Despite lagging returns for certain crops and certain regions, California farmland values during 2004 continued to ascend, reflecting optimism for agriculture in general, says the California Chapter of the American Society of Farm Managers and Rural Appraisers (ASFM&RA).

Summaries of land sales and lease transactions were presented in Sacramento during the chapter’s recent Spring Outlook Conference.

Mark Clarke of Rabo Agrifinance, Santa Maria, cited highlights from the chapter’s annual publication, "2005 Trends in Agricultural Land and Lease Values," which details activity and trends in seven regions of the state. He noted that its statistics are for conditions in 2004 and not situations evolving thus far in 2005.

"The good news is that land values in general showed dramatic increases across most property types during 2004. The bad news is that there is really no bad news, and there’s a lot of optimism that can sometimes lead people to bad decisions," Clarke said.

Over the past couple of years, he added, values have outpaced incomes. "When the link between value and income becomes stressed, that results in lower returns. Returns are also down on commercial properties as people bid up prices."

Prominent in raising values in the farmland market around the state were "1031 exchanges." These pertain to Section 1031, an often-overlooked portion of the U.S. Internal Revenue Code whereby a real property buyer can sell his property and then reinvest the proceeds to purchase a like-kind property and defer capital gains taxes.

"A lot of farmers," he said, "are seeing cities expanding out to their land and are using these exchanges to acquire land farther from the cities. This has a tremendous impact on the market today."

Land supports

Supporting the overall land market were interest rates low in comparison to historical standards, high demand for nut crops, and recovery of the wine grape industry.

On the other hand, fortunes slumped for stone fruit and strawberries. After suffering marginal returns in recent years, stone fruit growers in Central Valley counties were battered further by low pack-outs, poor prices, and foreign competition. Many were forced to liquidate and put orchards on the market, which put downward pressure on values.

Strawberry growers in coastal counties were struck by oversupply in 2004, after a couple of good years during which acreage increased. The strawberry industry, concentrated on less than 30,000 acres along the coast, has been a billion-dollar annual contributor to the state’s ag economy.

Turning to other regional examples, Clarke said sales of vineyards on the North Coast have declined in recent years and activity remains limited with a stable trend.

The range of per-acre values for vineyards on resistant rootstock goes from a high in Napa County of $55,000 to $180,000 to a low in Lake County of $20,000 to $32,000.

Limited sales of rural acreage suitable for home sites, particularly those having a view, were at $3.5 million in Napa County and $2.5 million in Sonoma County.

Along the Central and South Coast, values of row-crop land in Monterey County, with a range of $12,000 to $32,000, were stable to stronger, due to continued good commodity prices and few parcels on the market.

Vineyard values for the Paso Robles area remain firm, although returns there have been weighed down by massive wine grape acreage without contracts. It may take a year, he added, before that area begins to realize recovery that has begun to appear elsewhere.

In Ventura County, the 2004 range for row-crop land of $40,000 to $65,000, up from the 2003 range of $32,000 to $53,000, reflects the recent surge in strawberry acreage and 1031 exchanges. That land will remain in agricultural use for the foreseeable future because of local regulations.

In San Bernardino and Riverside counties, Clarke said, land for dairy use is in a transitional trend with a value range of $110,000 to $300,000 as urban encroachment continues. Within 10 years the movement of dairying out of the region is expected to be complete. "This is having an effect all over the state and outside the state as dairymen sell out and relocate to other areas in the western U.S."

In Imperial County, where produce land was at $4,000 to $6,500 an acre, sales were active as growers returned after land costs around the Yuma area rose sharply.

The most dynamic market in the southern inland counties during 2004 was for avocado groves in San Diego County, southwestern Riverside County, and the Coachella Valley, where values were in the range of $23,000 to $61,000, holding 2003 levels.

Despite high water costs, growers there have turned a profit. Grove values continue to trend higher, despite concerns that Mexican imports would erode avocado prices.

Almonds dominate

Another presenter on the program, Tony Correia of Correia-Xavier, Fresno, said almonds continue to be a dominant feature in the Central Valley. "Prices of almonds are very strong, and land values are driven by the very high profitability. Everybody is trying to buy land to plant more almonds."

As the almond industry adjusts to billion-pound crops once considered fantastic, the U.S. dollar weakness against the euro currency has fueled rapid increases in exports and higher demand.

"Throughout the Central Valley we have seen markets consistently around $8,000 to $9,000 an acre, but we have seen few sales of top-producing orchards."

Another effect of the swell in almond prices on orchard values has been growers retaining old, marginal orchards rather than removing them. "Eight hundred pounds of almonds an acre at $1.50 a pound isn’t much, but 800 pounds at $3 is a pretty good return," said Correia.

He went on to say, "the Section 1031 exchange influence is phenomenal. You have farmers near a city who sell to developers and buy another farm farther out. You also have institutional users and recreational users, all chasing deals in a huge demand from external forces."

Pushing almond orchard values upward as well is the demand for rural home sites, particularly in San Joaquin, Stanislaus, and Merced counties, and he speculated that some city dwellers, flush with proceeds from residential sales, might be prepared to pay as much as $16,000 an acre for rolling-hill properties.

Values for wine grape vineyards in San Joaquin Valley counties rose during 2004 as prices for grapes more than doubled their 2003 levels. Correia said the price hike suggests the wine industry is on the verge of another boom that could move values higher. Interest in small acreage ranchettes also continues to buoy demand for marginally producing vineyard properties.

As result, limited sales, with an increasing trend, of vineyards in Fresno County were $3,500 to $7,500 per acre, up from $3,500 to $5,000 in 2003, while values in San Joaquin County were $11,000 to $18,000, up from $8,000 to $15,000 the previous year.