Trends in many California markets for agricultural land and lease values were driven by everything but agriculture during 2005.

That was the message given by Tony Correia, a Sonoma-based accredited rural appraiser, before the recent spring outlook forum of the California Chapter of the American Society of Farm Managers and Rural Appraisers in Visalia.

“We have a tremendous trend of folks buying land for recreational use, or solely for a home site in the country, whether a 1 acre, 160 acres, or 5,000 acres,” Correia said in his interpretation of property transactions.

In charting the run-up of land values in interior counties for 2005, he said “dramatic is not an understatement.” Conspicuous among reasons for the activity were continuing overall good returns in agriculture, despite moderating prices for almonds and produce.

However, he added, “the link between income and value is being stretched ever thinner. We said that last year, and this year it is more so. People are not buying property on the basis of its ability to generate income, but because they want to buy it.”

Correia said the heavy rains early in 2006 caused delays in planting or bloom, which suggest scheduling problems with harvest in the coming fall and may erase some of the good news of 2005.

Citing “an unprecedented mountain of capital out there chasing California real estate of all kinds,” Correia said the brisk activity of “1031 exchanges” also continued during 2005. These remain vigorous, despite the softening of residential property values. And, he added, there was also much debt because interest rates are low by historical standards.

Section 1031 of the U.S. Internal Revenue Code allows an owner to sell his property and reinvest the proceeds to purchase a like-kind property and defer capital gains taxes. Many farmers have used it to purchase farmland farther from urban areas.

“Ag land is changing in its use. Buyers are using it for rural residential use or speculation,” he said. Some real estate developers are buying properties up and down the state and will start processing entitlements for recreational developments. Others are “land banking” in anticipation of needs 20 years in the future.

Meanwhile, cities are expanding “spheres of influence” to expand their boundaries for future urban use.

Values for almond orchards in 2005 reached $25,000 per acre in Stanislaus County and $20,000 in Merced County, while other areas of the state almond acreage ranged from $12,000 in the Sacramento Valley to $15,000 in Kern County.

Turning to open land, Correia said price escalation has been “fairly dramatic,” with the range of such property with water in Fresno County at $2,000 to $5,000 per acre in 2004 rising to $2,000 to $10,000 per acre in 2005. “Duck clubs are hot, and many 1031 exchangers and developers are buying up this land.”

In another new twist, Correia said processors were willing to pay $10,000 to $12,000 per acre for land, regardless of what it has on it, and plant it to tree fruit. Processors, he explained, are consolidating to withstand the pressure they face from retailers.

In his analysis of land values in coastal counties and southern desert counties, Mark Clarke of Rabo Finance in Santa Maria said North Coast transactions increased in 2005, with values turning upward or holding steady.

In Napa County, after several years in a flat mode, vineyards on resistant rootstock reached $200,000 per acre, while open land there exceeded $140,000 per acre.

Noting that grape prices in 2006 are expected to be near those of 2005 ($4,000 per ton for Cabernet Sauvignon and $2,000 for Chardonnay), Clarke said, “one of the questions we need to ask is whether single-digit returns for vineyard investments compensate for the risk of owning vineyards.”

The veteran agricultural, financial businessman said he could remember when double-digit returns were deemed necessary to offset depreciation of assets, volatility of yields and pricing, and the uncertainties of obtaining contracts.

“It doesn’t seem to be the same today. It’s no longer an investment, but a possession. It will turn around at some point, but not at this point.”

Transactions for open, irrigated land in central and southern coastal counties remained steady with sale prices reaching records. Weaknesses in produce prices did not translate to any decline in demand, or land values, he reported.

“There is continuing population pressure to convert that type of land to other uses in every town on the coast. A lot of my clients in agriculture are becoming land speculators, developers, and, in some cases, home builders,” he said. One of them, he added, sold parcels at $105,000 each, not per acre, but per lot.

Vineyard sales activity along the Central Coast was up sharply in large transactions with corporate and financial buyers, even while economic fundamentals for most varieties weakened, with the exception of Pinot Noir, whose popularity was spurred by the movie “Sideways.”

Fascination with Pinot Noir continues, he said, with current sales of land suitable for, but not planted to, the variety at levels similar to those of developed Pinot Noir vineyards sold a year before. The range of values is $30,000 to $35,000 per acre.

In another example, Clarke said open, irrigated farmland in Monterey County went for as much as $50,000 per acre, up from just under $40,000 per acre in 2004.

Even higher were sales of the same category of land in Ventura County at about $100,000 per acre. Local regulations will preserve these properties for agricultural use in the foreseeable future.

Clarke is alarmed at what he sees with grape prices compared with vineyard values in Monterey County. “Pricing of the major varieties, which are Chardonnay and Cabernet Sauvignon, went up until about five years ago but have since declined, so that now they are about the same as they were 10 or 12 years ago. Yet, land values are now double what they were then.”

Copies of “2006 Trends in Agricultural Land and Lease Values,” the compilation of 2005 statistics for the entire state, are available at $12, plus $3 shipping, each through the California Chapter, ASFMRA, at 209-368-3672 or secretary@calasfmra.com.