By Craig W. Anderson
"Buy land, they’re not making it anymore," said Mark Twain and land values in San Joaquin County support Twain's cagey remark.
The value of San Joaquin County's ag land continues to increase and the trend is likely to continue for the foreseeable future, according to the USDA's National Agricultural Statistics Service (NASS). The latest figures from NASS show California's farmland value averaging $7,200 an acre, an increase of 4.3 percent over 2011; cropland's value per acre also increased 3.8 percent to $9,810 an acre; and pasture was valued between $2,500 an acre.
"Vineyards north of Lodi and east of Linden are popular for investors looking for land to buy or for long-term leases," said Phil Brumley, grower, consultant and past SJFB president."Vineyards replace other crops, not walnuts, almonds or cherries, but pasture and row crops."
He said a common lease commitment is for 15 to 20 years with a cash rent or a crop percentage and more Real Estate Investment Trusts (REIT) are appearing in the county."There are two or three REIT's out here from the Midwest actively operating."
The annual report from the California Chapter of the American Society of Farm Managers and Rural Appraisers notes that the price range of east San Joaquin County ag land increased from $8,000 - $11,000 to $12,000 - $20,000 an acre; per acre prices for cherry orchards increased from $13,000 - $18,000 in 2006 to $25,000 - $38,000 today.
Pasture land value also improved from a price range of $4,000 - $6,000 to $4,000 - $8,000 per acre in 2012.
Ag land prices are driven by a number of factors, said Tony Correia to attendees at the Outlook 2013 meeting in March. An Accredited Rural Appraiser (ARA) and principal in The Correia Company, Sonoma, Correia said the forces pushing ag land prices include growing global food demand, funds from a variety of investors, and farmers looking to buy land to expand their operations.
"The scarcity of good land – and water – will drive late-comers to the ag real estate arena toward marginal ground which may prove less productive and they may suffer more when the market turns," said Correia. "Increasing land values will eventually challenge financial feasibility of new developments in ag."
Expensive and productive ag land might not be a serviceable debt because of the expense per acre vs. the return from the acreage which seems a tenuous possibility considering that over the last 15 years farmland has produced returns higher than the S&P 500.
A University of California Giannini Foundation of Agricultural Economics report said the ag sector "continued to prosper during the recent recession" due to high commodity prices, expanding exports and farm income levels that continued to rise.
According to Correia, almonds had a $4,500 return per acre because of their "low labor requirement, strong cash flows, a strong industry association and strong global demand." All of which ensures a high value per acre of this very popular, high priced and healthy nut.
Investors are undoubtedly eyeing walnuts for the $5,500 return per acre and the 450,000 tons the industry produced in 2011 from 249 bearing acres.
Correia pointed out that "wine prices drive grape prices which drive land and vineyard prices." That had better be the case as he said there have been few new plantings in the past 10 years.
Fewer plantings or not, wineries large and small are attractive to buyers because "they're a solid investment, everyone's looking for ag land, and winegrapes and walnuts are the most popular for investors," said Joe Petersen of Petersen & Co. a real estate company with an emphasis on agriculture properties."But the market's tight and farmers don't like to sell their ground, especially when they're doing well."
Where are the best locations for ag land? "Anywhere someone can plant a permanent crop such as vineyards, walnuts, cherries, almonds," Petersen said. These high-return crops are necessary if the buyer/grower is to see a profit on their investment in high-priced productive property.
Vineyard development hinges on continuing strong demand, higher grape prices, and long-term contract offers, Correia said. "Competition for land for other uses is driving land prices higher as is the scarcity of good land."
That "good land" exists throughout the Lodi appellation as average per acre land value is about $25,000. "Prices are strong for almost all California crops, demand is high and increasing and this has resulted in strong, well funded demand from all sectors for ag land," Correia said. "California land is clearly some of the best in the nation."
Dennis Balint, CEO of the California Walnut Board/Commission, said demand is greater than supply, there is new market growth, the U.S. market is strong, and yields are up, all of which makes those acres of walnut orchards even more valuable.
Growth seems to be the mantra of every significant crop in the county: keep growing, building yields, and we'll make sure supply meets demand as all the while the land value continues to rise.