ASFMRA Report: Will Increasing California Farm Land Prices Slow, Falter?

Falling nut crop prices may – or may not – impact land prices.

Four years of drought have had an impact on some California agricultural land values, but not as much as plummeting crop prices could have on those values this year.

“Strong farm profitability in recent drought years has driven land prices higher, but that changed late last year as slipping walnut and a “stomach-wrenching” free fall in almond prices fundamentally altered land values in 2016, according to Janie Gatzman, co-chair of this year’s edition of the California chapter of American Society of Farm Managers and Rural Appraisers’ (ASFMRA) ‘Trends in Agricultural Land and Lease Values’ publication.”

Gatzman, senior appraiser at American AgCredit in Oakdale, Calif., said the historic rise in land prices may slow or falter this year …or “farmers flush with cash from record profits may just double down on land with the best water resources, betting that commodity price adjustments will bring supply in line with demand and herald the return of the ‘good old days’ of early 2015.”

In the report, co-chaired by Tiffany Holmes, appraiser at American AgCredit in Stockton, Calif., noted that the drought years forced farmers to divert scarce and costly water to their most valuable crops, thus continuing the trend of strong farm profitability.

Darling almonds
Almonds, the darling of California agriculture, have reached 1 million planted acres (890,000 bearing), but water cost and availability along with lower nut prices are forcing farmers to take out solid producing orchards.

For example, early this year Paramount Farming-Wonderful Orchards took out 10,000 acres of almonds in western Kern County, citing these three factors. Paramount was paying $1,120 per acre foot for surface water there.

By comparison, farmers in eastern Stanislaus County pay as little as $6 per acre foot. It’s all about water.

According to the ASFMRA report, with almond kernel prices plummeting 50 to 60 percent in the first quarter of 2016, orchards with the most expensive water are no longer profitable.

Walnut growers with expensive water also have been pinched by crop prices slashed 50 to 65 per cent and are farming at a loss.

Vineyard land market
Other highlights in the report focus on several points.

The wine grape vineyard market continues to “operate in a universe of its own.” Water concerns play second fiddle to the wine industry’s obsession with fickle consumer demand that dances from one market segment to another, according to the report.

Mid-premium markets continue to climb, stabilizing vineyard values everywhere but in the San Joaquin Valley south of Lodi. Competition from cheap imports is pushing values down. This has even spilled into the Lodi market where significant acreage has been pulled in past two years.

The craziness of the wine grape segment is reflected in the North Coast where there are more than 45 sub-appellations within 140,000 acres of vineyards and more than 887 wineries. This represents 23 percent of the state’s wine grape acreage yet 50 percent of the state’s physical wineries.

The report notes that there are almost 4,300 bonded wineries in the state but only 1,850 physical plants. Prime Napa Valley vineyards were priced from $250,000 to $370,000 per acre last year, and the market is increasing.

Napa is obviously not a typical agricultural market with demand driven by reputation, drawing in a broad spectrum of worldwide individuals, investment firms, and lifestyle buyers.

Sacramento Valley prune market
Although San Joaquin soft fruit prices have benefited from bigger labor supply due to idled row crop grown, the darling of that industry is Sacramento Valley prunes where supply is in line with demand. This has prompted good packer prices and created a run in producing orchards selling for $30,000 or more per acres.

This is on a par with walnuts and almonds in the north state.

Almond, pistachio, and walnut orchards in the San Joaquin Valley were running $38,000 to as much as $45,000 acres in 2015. Raisin, table, and wine grape vineyards in the same area were valued at about $10,000 less per acre.

Open land prices also increased in 2015, tempered by reliable/less expensive water.

Row crop land on the Central Coast ranged as high as $85,000 per acre in Ventura County. Values in the other coastal counties ranged from $30,000 to $60,000 for high value vegetables and strawberries.

Source: Harry Cline, Western Farm Press

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