North Dakota cropland values up significantly while cash rents see modest gains

North Dakota cropland values increased 11.59% heading into the spring of 2024, marching upward from 2,863 per acre to 3,174 per acre, says Bryon Parman, North Dakota State University (NDSU) Extension agricultural finance specialist.

This represents the third year in a row where North Dakota cropland values have increased more than 10%. The increase follows cropland values appreciating 10.92% and 13.46% in 2022 and 2023, respectively.  This is according to the North Dakota Department of Trust Lands Annual Land Survey data which has been weighted for this article by county acreage count and put into NDSU Extension regions. The original survey data can be found at: https://www.land.nd.gov/resources/north-dakota-county-rents-prices-annual-survey.

Within those same years, cash rental rates for cropland in North Dakota have increased 3.12%, 6.82%, and 3.71% in 2022, 2023 and 2024, respectively. The statewide average cash rental rate moved upward from $75.90 per acre to $78.70 per acre creating a rent-to-value ratio of 2.48%.

“The rent-to-value ratio is simply the state average cash rental rate divided by the reported average market value,” says Parman. “Rent-to-value does not consider taxes or other ownership costs which would be considered in a traditional capitalization rate. Therefore, the capitalization rate will typically be lower than the rent-to-value ratio. What the rent-to-value ratio helps capture is the expected yearly income from land ownership relative to the purchase price helping identify a rate of return absent ownership costs which can vary from state to state.”

The largest increases in land prices occurred in the north central and south central NDSU Extension regions with both increasing more than 20%. The largest increases in rental rates for cropland values occurred in the southwest and south central regions where both region’s rental rates increased more than 8%.

The north valley and northwestern regions’ cropland values were also both up more than 10% in 2024, with the remainder of the state’s regions increasing in the mid-to-high single digits. Two regions including the east central and south east region’s rental rates barely edged up less than 1% while most other region’s cash rental rates on cropland increased somewhere between 3% and 5%.

“A jump in land values across North Dakota that large is a bit surprising given the decline in net farm incomes from 2022 to 2023, and the U.S. Department of Agriculture’s projected decline from 2023 to 2024,” shares Parman. “It is also a bit surprising that such a large increase in land prices have not pulled cash rental rates higher, especially given that interest rates have been significantly higher over the last few years.”

With land values this high relative to rental rates and income recently, and the expectation that net farm income will be lower in 2024, the biggest financial benefit to land ownership in the current environment has been capital appreciation. The last time cropland in North Dakota saw a rapid rise in land values from 2008 to 2013, there was about a seven year period to follow where land prices along with rental rates completely flattened from 2014 to 2020. During that time interest rates remained historically low, keeping borrowing costs down and other investment options less attractive.

Parman continues, “In the coming years, higher rates than the 2014 to 2020 period seems likely and may put upward pressure on rents relative to land prices.”