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CITY, N.D. – (NewsDakota.com) How quickly things change. Not that long ago landowners were watching to see how high land values would climb. Now the questions seem to be, how much will land values soften and where is the bottom?

The following is a commentary by NDSU Barnes County Extension Educator Randy Gueneich: Let me suggest that support may be provided by commercial investors that will purchase land that is valued in a price range that meets their investment criteria.

For many commercial investors that criteria will include a return to investment (after land property taxes) of three percent. To calculate a land value based on three percent return on investment you would take the cash rental rate minus land taxes and divide that number by three percent.

The “2016 County Rents and Values” publication provides a range in cash rental rates for Barnes County from a low of $45 an acre to a high of $150 an acre. The most frequent cash rental rate reported is $100 an acre and the average of all the reports is about $85 per acre.

For ease of doing the math I am assuming that land property taxes are $10 per acre, but you should use the actual numbers for your parcel of land. 

Lower quality land that is rented for $45 per acre would have a support price of $1167 per acre ($45-$10 / 3 percent). Average quality land would have a range of $2500 to $3000 per acre.

High quality land would have a support price of $4667 per acre. As long as investors are happy with three percent return on investment each $10 increase or decrease in cash land rent values will change the support price by $300 per acre. With the possibility of more crop land needing to be sold to move some farm operations into the black it can be helpful to know there may be a support price that will prop up land values. 

NDSU Barnes County Extension Educator Randy Grueneich