Arizona farmland values are probably the steadiest in Yuma County compared to other crop-growing regions in the state — with all facing the cloudy economic recession.
Vegetable and citrus land values in Yuma remain balanced while dairy ground in Pinal County lost 30 percent to 60 percent in value since the downturn began.
That’s the lowdown from various farm appraiser reports shared at the 2009 Arizona Spring Ag Outlook Forum conducted by the Arizona chapter of the American Society of Farm Managers and Rural Appraisers in Tempe, Ariz.
Farmland prices remain stable in the Yuma, Bard, Dome, and Gila valleys around Yuma where the important interstate transportation system and vegetable coolers are located, says William Moody of Robert L. Moody, Associates, Yuma.
Average farmland values in the four valleys range from $20,000 to $25,000 per acre, Moody says. Premium land suitable for vegetable production in Yuma and Gila could bring $26,500. The prices do not reflect urban influence or the potential for alternative uses. Rents are stable with vegetable ground in the $500 to $750 per acre range and premium ground up to $800 per acre.
Vegetable acreage has declined about 40 percent in Yuma County over the last two years — about 20 percent each year, Moody reports. The reductions are linked to lower produce prices possibly tied to a market oversupply of vegetables, concerns about labor availability, and increased plantings of grain.
Most acreage reductions are east of Yuma in the Wellton-Mohawk area where some growers switched from veggies to wheat, alfalfa, and grain sorghum (for ethanol) for potential higher prices.
Moody is aware of several farmland sales in Wellton-Mohawk which suggest a decline in prices east of the Roll and Texas Hill areas.
“We expect a decline in land values there,” Moody said. “When vegetable plantings are replaced with field crops, a reduction in rent revenue usually occurs. Several growers have shared confidentially about intentions to negotiate lower rents in lease renewals.”
“We’re waiting to see if this is merely conjecture as there isn’t evidence of a decline in rents yet,” Moody said.
Yuma County agriculture has an economic value of about $1.3 billion; about $1 billion from winter vegetables. Moody says current Yuma County farmland buyers are typically operators, not investors.
“Almost non-existent” is how Charles Havranek, real estate salesman, Headquarters West, Ltd., Phoenix, sums up farmland sales in Maricopa County. Price ranges have declined for raw land; in part due to significant reductions in 1031 fund transfers from investors, developers, and farmers.
Prior to the recession, the Phoenix metropolitan area was one of the fastest booming housing markets in the nation. The recession brought new home construction almost to a skidding halt.
“Some farmers were selling out and running to buy farmland in Yuma County, Cochise County, Imperial Valley, Texas, and the Southeastern U.S.,” Havranek said.
He noted several recent distress farmland sales in the Buckeye area (West Phoenix) which sold in the $10,000 to $13,000 per acre range.
“I’m beginning to see where because of the squeeze between the cost of production and the returns on production that people are trying to negotiate farm rents downward especially with short-term leases,” Havranek said.
Duane Webb of Mesa, Ariz., an owner of Southwestern Ag Services LLC, says the company sold 404 parcels of farm ground (40 acres plus in size) in 2005. Sales plummeted to 44 transactions in 2008, a 92 percent reduction.
“I personally thought I’d never see another wreck like this and I’ve been appraising in Arizona since 1972,” Webb said. “It’s a strange bag of worms in Pinal County.”
Pinal County’s deep agricultural roots include cotton, vegetables, fruit, dairy, citrus, alfalfa, and other crops. Urban dwellers flocked to Pinal County during the recent housing boom to seek lower-priced homes near Phoenix.
Webb says the average price of Pinal County farmland was $24,909 in 2008, up from $19,610 in 2007. Cash rental rates are $80 to $125 per acre for short and long-term leases.
Cochise County farmland values remain stable, says Mark Finley, owner, Finley Appraisal Services, Willcox, Ariz.
“Stable means something will change, probably will go down, but we don’t have the evidence now,” Finley said.
Current Cochise County land interest is currently neighbors examining other neighbor’s smaller parcels. Stable rental rates average from $100 to $125. In the Safford area (Graham County) a few farmland sales are occurring in the outlying areas. Rents are $100 to $150 per acre, Finley says.
Bill Moody shared an Arizona citrus report prepared by Scott Halver of the Ganado Group, Phoenix, who missed the conference due to illness.
Moody says the state’s citrus industry has recovered from the January 2007 freeze. Citrus prices are significantly lower this season due to the economy while yields are higher. Some growers will barely cover operating expenses while others could net $1,500 per acre.
“The justified maximum land value for prime lemons on deeded land (in the Yuma area) is about $18,000 an acre,” Moody says. “Prices for mid-life groves can reach $18,000, but its $15,000 for lemon acreage with no urban development potential.” Development interest on the Yuma mesa, the epicenter of lemon production, has mostly dried up.
Lemon acreage around Yuma topped about 13,000 acres in 2006, but has fallen slightly. Moody says a lemon grove buyer in the Bard area (Imperial County) removed the trees for vegetable production.
Thomas Schorr, appraisal program manager, Farm Credit Services, Tempe, Ariz., reports a 30 percent to 60 percent reduction in dairy farmland values compared to peak values in 2005 and 2006. Schorr reported no dairy farm sales in 2008.
“Most dairymen who were moving out of the urban areas were getting very high prices for the underlying land; that market has gone away,” Schorr said. “They don’t have a good exit plan due to low land and milk prices.”
Current milk prices are in the $10/hundredweight range while the break-even point for many dairymen is $13 to $16 per hundredweight for milk.
“The dairy market has really gone in the tank,” Schorr said. “If you have a 3,000-cow dairy, you could be losing $10,000 a day or $300,000 a month.”
Now is the ideal time to purchase dairy ground, Schorr says. Low milk prices are keeping many dairymen from taking advantage of reduced land prices. Schorr is aware of several dairymen who rented dairies who are now building facilities to take advantage of lower prices for concrete, steel, copper and fuel.
Dairy cash leases are holding steady, Schorr says. Rates vary from a fully-depreciated dairy at $7 per head/month up to $18 per head/month for a new Saudi-style facility.
“If the market doesn’t turn around in about the next six months, there may be serious fallout in the dairy market,” Schorr said. “There could be 250,000 dairy cows that could go to market for beef.”
The dairy industry relies heavily on the alfalfa industry and vice versa for quality livestock feed.
While the Imperial Valley is in southeastern California, its geographic proximity across the Colorado River from Yuma and similarity in agricultural crops denotes similar trends in farmland values.
“Overall farmland values in the Imperial Valley are very stable and I think that will continue,” said Tom Turner, senior appraiser, Farm Credit Services Southwest, Yuma.
“The Valley has always been in agriculture and will probably continue as an ag-based community. It’s one of the few places left in the country where there’s still a good relationship between water and land.”
Turner says differences exist in land prices depending on the soil:
• “Good adaptability ground” with sandier soil for vegetable and good quality hay production sells for about $6,000 per acre and rents for about $350 per acre.
• “Average adaptability ground” with soil containing some clay for alfalfa production sells for $3,000 to $5,000 per acre with rental rates from about $200 to $250 per acre range.
• “Limited adaptability ground” for mostly Bermudagrass production sells for about $2,000 per acre and the rent is about $125 per acre.
The Imperial Valley Irrigation District is selling about 22,000 acres of farm ground purchased about five years ago. The sale prices are in the current market range, Turner says.
The value of Imperial County agriculture in 2006 was about $1.3 billion, according to the California Agricultural Resource Directory.