm Realty, Inc., Minot; Brent Qualey, Farmers National Company, Fargo; and Dwight Hofland, Pifer's Auction and Realty, Moorhead, Minn.; discuss land sale, rental trends in the past year at the annual meeting of the North Dakota chapter of the American Society of Farm Managers and Rural meeting in Fargo on Jan. 30. (Mikkel Pates/Agweek)

FARGO, N.D. - There is still money chasing North Dakota agricultural land, but there are important differences by region and locale, ag appraisers say.

In a panel discussion at the North Dakota chapter of the American Society of Farm Managers and Rural Appraisers meeting Jan. 30 in Fargo, N.D., Brent Qualey of Farmers National Company said interest in farm land varies by region. His company's recent sales in North Dakota often draw more than seven bidders, including three to four outside investors. It's different in Minnesota.

There is slightly less investor interest on the Minnesota properties. "In a typical sale in Minnesota, if you have seven or eight bidders there, you've got one investor and the rest farmers,” he said. “It depends on where you're at."

Qualey said Farmers National is selling most of its properties on bids for the past three years because it's difficult to know where to list land and price it in a variable market. It is tricky pricing property correctly for a listing because of location, crops, or an unexpected the presence or absence of outside buyers.

Qualey focused on two recent sales in mid-January, including one in the Halstad, Minn., area - "beautiful land, high productivity index." Appraisers and others figured it would go in the high $3,000 ranges to the low $4,000s, but instead it sold at lackluster $3,500, possibly because there had been other opportunities to buy land in that area in past year and a half.

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The very next day, Farmers National sold a piece of land 40 miles west by Galesburg, N.D.  That had a lower productivity index, but in an area where there hadn't been any recent land sales and it went about $3,700 an acre.

Oil’s impact Ryan Haugen, an appraiser and realtor with Haugen Farm Realty in Minot, N.D., said there is still interest in farmland in his area, influenced by oil money. "Stanley, Newtown or west of there ... you're still seeing prices holding their values," compared to other areas Haugen works with where values have declined 20 percent to 30 percent off the peak prices in 2014 and 2015.

"There's still some money if you get in the right pockets, but at the same time, in those areas, there's been no land that's sold," Haugen said. He recently completed a contract-for-deed sale with a four-year term at 4 percent interest rates, and predicted there will be more of those in times of lower commodity prices. He said he's heard of some sales with lease-back deals for farmers.

Dwight Hofland of Pifer's Auction and Realty in Moorhead, Minn., said one set of landowners that are older and need fixed rents while younger owners and investors may be looking at flexible rents and longer-term arrangements. One parcel in western North Dakota where the lessee wanted to include a number of improvements resulted in a seven-year contract, which is "really unheard of," Hofland said. All of the improvements are being paid by the tenant.

Haugen said return-on-investment in ag land recently has been described as the lowest level since the 1980s, and potential for increasing interest rates doesn't help that. Hofland didn't see any trend toward liquidation in agricultural land holdings by investment groups and noted some investment groups sold  at high rates a couple of year years ago.

Minnesota tax Qualey said the higher tax structure in Minnesota is changing the appetite for land there, compared to neighboring states. He said some groups are selling land in Minnesota because of the tax burdens, including estate taxes. One attendee said Limited Liability Companies don't work anymore to avoid estate taxes in Minnesota, and the same is true for Minnesota lake homes.

Some appraisers said some financially strong farmers who are confident in their production ability prefer the fixed cash rental deals, even three- to five-year deals, even when average yields would break even. They think they'll produce above-average yields and don't wish to share the rewards with their landowners.

Hofland said Pifer's land managers reported a 1.5 percent decline in cropland rental rates for 2016 compared to 2015 crops in all of North Dakota, as well as other land in the upper Midwest.

Related Topics: NORTH DAKOTA
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