Signs of stability are emerging in California farmland values, hinting at a slow economic recovery, although 2009 was largely “a lost year”, based on data gathered by rural appraisers.
Values were revealed during the spring outlook conference in Visalia of the California chapter of the American Society of Farm Managers and Rural Appraisers (ASFMRA).
Highlights of details collected up and down the state by chapter members were presented by Mark Clarke of Rabo AgriFinance in Santa Maria and Tony Correia of Correia-Xavier, Inc. in Sonoma.
Noting that appraising is more an art than a science, Clarke said negatives dominated last year, producing few land sales and little more than impressions to guide appraisals. Recession in most of the world, combined with credit crises toppling asset values, made it “a lost year when a lot of good things didn’t happen” and one that many would like to forget.
For example, in 2009 the U.S. farm economy declined 12 percent to 15 percent from historic highs in 2007 and 2008.
However, he added, fears of inflation that welled up last year seem to have been postponed. “We can sustain a lot of economic growth before we have to be concerned about inflation.”
With 2010, “brighter lights are starting to appear and it does seem there is a very slow recovery underway. New leveraging is underway as both individuals and companies shed debt, and that will help with a more competitive situation going forward,” Clarke said.
Focusing on elements of the California ag economy, he said it tracked the national scene with weaknesses in commodities, dairy and related industries. Meanwhile, shipments of California wines remained flat for the first time since the early 1990s. Water worries continued, although rainfall improved in 2010.
But Clarke also pointed to some positives in 2009. Interest rates are at historic lows. The almond market absorbed a 1.45 billion-pound crop with good prices. Table grapes had a good year, and Central Valley wine grapes outperformed those of the coast. Some coastal vegetable growers had a strong fourth quarter, possibly one of the strongest in the past five years, as a result of less acreage planted in the interior of the state.
With that backdrop, few farm properties, other than distress situations, are being offered. The drivers that propelled farmland values during 2004-2007 have slipped away. Income is down and is projected to remain so. Development pressure on values has dried up, and land exchanges under Section 1031 of the U.S. Internal Revenue Code, which allows for certain capital gains deferments, have also shriveled.
Demand for recreational properties has weakened, and capitalization rates have risen as investors sense greater risk. The higher level of risk means the economy remains fragile, Clarke said.
Because of the credit crisis, he added, some ag lenders have left the market or reduced their participation. A more conservative approach has evolved, with more stringent qualifications and requirements. Syndication deals have limited credit exposure, while emphasis has been placed on profitability, collateral margin, management acumen, and quality of financial information.
Citing examples of values, Clarke said open, irrigated farmland in Monterey County slipped from a range of $20,000-$50,000 per acre in 2008 to $15,000-$45,000. In Ventura County, the range for similar properties rose from about $45,000-$75,000 to $40,000-$90,000+.
Varietal wine grape acreage in Monterey County remained stable in the $18,000-$38,000 range. Vineyards in San Luis Obispo and Santa Barbara counties expanded the 2008 range of $28,000-$50,000 to $12,000-$57,000.
Open irrigated farmland in the Coachella Valley demonstrated the collapse of value based on development rather than agriculture. The $100,000 peak level of the preceding couple of years plummeted to near $10,000 by 2009.
In a report on the North Coast and the Sacramento and San Joaquin valleys, Correia said, “Most land values have been fairly stable: some strong, some fluctuating, and some weaker. Those going down are just reversals of the few prior years when prices were ramping up higher perhaps than should have been.”
Environmental and regulatory concerns impacting all of agriculture throughout California continue, he said, with no signs of changing soon.
Stanislaus and San Joaquin counties have the highest almond land values at $25,000, with most other valley counties at or near $15,000.
Kern County led the pistachio values at $15,000-$25,000, and Madera and Fresno counties were at $8,000-$15,000. “One attractive thing about pistachios is their significant barrier to entry. They are expensive to produce, and it takes a long time to bring an orchard into production,” Correia said.
Since the 2009 grape crush of 3.7 million tons, wine prices have been flat, and industry analysts are trying to figure whether this is a short or long term phenomenon. Although consumers are buying more wine, they are looking for lower prices, Correia said. That market is being courted by wine imports that made up 32 percent of the U.S. wine sales last year. Wine grape acreage in the state is about 500,000 acres, the same as 2001.
On the North Coast, where wine markets were mainly “on pause” during 2009, he said, buyers “sat on their wallets in the wake of the global economic crisis.” Wineries avoided the spot market, and many growers custom crushed in hopes of selling bulk wine into a stronger market later. Grape contracts continued to be important, if not essential.
Values of Napa County vineyards on resistant rootstock stayed in the broad range of $50,000-$300,000. The best properties are holding their value, and there is no truth to accounts of “Napa Valley foreclosures on a wholesale basis,” he said.
However, vineyards on resistant rootstock in Sonoma, Mendocino, and Lake counties saw significant declines from peak values of 2008. The span of values across the three was $15,000-$100,000.
San Joaquin County wine vineyard values held flat in the $15,000-$18,000 range. Those in Fresno and Madera counties slipped about $2,000 from their $8,500-$10,500 range of 2008, while raisin vineyards in those two counties maintained their value range of $7,000-$13,000.
Table grape vineyards in northern Tulare County saw some appreciation, bringing the range up to about $10,000-$14,000, while similar properties in Fresno and Madera counties remained in the $7,000-$15,000 range.
Kern County citrus land rose slightly to a range of $8,500-$11,500, while Tulare County tree fruit orchards continued at $8,000-$12,000.
Historical values statistics and narratives for each of seven regions of the state, plus Nevada, are in the 2010 issue of the chapter’s “Trends in Agricultural Land and Lease Values,” priced at $20, plus shipping and handling. Orders can be made at 209-368-3672 or www.calasfmra.com.