No one knows the future, but there is a good possibility that we have seen the last of the rising land value reports for a while.
However, it has been a historic run that culminated with an exclamation mark. On Aug. 2, the U.S. Department of Agriculture reported results from a June survey showing average North Dakota cropland values at $1,910 per acre, which was a
41.5 percent increase from the previous year. At 30.2 percent, South Dakota had the next highest increase. The national average was 13 percent.
The survey confirms the 42 percent increase from an earlier survey commissioned by the North Dakota Department of Land Trusts and the 46 percent increase reported by the North Dakota Chapter of the American Society of Farm Managers and Rural Appraisers.
In 2003, North Dakota cropland was less than one-fourth, $460 per acre, compared with its current value. During the past 10 years, it has averaged an annual increase of nearly 16 percent. During the past 100 years, the closest comparisons to this multiyear increase in values were 1973 through 1981 and 1942 through 1949. The values can be adjusted for inflation to compare the periods.
North Dakota cropland is now more than 20 percent greater than the previous highest inflation-adjusted land values, which occurred in 1979.
Consider the combination of circumstances that have fueled the strong land market and whether increases will continue. There have been several years of strong crop profits coupled with low interest rates. It is unusual that these conditions have been maintained for such an extended period because economic markets are constantly changing and adjusting. High prices should encourage greater production and lower the quantity demanded. The old saying is: "High prices cure high prices."
Grain prices have been at higher levels since 2007. For example, from 2007 through 2012, the North Dakota marketing year price for spring wheat averaged
$7.17 per bushel. In comparison, the next highest six-year period was 1992 through 1997, when it averaged $3.77 per bushel. The 2012 marketing year price was a record at $8.65 per bushel.
Higher grain prices have coincided with the increase of U.S. corn use for ethanol from 1.2 billion bushels in 2004 to more than 5 billion bushels in 2010, which was about 40 percent of the crop. That demand for corn has plateaued and will not increase.
Another price driver has been exports of U.S. soybeans to China. Exports increased from 160 million bushels in 2001 to just less than 900 million bushels in 2010. Further increases will depend on China's economic growth and agricultural productivity.