Bismarck Tribune - North Dakota News - Rural land prices are soaring

Rural land prices are soaring

**ADVANCE FOR SUNDAY, JAN. 27** Rick Rohrich takes a break from feeding cattle at his new farm in Steele, N.D., on Thursday, Jan. 24, 2008. Rohrich, a 26-year-old father of three, bought the farm last week at a time when crop and pasture land was fetching record prices. (AP Photo/James MacPherson).

Jan 27, 2008 - 09:32:16 CST

By JAMES MacPHERSON
Associated Press Writer

STEELE - Rick Rohrich, a 26-year-old father of three, bought his first farmstead at a time when crop and pasture land was fetching record prices. He didn't think he had a choice.

Rural land prices are setting records and farmers, with a boost from high commodity prices, are in a buying mood.

"The prices keep jacking up and I don't see it slowing down," Rohrich said.

He closed on the 320-acre property last week, paying about $1,000 an acre for pasture land, a farmhouse and some outbuildings. The cost of the property was about double what it was worth less than five years ago, he said.

"Land prices are getting to where it will push us young guys out," he said.

Rohrich, who was born and raised in the central North Dakota town of Steele, said he's been farming nearly full-time since he was 16.

"My dad still farms - everything I got I got on my own," said Rohrich, who estimated he's about $500,000 in debt for the farm land and machinery. He's paying bills by raising cattle, and growing wheat, corn, sunflower, barley and oats on several hundred rented acres.

"I figured it was time to start buying into my own land - in this business you got to have it," Rohrich said. "I think it's a good investment, because they don't make land anymore."

Ray Brownfield, president of the Society of Professional Farm Managers and Rural Appraisers in Oswego, Ill., said rural real estate values around the country have soared to record prices, and they continue to rise.

"Farmers are back in the market - but the issue is supply and demand. There are many more buyers than there are sellers," Brownfield said. "I don't see a preponderance of ground coming on the market."

High commodity prices, while giving farmers a healthy bottom line, also have driven up the value of land - so much so that agriculture officials say the land itself has become the hottest commodity in North Dakota and other farm states.

In the past, so-called 1031 tax exchanges - named for the federal tax code section that allows them - led out-of-staters to buy land in North Dakota, but that practice has slowed with the most recent spike in farm land prices, experts say. The tax exchanges allow sellers to avoid paying capital gains taxes on land sales if they buy another property within a certain timeframe, appraisers and agriculture officials said.

Now, it's farmers selling to farmers, oftentimes to their neighbors.

"Since July, it been a farmer-driven market," said Steve Tomac, a real estate appraiser with Farm Credit Services in Mandan.

"Traditionally, farmers always have reinvested profits back into their land," Tomac said. And 2007 was a "magic year" that is spilling over into 2008, he said.

"Gross revenue in 2007 from production on land purchased in 2006 could have probably paid for that land," he said.

Farm real estate values nationwide rose 14 percent from Jan. 1, 2006, to Jan 1. 2007, to a record average of $2,160 an acre, according to the U.S. Department of Agriculture.

USDA spokesman Scott Shimmin said the report on 2007 farm real estate prices won't be finished until this summer, though it appears last year will set another record.

Low interest rates, government farm programs and reinvestments to avoid taxes on capital gains are among the factors contributing to the record farm land prices, but record commodity prices are the main reason, he said.

"Commodity prices have remained very strong, if not excellent - you would expect that to drive up real estate prices," Shimmin said. "If you look at the past 25 to 30 years, (farm land) has not been a very risky investment. Over the long term, it has had a pretty solid return."

Steve Tomac's father, retired Sioux County farmer Bob Tomac, said the situation reminds him of his first year farming 60 years ago, when he and others were able to pay for newly acquired land from profits reaped from crop production in the same year.

"We had a good flax crop in '48," Tomac said. "We got $5.65 a bushel - that was a lot of money in '48 when land at that time was $25 an acre at the most.

"That was quite a year, and I suppose it revived itself last year," Tomac said. "For farmers, it's been long overdue."

USDA said the value of North Dakota farm land rose to an average of $650 per acre at the end of 2006, up 13 percent from 2005.

Ken Knudson, a senior vice president at Farm Credit Services in Fargo, said some prime North Dakota farmland has increased more than 40 percent in the past year, but most has been in the 15 percent range.

A land sale in Walsh County, in northeastern North Dakota, recently fetched more than $4,300 an acre, likely a record for the state, he said.

"Every ridiculous land price the year before has become this year's bargain," Knudson said.

Vince Bitz, who owns an auction and real estate company in Bismarck, said the past few months have been the busiest time for farm auctions that he's seen in the nearly 30 years in business.

"Some of these ag prices are over the top," Bitz said.

"There are a lot of people sitting on the fence not knowing if they should sell or shouldn't sell," Bitz said. "Some are trying to figure out it's going to go higher - but there is no way of knowing. It's just speculation."

Andy Swenson, farm management specialist with the North Dakota State University Extension Service, said rural land prices in North Dakota have been increasing for several years but the current is level historic and unprecedented.

Swenson cashed in some of his own farmland recently, then wished he had held out.

"The first guy that called bought it in 45 minutes," Swenson said. "I probably left several thousand dollars on the table. I should have known better."

Rohrich, who will raise cattle on his newly purchased land, is hoping to buy some nearby property to expand his operation. But fertilizer and fuel have skyrocketed, and even twine for his hay bales has doubled in price over the past year, he said.

"I've learned it's a hard game and not one of these get-rich quick deals," he said.

Rohrich said most farmers in his county are at least twice - and some three times - his age. If he can stick it out, he may be able to expand his operation by purchasing their land someday.

"There are no young guys in the area," he said. "So I think more land will be out there in the future, but how high it will go, I have no idea."

News > State

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Comments

morons wrote on Feb 15, 2008 12:04 PM:

" Come on now people. My father in law was approached by neighbors at his fathers funeral with interest in buying his dad's land. Tell me that's not morbid? Selling to neighbors = bad idea. Doesn't matter how good the relationship is. Selling it at fair market value is just plain business. It's been going on for thousands of years, people. Won't end until the rapture! People will do what they do, and whining about it is just like pissing into a North Dakota wind! "

deja vu wrote on Feb 3, 2008 7:03 PM:

" Hi Show-me,

if you'd read the last line again, i want them to make a profit. if you remember 8.00 durum in the 70's, you remember what happened after durum dropped again. these prices are great now for farmers and main street, but i'm afraid in the long run it's going to cause more problems than it's solved. Oh, i'm in the fuel business - remember CRP ? i got to pay taxes to take land out of production so my gals sold was cut almost in half. and there was no safety net for fuel dealers. if i'd overspent during that time, i wouldn't have survived. ND has had an awesome year with oil production and grain prices but usually what goes up so fast and so far, usually comes down the same way. and then it does, it's really going to be ugly. "

Show-me wrote on Feb 3, 2008 6:25 PM:

" deja vu Is there something wrong with a truck dealer making a profit off the boom in farm prices? You don't want the equipment dealer to make anything off the farm boom? What bussiness are you in? You think you should tell these farmers who have made very little for a long time they should not make a profit?
"

deja vu wrote on Feb 3, 2008 4:22 PM:

" Ya, and some farmers are going to go nuts buying machinery, land, etc and then when prices fall, and they will again, expect the taxpayer to bail them out again. Here's an idea - why not use some of the profits from high grain prices to pay down debt instead ? So many are loath to ever PAY any income tax that they spend all they can and more. They know the govt will cough up "disaster" pmts to cover all situations. Wonder how many $40,000.00 "farm" pickups will be sold this year? I want them to make a profit, i'm just tired of it coming out of my pocket in the form of farm pmts, etc. "

Seen It All wrote on Feb 2, 2008 8:52 PM:

" The 'fair' price and 'doing the right thing' always seems to depend on whether you're on the buying side or selling side. Same goes for farmland. "

tom wrote on Feb 2, 2008 2:50 PM:

" To MN birdhunter:

Please stay in Minnesota to hunt and fish!!!
Oh, Thats right your hunting and fishing stink! Thats why you come here. Let us dry up. We will at least have some great hunting and fishing. NOW Go drain a swamp! "

show-me wrote on Feb 2, 2008 7:58 AM:

" blme the greedy This is the US free market place, you need to move to a counrty where everything is controled the way you want it and no one can make money.
You are a very sick person and need help!!!!!!!!!! You need to have your wages cut in half as you are to greedy person. "

John wrote on Feb 2, 2008 6:26 AM:

" Can you say spammer, that sacramento dude can't even spell. I'll take a cuple acers! "

Mouth from the South wrote on Feb 1, 2008 9:42 AM:

" Blaming retiring farmers is really off the mark. What do you think these guys are going to retire on if they don't sell their land for as much as they can get for it? This is their retirement!!!! This is what they have worked for all their lives. "

shawn mcmahan wrote on Jan 31, 2008 7:03 PM:

" My family and I own hundreds of acers in North Dakoda. But live in sacramento Ca. more than willing to be productive. for $700 and even less an acer.Its doing us no good any way. something is all ways beter than nothing. you can email me at smcmahan_74@yahoo.com or call (916)912-2070 "

freemarketradical wrote on Jan 30, 2008 2:41 PM:

" Dirty Old Farmer, You have that right. "

Dirty old farmer wrote on Jan 30, 2008 4:38 AM:

" I guess its as simple as the difference between buying land and paying for land.
Buying land is nothng more than being the last person at the land auction with your hand in the air. Paying for land is something totally different. "

Big Shot wrote on Jan 29, 2008 8:56 PM:

" Way to go Mr. Rohrich!!! Keep the farm going and good luck to you and your family! "

diggs wrote on Jan 29, 2008 1:12 PM:

" To Blame the Greedy -- You have to be kidding me "blame the retiring farmers because they are selling to the highest bidder instead the neighbor." It is the owners right to sell for whatever price the market bears - not to whichever poor farmer wants to buy it -- just because they loaned him a combine or tractor at some point. I love it - you farmers want higher Conservation payments, higher crop prices, less taxes, yet when it comes to the neighbor selling their land you want to them to sell it for less than market price. Then you turn around and vote Republican. At least 70% of folks in ND do, except in the Congressional elections because those are the boys who bring home your pork. When it comes time to sell your land will you sell it for less than market value because your neighbor helped you out????? How much money will you need???? "

schputz wrote on Jan 29, 2008 10:50 AM:

" To MN Bird Hunter. Keep your money and your attitude at home. We get along just fine with or without you. "

Patience wrote on Jan 28, 2008 9:41 PM:

" I like the way things are going history repeats itself. When crop and cattle prices go to hell again and interest rates go sky high. That will be my opportunity to "buy low" "

freemarketradical wrote on Jan 28, 2008 6:24 PM:

" Dirty old farmer, perhaps it is in the defination but I still dont see your point. That $1000 an acre pasture will generate revenue or income, but no way will it generate any profit any time soon. He will be taking a loss on it for a long time. I don't see him having any profit to pay taxes on. In other words I don't think he will be near a 28% tax bracket in the near future. He will be subsidizing this land burchase with his other operations. I guess that is ok, it is how I did it. As far as the creditors taking the loss if he fails, what is wrong with that? The creditors are going to take the profits of the interest he pays. So long as there is no tax payer bailout of either party, I say, let em sign contracts. Although anyone that defaults and has the loan forgiven should pay income tax on that gift, and if they can't pay the tax they should sit in debtors prison. We all pay taxes and when someone dosen't that is not fair to the rest of us. I think we are on the same page as far a farm payment caps. Finally, I really do wish this guy well "

MN Bird Hunter wrote on Jan 28, 2008 4:02 PM:

" It isn't us non-residents who are driving up the land prices. It's you North Dakotans. If it weren't for non-resident hunters, all your towns would dry up and die. "

Dirty old farmer wrote on Jan 28, 2008 9:18 AM:

" freemarketradical... my apoligies....if the realestate investment is to be paid using income earned off of it, tax is owed on the income...so, the ulitmate cost will be the cost of the investment, plus the cost of the income tax, then, what happens when large sums of money are involved you end up paying income tax on the income tax....its a vicious cycle...I bought land years ago and paid cash for it using money that was defered income, (pre-taxed dollars) when the tax year was over (the year I paid for the land) the income tax liability was almost a 1/3 of what I had paid for the land... that was ugly, and this is the hidden cost most people don't realize... regarding Mr. Tomac...did I say he said, "in the good old days"? Hard to believe that your that 'thin skinned'...politian in the family and all....and finally regarding a young farmer trying to get started...I have no answers.... Choke down the greedy big farmers, change farm policy to cap. farm payments, limit farm payments to farmers with a gross income of $200,000 or less (Bush's stance) Regarding a young farmer has to try even if he fails.... the bad part of that is if he is in debt and fails...creditors will take the loss... this really isn't fair to those that extended credit is it? (or it fair, one gets a debt write off when others don't) "

blame the greedy wrote on Jan 28, 2008 3:35 AM:

" The out of state hunters and the large farms are part of the blame for the high price of land. The out of state hunters and large farmers can pay as much as they like for land because they do not need to make things "pencil out" as my dad says. The out of state hunters see it as recreation and do not make their living of of the purchase. The large farmers make the profit on buying fertilizer and seed in large quantities and receiving larger discounts on machinery (some times free use for a trial on machinery).
Also to blame are the retiring farmers and family members of parents who have died and left land. They are trying to make as much profit as they can on their land and instead of selling to a neighbor or to someone trying to start out, they are selling to the highest bidder. These are the same people who are complaining about the dying small towns, out of state hunters and large farms, but in the end sell their land to these folks for the money. They do not sell to their neighbor who has rented the land for years from them, helped them out in a pinch and is trying to make a living without being swallowed up.
To the Retiring Farmers and Family members with land to sell--do you really need to sell for $1000 an acre when you paid less than a third of that (if even). How much money do you need?????? "

re: Dirty old farmer wrote on Jan 27, 2008 4:09 PM:

" I'm sorry but I don't think Bob Tomac said we are "in the good old days." He merely said the situation reminded him or is similar to what he experienced in the late '40's. Another thing you may want to consider is that Mr. Tomac has gone through every economic high and low that the ag economy has experienced since those good times in the late '40's. So I don't believe he's speaking out of school. "

freemarketradical wrote on Jan 27, 2008 12:17 PM:

" Dirty Old Farmer, I am not sure what you are talking about. Income tax is not paid on investments. It is paid on income. If Mr XXXX invested $300,000 that he had, he all ready paid the income tax. If he borrowed the money, (most likely as he claims 1/2 a million dollars in debt) it is unlikely he will pay any income tax after deducting interest payments (I doubt he will have any income). He certianly is not going to make $300,000 a year raising cattle on 1/2 a section. The story said the 320 acres includes a house and buildings. He can live in the house and depreciate the buildings. Certianly in a downturn he might learn all about off farm employment. He might even lose it, but at least he tried. At least he tried, what else would you have a young man do ? I wish him the best and hope he has some plan if dosen'd work out. "

Socks wrote on Jan 27, 2008 11:50 AM:

" Save your money. As we all know, not all crop years are good. Don't forget about all the yuck years. "

ND Hunter wrote on Jan 27, 2008 8:44 AM:

" Good article but I thought it was non-resident hunters driving up the price of land. "

Dirty old farmer wrote on Jan 27, 2008 8:01 AM:

" There is a big difference between the pay off opportunity 60 years ago and now. Its called income tax. Any time you make a capital investment (without deductions) using new money, income tax will be owed on the principal (not the interest) so take Mr. XXXX's $300,000 investment will cost him an additional 28%... when the income tax paid, (assuming he can get around the AMT) land is non-deductilbe, then the following year add another 28% to the 28% the income tax paid as it is non deductible.... the $300,000 investment until its paid off will cost him around $500,000 thats if he has the money, if he's paying interest on borrowed money that will cost him in addition to the $500,000....I hear a big bang in the future as the farm realestate bubble busts. Bob Tomac will have to realize the good old days are gone, and what once worked isn't quite so simple. (I've been there and gone through this modern day realestate purchasing nightmare.) "

Financial Guy wrote on Jan 27, 2008 7:58 AM:

" These record crop and land prices remind me of the late 70's. Unfortunately, many people spent their 'paper profits' on rising land values at that time and got in real financial hot water. Buy low, sell high. And don't spend money that's only on paper. "

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