Farmland values reflect recession

Regional surveys of 2008 California farmland values reflecting market uncertainties of the global recession and slower-paced sales were disclosed in Sacramento at the Spring Ag Outlook Conference of the California chapter of the American Society of Farm Managers and Rural Appraisers (ASFMRA).

Sketching a backdrop for values on the south and central coast, Mark Clarke, Rabo AgriFinance, Arroyo Grande, said the recession is impacting produce growers and, consequently, values of farm real estate of the region.

“Historically, they thought they were recession-proof, but the fresh-cut, food service, and organic sectors are finding it tougher to make money,” said Clarke.

Although they had benefit of a “shoulder season” cushioned by reduction of produce acreage in the San Joaquin Valley during the annual migration from the coast to the Yuma area, they now face oversupply with production concentrated again on the coast, he explained.

After a run-up of good returns and additional acreage for strawberries, raspberries, and blueberries in recent years, he noted, those industries are being tested as to whether consumers will consider them necessities or luxuries.

Grape growers on the central coast are concerned about how consumers will accept Pinot Noir wines at $30 and more per bottle as they bring another 7,500 acres of the varietal into production. At the same time, demand for Cabernet and Merlot grapes is recovering on the coast.

Among values cited by Clarke was Monterey County open, irrigated farmland at the peak of $50,000, where it has been the past three years. The bottom of the range, however, moved from $15,000 up to $20,000.

For open, irrigated land in the prime Blanco District of the Pajaro Valley in Santa Cruz County there have been few sales, although one large parcel sold in March in the range of $40,000 to $45,000.

The same type of land in San Luis Obispo and Santa Barbara counties ascended from a peak of less than $45,000 in 2007 to $55,000 in 2008. In Ventura County that category remains at up to $75,000; however, avocados there spiked up from about $50,000 to more than $70,000 as a result of high returns for the crop.

Santa Barbara County rangeland fell sharply from $20,000 in 2007 to $3,000 as buyers abandoned the market.

Turning to the southern inland valleys, Clarke said dairy facilities in western Riverside and San Bernardino counties slumped from a high of $600,000 to just under $300,000.

In the Coachella Valley, the peak of $100,000 during recent years of conversion to golf courses and residential properties toppled to return values to the $25,000 level.

On the other hand, Clarke pointed out that “sanity prevailed” in the Imperial Valley, where open, irrigated land remains stable in the $3,000 to $5,000 range.

Tony Correia of Correia-Xavier in Sonoma, in reporting on Northern California and the San Joaquin Valley, said many ag land markets have been influenced heavily by residential speculation. Overall, most markets have stopped on “pause” since September to October of last year.

Nevertheless, he predicted California will survive and recover from this latest cycle and he pointed to positives of declining input costs, plentiful labor supplies, and interest rates at historic lows.

“Most commodity prices have been good and some have been very good, although we have seen some declines in the last six to nine months with the emergence of global financial problems.

“There are buyers with money out there, but we have seen very few sales, and the big question is how long the recession will last,” Correia stated.

He credited the almond industry for its success in marketing the record 1.55 billion pound crop of 2008, which rose from 1.12 billion two years before. Almond prices slipped from more than $2.75 per pound in 2005 to $1.50 in 2008. That resulted in high values per acre for almond land throughout the state, ranging from $6,000-$15,000 in Butte, Colusa, Glenn and Tehama counties to $15,000-$32,000 for Stanislaus, San Joaquin, and Merced counties.

Although almond properties remained mostly level after ascending during 2005-2007, Stanislaus, Merced, Tulare, and Kern county orchards saw increases. Market activity, however, has been light for the last two quarters.

Pistachio values flattened at $15,000 in Fresno and Madera counties in 2003, but have risen since then to $24,000 in Kern County. The industry saw a price gain to nearly $2 per pound with the light 278 million-pound crop in the 2008 season, following the alternate bearing pattern and the 416 million pounds of 2007. The state’s total pistachio acreage is greater than 196,000, with only about 60 percent of that bearing.

“The big news is concern about Salmonella contamination in pistachio, and we seem to be plagued by food safety issues in one crop or another about every year,” Correia said.

Vineyard land values on the north coast continued to rise. Influences include Sonoma County Pinot Noir vineyards and other “trophy” properties as supply and demand for wine grapes comes into more balance.

Correia observed, however, that softening of sales in higher priced wines tends to be moderating as consumers move down the “price ladder,” and the effect on land values remains to be seen.

“Wineries were back in the market looking for fruit after the 2008 harvest, but they have slowed down during the past three to four months. The market has been on ‘pause’ for the past six months or so,” Correia said.

For Napa County, a vineyard on resistant rootstock and having modern technology such as vertical shoot positioning trellising has reached $300,000 an acre. That is exclusive of any “homesite” potential which can raise it further.

Open land suitable for planting to grapes in Napa County, where available, has accelerated to around $175,000 an acre. Correia pointed out regulations for erosion control in the county translate to much more expense and time in establishing a new vineyard there.

Average Cabernet Sauvignon grape prices of $4,500 per ton supported the sale of prime vineyards in the $250,000 to $300,000 range. Secondary properties are in the $150,000 to $250,000 range, while outlying areas, or those in the county, but not in the Napa Valley proper, are $55,000 to $75,000.

In Sonoma County, Pinot Noir vineyards on resistant rootstock have leveled out at $75,000 to $125,000, while similar properties are $30,000 to $75,000 in Mendocino County and $20,000 to $45,000 in Lake County.

“The big story in the San Joaquin Valley has been movement toward premium varietals of Merlot, Cabernet Sauvignon, and Chardonnay. Vineyards around Lodi, for grapes that go into $9 to $12 wines, are $15,000 to about $18,000. Demand for good quality Chardonnay there has pushed up values,” he said.

Wine grape vineyards in Fresno and Madera counties are in the $9,000-$11,000 range, up from a year earlier and reflecting consumer interest in less expensive wines made from less expensive grapes. Raisin vineyards in the central SJV remained stable at about $13,000 with raisin prices at $1,200 per ton.

Meanwhile, Correia said, open land throughout the Central Valley has been largely stable during the last couple of years following a number of years of increases. Land with good soils and good water supplies have made up the sales.

Difficulties with tree fruit crops during 2008 meant that many orchards values were equal to those for open land.

The complete survey, generated for seven California regions and Nevada by members of the California ASFMRA chapter, is published in the 92-page 2009 Trends in Agricultural Land and Lease Values. It is available, at $20 per copy plus shipping and handling, at or by calling 209-368-3672.

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