Plenty of buyers, not many sellers
By Craig W. Anderson
California’s farmland value has never been higher according to the USDA’s National Agricultural Statistics Service (NASS) with an average $7,200 an acre over last year’s $6,900.
The NASS report noted that irrigated cropland averages $12,000 per acre compared to $11,500 in 2011; nonirrigated cropland is $3,550 per acre. Higher farmland prices continued a 15 year trend caused by higher exports, escalating yields, and good prices for crops.
“Land values are very strong in San Joaquin County," said Joe Petersen of Petersen & Co. and SJFB board member. “Farmers wanting to expand, foreign investors, large insurance companies, everyone’s looking for ag land because it’s a solid investment. But it’s a tight market because farmers don’t like to sell land that’s producing well."
In San Joaquin County the land is definitely producing well: Lodi cropland is valued at $11,000 to $15,000 per acre; Delta lands are valued at $3,500 to $8,000; almonds in the South/Central range from $18,000 per acre to $23,000; walnuts are $14,000 to $20,000 per acre; cherries from $25,000 to $35,000 per acre; wine grapes, $14,000 to $18,000; and rangeland at $4,000 to $6,000 per acre.
The county’s farmland is producing: more than $2.2 billion in gross agricultural value in 2011. Over the last 15 years farmland has offered returns higher than the S&P 500 and farmland didn’t experience the price bust of residential housing. Ag land is a solid investment and, said a University of California Giannini Foundation of Agricultural Economics study, even during the recent recession, the agricultural sector continued to prosper due to high commodity prices, expanding ag exports and rising farm income levels.
This success has attracted the attention of investors who are looking for “anything with producing orchards or vines. Both are hot right now," said former SJFB president, current board member and consultant, Phil Brumley. “True ag properties of 40 acres or less are popular now and 20 acre parcels in Escalon, Ripon and Linden have been seen to sell when they’ve hit the market."
Soil, water, adaptability
The value of land is determined by the soil type, water availability and the adaptability of the land for trees and vines, Brumley said. “Orchards are popular because of their profitability and 40 to 80 acres of walnuts producing 2½ to 3½ ton per acre is very worthwhile for investors."
“Soil types determine whether you can grow walnuts or almonds," said Brumley.
Cropland’s value range has been remarkably stable over the past four years, according to the American Society of Farm Managers and Rural Appraisers which is very appealing to investors and buyers.
Brumley said, “In my opinion we’re seeing outside money coming into ag ventures, investment groups looking for alternative investments, and people who played in the pre-collapse development market with warehouses, office buildings and mall development are now looking at agriculture."
The Giannini Foundation report concluded that farm real estate “remains the most direct method of investing in the agricultural sector … [which has] provided consistently positive returns. California farmland values had an average annual appreciation of 3.8 percent over 2005-2010 while the value of residential real estate declined."
A report from the American Society of Farm Managers and Rural Appraisers said that other than farmers, the types of investors looking for cropland include pension funds, endowments and other non-profit entities, hedge funds and high net worth individuals. The report also said, “another type of investor is an agri-business entity looking to tie up or control agricultural throughput from farmland needed for its processing or marketing enterprises."
Outside entities interested in farmland have “historically relied on investment advisory and farm management firms to purchase farmland for their account," said the society’s report.
To sell or not to sell
“Most of the buyers out there that I deal with are other farmers," said Petersen. “But our inventory of property for sale is low and sales will stay low for the next couple of years. Ag landowners are holding on to their properties. Again, why sell when you’re doing well?"
Although many dairies would like to purchase more land primarily to grow feed – and some dairy operations have done so – they generally don’t have the funds to buy, or they’re being conservative about investing in land.
“Some dairies have bought land and are growing other crops to be diversified beyond milk," Brumley said. “These are established operations with a broad base that were able to expand."
A good price at least reasonably close to the land’s value enhances the potential for a sale but some landowners will tack on an exorbitant sale price if they really want to hold on to the property.
Water and winegrapes
Water has become an issue because water tables are dropping, and domestic wells near agricultural operations suffer the most by their proximity to permanent crops and water problems can reduce the value of this land.
One such permanent crop is winegrapes and land is being purchased in the Lodi region and in other areas to plant new vines. “One large winegrape grower is looking for land to buy or lease long-term. They’re replacing old vineyards with vineyards not walnuts or almonds,’’ thus retaining the land value, said Brumley.