What is in this article?:
- Land values are very strong in California. Investors are chasing land, but more often than not it is farmers who are beating them out.
This robust economy has dramatically driven up land prices. We hear prices of $15,000 per acre and higher for open ground. Is agriculture setting up for an economic collapse like the 1980s?
Land values are very, very strong in California ... maybe not as strong as the Midwest, though. The demand here is for land suitable for permanent crops. Farmers who have done well over the past four or five years are buying the land for permanent crops. That is a lot different than the 80s when farmers borrowed heavily to buy land — as much as 100 percent equity — and there were many, many non-agriculture speculators buying land. Today there are investors chasing land, but more often than not it is farmers who are beating them out. Yes, there are long-term investors in the market, but there are not many. Farmers have enough cash right now that bankers have no problem making conventional, conservative advances. The leverage is very low right now. This is healthy for the industry. That does not mean there will be no adjustment in the future, but it will not be the crash we saw in the 1980s.
Not all agricultural segments are doing well, particularly the dairy industry. What is your take on it and other livestock operations?
The high cost of feed is making it rough on people in the animal feeding business, especially dairymen. The dairy industry is at a point where it needs to make some investments in expanding markets, especially in exporting milk, to increase sales. The industry needs to build relationships abroad for consistent pricing. In the past, the dairy industry has relied on cheap feed for profit. You do not have that any more. The industry needs to market its product better. The industry is beyond government help. There has been a lot of consolidation in the past five years, and there probably will be more. The industry will grow if dairymen work more with the processors to develop better marketing.
One ag industry that suffered during the recession was grapes. Wine grape prices are back up. The same is true for the raisin and table grape producers. Thoughts on California grapes?
Wine grapes have benefitted from the improving global economy, and domestically people are again buying wine. It is not in the same price range as it was before the recession. I see improvements in wine inventories and people are planting wine grapes again. The wine grape issue we are looking at is can we meet the growing demand? When the dollar was not doing well, imported wine from Chile and Australia came in. That product is not so competitive any more. Wineries are looking for domestic production once again. However, I do not see a big expansion because it is so expensive to plant a new vineyard. There is no doubt speculative planting, likely in the coastal areas, without a winery contract. However, as a banker, I like to see people who do that well-healed or at least some sort of a winery contract. Raisin demand and supply are back in balance, which is a long way from where it was seven or eight years ago when raisin grape vineyard values were down to the ground value.