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Higher Ag Income Fuels Demand For “Good Ground”

young almond trees

With the exception of the dairy sector the rest of the Valley’s farm commodity markets are having a banner year and that is fueling demand for farm properties says Jim Olivas,a veteran farm realtor with Pearson Realty. “Prices for farmland are up 30% in the past two years in Kings and Tulare counties “says Olivas who says he” has just one word for it… unbelievable”.

Olivas adds that his biggest struggle is finding suitable properties for buyers. The increase in sales activity is confirmed by Visalia Wells Fargo bank manager Bill Hoover who offers “We’re just slammed with loan applications and the appraisers are too” noting that some of the activity may have to do with the approaching year-end tax deadline and potential changes in the tax code.

Noting the extremely low loan interest rates right now – banks and appraisers say they are busy with refinance applications as well.

Farmland broker John Grimmius say “investors now have the sentiment that with all the dollars being printed and bonds being bought up – people want to invest in something that won’t fly away – like farmland.”

Visalia appraiser Keith Hopper agrees. “It’s not just good commodity prices but the fact this investment is tangible and the rates of return are very good compared to other ways to invest money.”

Role Reversals

Hopper adds that the economics favor not just open land in the countryside but so called transitional land near urban areas like Visalia.

Historically, this land would be much higher in value because of the opportunity to covert it to urban uses like new home subdivisions.Today, the market for some of those edge-of-town lands is “to plant permanent plantings, like walnuts” says Hopper.”These investments are long term,at least a decade.” With much less new development slated in urban areas, the price and demand for land held to be converted to subdivisions later is down while farmland is up. It is a role reversal from where it was just a few years ago.”

If they are not selling as many new homes here, California is selling lots more more fruit and nuts overseas with record crop sales appearing to be a driving force.

Commodity Prices Drive Higher

Just last week, the USDA reported walnut sales for the crop year ending Aug 31,2012 averaged $1.46 per pound compared to $1.02 the year before, 85 cents in 2009 and 64 cents in 2008. Raisin prices were at record levels in the latest crop year as well with prices at $1,632 per ton compared to $1.489 in 2010, $1292 in 2009 and $1,273 in 2008.

Then there’s almonds who set a record too. US domestic almonds shipments of 48.3 million pounds were 11% ahead of 2011 while export shipments (91.4 million pounds ) were up 34%. Total shipments were 139.6 billion pounds or 25.2%.  In 2011, for the first time ever, the value of the California almond crop surpassed the state’s iconic grape industry to move into second place, behind dairy.

Acreage Up Nearly 4X

Forty years ago, California farmers produced less than 100 million pounds of almonds on about 200,000 acres of almond orchards. Mechanization, improved irrigation efficiency, advances in insect and disease management, pruning research and fertilization studies have fueled explosive growth in the industry. Farmers in California’s Central Valley now tend 760,000 acres of almond trees, producing about 2 billion pounds of shelled nuts a year.  “Even with this record production, we have more demand than we have supply,” said Bob Curtis of the Almond Board.

Grapes and nuts were not alone with USDA reporting in the past few weeks that cattle income was up 20%,greenhouse nursery up 14% and hay income was up 68% in this most recent crop year ending August 31.

Like so much in the state’s ag sector – hay is up on export demand,to China of all places. Alfalfa exports to China from America ballooned to 177,423 metric tons in 2011 from 2,321 metric tons in 2007, and they are on pace to exceed 380,000 metric tons in 2012 says the Wall Street Journal.

Another Role Reversal

There is even opportunity knocking in the troubled dairy sector but more to do with the potential conversion of large dairy field cropland,used to grow feed,and dairies themselves into other crops.

“Right where I am standing (on a Kings County dairy) everywhere I look I see land being planted to pistachios” shrugs Hanford dairyman Joaquin Contente. Jim Olivas confirms the trend. ”I have a dairy owner who is downsizing and there are plenty of offers for his land”.

Ag broker John Grimmius who specializes in dairy has seen it all. The boom years where scores of dairies from the Southland relocated to Kern, Kings and Tulare Counties pushing up demand for open ground. The number of cows in Tulare County went from around 60,00 in 1970 to just under half a million in 2011 with an equal number of replacement animals that all need to be fed and surrounding crop used to deposit manure. Translation,lots of land needed.

”As recently as 2008 it was dairy buyers who were crowding out other buyers because they could pay more.”

Not today. Because of several tough years for milk prices and the sky  high cost of feed – it is now dairy operators who are being crowded out, says Grimmius. Another role reversal.

Dairyman Contente says because his industry is dependent on feed from the Midwest he would like to buy more land to grow more of his own feed but can’t compete with investors wanting to plant trees.

“I can’t afford to pay $15,000 to 18,000 an acre like they can.”

Grimmius points out another factor that mirrors what is happening in the existing home sales market right now.”It’s a tight market because landowners don’t want to sell unless they have to.”

With low returns elsewhere in the economy and fear on Wall Street “ag  land sales are in a perfect storm right now, when you consider how much demand is way up” says Pearson real estate agent Mark Johnson.

The increase in farmland values reflects crop values like in Kings County where last year the dollar value of crops produced was up 29%.

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