Some blame SGMA – Then there’s the decline in nut prices, chill hours, more heat, trade wars and other factors
The value of farmland in parts of the San Joaquin Valley, California’s agricultural heartland, has fallen rapidly this year as both commodity prices lag and implementation of the state’s Sustainable Groundwater Management Act casts a shadow on the future of farming in the region.So reports a recent California Farm Bureau story.
In 2014, when SGMA was adopted, the value of farmland without reliable surface water access began to decline. But within the past several months, those values have plummeted, according to appraisers, realtors and county assessors.
“It’s very dramatic,” said Janie Gatzman, owner of Gatzman Appraisal in Stanislaus County, who until last month served as president of the California chapter of the American Society of Farm Managers and Rural Appraisers.
Last month, Gatzman presented data based on hundreds of real estate transactions to congressional staff. Her analysis showed San Joaquin Valley vineyards and nut tree orchards had declined in value by 25% to 50% within the previous eight months.
In parts of Tulare County, Gatzman said, some pistachio orchards have sold this year for a quarter of what they were worth last year.
But there are other factors at play here.
Low crop prices, rising input costs and high interest rates have also played a big role in the decline of farmland values, experts said.Farmers have overplanted key crops and current disappointment may simply reflect crop prices half of what they were just a few years ago unrelated to water. A sudden decline in wine consumption has hurt vineyard values along with an influx of cheap foreign grapes.Chinese retaliatory tariffs has reduced ag exports and profitability of nut orchards and vineyards irrespective of SGMA
Global warming effects
Then there is the unmistakable impacts of global warming with both summer heat and warm winter nights affecting fruit and nut production and quality with more insect damage and chilling effect of reduced chilhours.Huge wildfires can blanket the Valley create smoke with high levels of ozone that can damage a plants ability to photosynthesize and can lead to smaller lower quality fruit.
Global warming can negatively impact California agriculture in many ways, including:
Water availability: California’s agriculture is dependent on water storage in snowpack, but warming temperatures reduce this storage. Climate change is also causing more precipitation to fall in fewer, heavier events, which can increase the risk of flooding. In 2023 flooding covered thousands of acres of productive farmland in the south valley forcing the government to spend millions to help both farmers, homeowners and cities to survive an unprecedented deluge.
Water demand: Warming temperatures increase the rate of evaporation, which increases the amount of water crops need.
Sea level rise: Rising sea levels can contaminate water supplies with saltwater. In the Sacramento-San Joaquin Delta, which supplies water to 25 million Californians, more freshwater will need to be pushed through to keep out saltwater.
Weather variability: Climate change is making California’s climate more volatile, with more dramatic swings between wet and dry conditions.
Wildfires: Wildfires can damage agricultural fields with intense heat.
Pests: Global warming can increase the risk of pests.
Crop sensitivity: Some crops, such as almonds, walnuts, tomatoes, stone fruit, and wine grapes, are sensitive to warming temperatures.This month north Valley walnut growers reported unusual heat damage.”The October heat has pummeled California’s Central Valley as the walnut harvest has gotten underway. Walnuts are the sixth-highest commodity throughout San Joaquin County, but production could be a lot lower this year compared to last year. One grower said that almost one out of every five walnuts he’s grown are bad or gone because of the heat. “
And yes there is the issue of groundwater.
Groundwater has supplied about 40% of water used in California in typical years and as much as 60% in drought years, serving as a lifeline for orchards and vineyards that need water year in and year out.
“Pumping is the buffer stock for fluctuations in the surface supply,” said Richard Howitt, professor emeritus of agricultural and resource economics at the University of California, Davis. “That is what enables you to have perennial crops.”
But experts said—and farmers agreed—overdrafting aquifers was not sustainable. It shrank underground water storage, caused swaths of land to sink, damaging water delivery infrastructure, and dried up shallow wells including hundreds of homestead wells.
In Madera County, some farmers in “white areas” that do not receive surface water from an irrigation district must pay penalties this year on any water they pump that exceeds 27.4 inches. But almonds, the county’s No. 1 crop, need 40 to 50 inches of water per year.
Amrik Singh Basra, who farms 300 acres of almonds in a white area in the county, said he has minimized pumping to keep his trees producing without incurring too costly a penalty. But he is still paying a price, both in penalties and production.
“When we look at the trees,” Basra said, “we can see they are not getting enough water.”
He has lost yield, with some of the crop turning out flat and shriveled, and his land’s reduced farming capacity has caused it to lose more than half its value.
Justin Morehead, a former banking manager whose family farms in Tulare County, spoke last month at the state probation hearing for the Tule Subbasin, spelling out the crisis facing some farmers.
“The banks, now looking at appraised land values that have shed 60% to 70% in five years, are reluctant to lend to the local family farm. Unable to continue farming, the owner will either be forced to sell or foreclose with the bank,” Morehead said. “This is not a hypothetical exercise to us. This is the reality our family is facing”.
White areas are the areas where historically rivers have not flowed and where irrigation districts were never formed.Of course investing in a permanent crop in those areas is very risky.
Kern real estate agent Brian Neufeld points out that farmland revenues across the board in 2024 are looking to be lower than in recent years, but this is especially true in the almond tree farm market of central California where I operate. Investors interested in purchasing an almond tree farm should beware that good deals are coming in 2024, particularly for those with cash on hand.
The commercial production of almonds is currently going through a market crash that will likely prompt a large number of almond-producing farmland owners to consider selling in 2024. An oversupply of almonds has caused grower pricing to be so soft that revenues to recapture costs to produce are falling short. Even the best-yielding almond tree farms with no debt to service are struggling to cover cultural, water, harvesting, and property tax expenses.
Tough time for walnut growers
A decline in walnut prices preceded the SGMA issue with the price per pound crashing to $.38 last year compared to $1.67 in 2014. This chart shows the steady drop in walnut returns for farmers. Walnut farmers who got $2500 a ton in 2007 saw their return decline to $1200 a ton in 2020 and $840 a ton in 2023. That’s a 2/3 decline in take-home pay. Rather than blame water issues, retired farm advisor Bob Beede suggests that the farmer who is producing the walnuts may be getting as little as 40 cents a pound while the end product, after going through middlemen, is sold for $8 a pound.
Farmers are pulling trees with the 2024 California walnut production forecast standing at 670,000 tons, says USDA. That is down 19% from 2023 production of 824,000 tons.
Climate issues are clear – hot summers and low chilling hours. Last year several late winter and spring storms boosted the Sierra Nevada snowpack and significantly added to reservoir storage in California to normal condition.Some instances of blight showed in walnut groves because of heavy rains, then summer brought record high temperatures to California and growers were forced to increase irrigation. The latest objective measurement survey has indicated nut quality will be decreased from last year.
Almond prices
California’s biggest crop is almonds that covers 1,300,000 acres in the state – up from 760,000 acres in 2011. At the same time growers planted all those trees,it coincided with prolonged drought.But now prices have dropped over the past several years and the state’s almond acreage has started to decrease.
The Fresno Bee reported earlier this year that” financially troubled almond farm with ranches in Fresno and Tulare counties, as well as other parts of California, is on the verge of becoming the latest farming company to call it quits. Trinitas Farming LLC, an Oakdale-based company funded by a private equity firm, is getting ready to take offers on nearly 8,000 acres of young almond trees.”
Farmers enjoyed four dollars a pound for their almond production in 2014. It has headed lower since.In 2017 they received about $2.53 pound says USDA.In 2022 that fell to $1.40 a pound. Production in 2014 was 1.95 billion pounds – 3.1 billion pounds in 2020. Now in 2024 California almond production is expected to be around 2.8 billion pounds.
The brutal impact of Chinese retaliatory tariffs needs to be looked at. Last year, Dr. Steinbeck of UC Davis concluded that the retaliatory Chinese tariffs cost the US almond industry almost $875 million in export value or more than 320 5,000,000 pounds of shipments between April 2018 and April 2022. The impact of these tariffs has reduced the value of California farmland.
Pistachio returns
Operating costs for pistachio growers have been steadily increasing over the past few years, while average prices have been trending in the opposite direction. Assistant Professor in Cooperative Extension in the Department of Agricultural and Resource Economics at the University of California, Davis, Brittney Goodrich has been working on preliminary estimates to update the cost and return study from 2020. She said that costs have increased by about five percent on average since 2020.
“What I have is about $3,300 per acre, in operating costs. That doesn’t include any overhead or investment,” Goodrich noted. The 2020 study shows the cost to produce pistachios as $3,210 per acre. While costs increased, prices declined further. “I have the average price of pistachio, which includes an average on in-shell and the shelled product as well, which is about $1.86. So our revenues are down about 12 percent from 2020,” Goodrich explained.
Reported prices show a decline from 2019 of $2.81lb to about $2 pound in 2023.
Trade wars
California tree nut producers were among the biggest losers of the trade war that began under the Trump Administration, a UC study has found.
In fact, California’s farmers and food processors were hit harder than their counterparts in any other state. And, despite compensation from USDA’s Market Facilitation Program, most California farmers were not made whole by the aid, said lead author Colin A. Carter, a Distinguished Professor of Agricultural and Resource Economics at UC-Davis.
“California’s losses from the trade war far exceeded the government compensation payments,” Carter noted.
The study, “2018 Trade War, Mitigation Payments, and California Agriculture,” was released in late 2020.
Before the trade war, California’s share of the tree nut market in China had been growing rapidly. But almost all California products exported to China— one of the world’s largest importers of agricultural products—lost significant market share due to the trade war and resulting retaliatory tariffs. The U.S. market share for almonds, pistachios and walnuts fell from 94% to just 53%.
Overall, tree nuts suffered substantial trade war losses of about $239 million, with US government subsidy MFP payments accounting for just 52% of the loss, the report found.
About 68% of almonds, 78% of pistachios and 65% of walnuts produced in 2017 were exported to foreign markets. Among the various export markets, China is the third largest market for California agricultural exports by value, worth about $2.2 billion in 2017, constituting 11% of total Ag exports
Still another factor is the increase in the dollar index that has hurt exports of our crops – about 10% in the past five years.
By the way it is not just California farmers who worry about a ratcheting up of trade wars.National Corn Growers have reported that such a trade war would lead to” a steep drop in soy and corn prices, resulting in a ripple impact across the U.S., particularly in rural economies” where farmers live, purchase inputs, use farm and personal services, and purchase household goods.”
“It’s unusual to have so many crops struggling at the same time” – Ag Secretary Karen Ross
Betting on more pistachios
Production report from American Pistachio Growers estimates California acreage will top 811,000 acres and production will reach 2.08 billion pounds in 2031
A new production report, commissioned by American Pistachio Growers (APG), underscores an undeniable fact – the U.S. pistachio industry’s preeminence as a world leader in growing the popular nut will continue in the coming decade. With a projection of annual bearing acres in California running at a 5 percent annual growth clip, the state’s pistachio growers are on a trajectory to shake more than 2 billion pounds from their trees by 2031.
The projections by Dennis H. Tootelian of the Tootelian Company of Sacramento forecasts annual pistachio production from 2023 through 2031. His study focused on California, which provides 99 percent of total U.S. production. Pistachios are also grown in Arizona, New Mexico and Texas.
For the 2023 pistachio crop, which California growers are currently harvesting, Tootelian pegs the crop as 1.36 billion pounds from 453,750 bearing acres. His study projects the rise in new plantings, number of new bearing acres and total annual production in California for each of the next nine years.
New plantings of pistachios are projected to mirror what growers have planted on an annual basis in the past decade. Tootelian said that will mean the total number of acres in California will grow by 28,489 per year, from 2023 through 2031, to total nearly 811,300 acres.
As new orchards mature, the number of bearing acres is expected to grow at a rate of 5.1 percent annually. That will mean the 2031 crop will come from 668,850 bearing acres. Non-bearing acres are counted as trees in their first year of being planted through year five. Measurable production begins in the 6th year, the year they are considered “bearing” acres.
Location Location
The prospect of receiving water is and has always varied by location. The eastside of the Valley has always been more productive, dotted with more small farms and cities than the dry west side of the Valley. The east side- close to the Sierra – is favored with more permanent plantings that require regular annual water supply over decades. These vineyards and orchards have sprung up on the river fans coming off the Sierra like the Kaweah River or the Kings. But areas in between those fans are dryer, soils are poorer and often less productive.Now some of these areas are termed White lands.
Ag West Farm credit reports that areas not served by district water, known as ‘White Land’ areas, have seen values decrease 9% to 16% annually since 2015.Elsewhere in the State, land values are becoming increasingly tied to projected long-term groundwater availability and the access to reliable surface water supplies. The Sacramento Valley, because of its wetter climate and closer access to the Sacramento area rivers, is one area in the state to enjoy more reliable water.
Water availability, particularly access to surface water, is the primary driver of land values in the San Joaquin Valley. Pumping restrictions and state intervention will increase the importance of groundwater recharge. Secondary drivers include elevated interest rates and falling commodity prices.
Declining commodity prices are beginning to put downward pressure on land values in the San Joaquin Valley, notably in the tree nut and table grape sectors. This trend is also present in tree nut orchard values in the Sacramento Valley.
Listing times are increasing as supply outpaces demand, a trend that has been compounded by the liquidation of multiple large vertically integrated grower/packers and agricultural investor groups based in the southern San Joaquin Valley. Tens of thousands of additional acres are on the market.
Dairy facility demand is decreasing due to weak domestic markets. There is a limited pool of buyers and they prefer newer, more efficient facilities. Less efficient facilities are typically purchased and redeveloped into feed cropland or used as heifer facilities.
Increased orchard plantings over the last several years reduced available land for sale in the Sacramento Valley, leading to higher land values. More recently, this trend is slowing as commodity prices fall. Rice ground values are diverging on opposite sides of the valley – west-side values are trending lower due to water supply curtailments while east-side values are trending higher due to relative water security.
Glut of wine
Premium wine grape vineyards in the Central Coast, with the exception of those located in the desirable western Paso Robles area, are seeing reduced demand due to a glut in the U.S. wine industry. Established winery sales activity appears to be slowing.
Water availability, particularly access to surface water, is the primary driver of land values in the San Joaquin Valley. Pumping restrictions and state intervention will increase the importance of groundwater recharge. Secondary drivers include elevated interest rates and falling commodity prices.
In the South Valley there has always been a huge difference in natural precipitation that replenishes our groundwater.The east side has more small farms, while the west and south have more larger farms.
Eastern San Joaquin Subbasin: Precipitation ranges from 11 inches in the southwest to 25 inches in the northeast.There is a tremendous variation in the amount of precipitation that falls that can be seen comparing precip at Giant Forest in the Sierra receiving about 45 inches a year, Three Rivers just above the valley floor receiving an annual rainfall of about 27 inches. Lindsay, California at the base of the foothills gets 12.5 inches annually and Visalia receives about 11 inches of rain annually. Further west Hanford receives around 9 inches and Lost Hills on the extreme west side of the Valley gets just 7 inches of annual rainfall.Besides rainfall, the eastern portions of the SJV, close to where rivers spill out onto the valley floor, are the beneficiaries of the best water runoff and recharge with a dense network of district canals and ditches criss crossing the ag land and replenishing the groundwater there.
In order to bring water to areas along the eastside that do not enjoy river runoff, the federal government in the 1940s funded a canal (Friant Kern Canal) that brings San Joaquin River water south past Bakersfield offering a steady reliable supply to otherwise dry areas like Orange Cove and southern Tulare County where little river runoff exists and/ or the soils have little groundwater.Likewise on the westside the state has brought northern California water south to extremely dry areas although on a less reliable and reduced quantity level allowing a huge planting of pistachios near Lost Hills, for example.
Statewide drought has reduced the annual average California Aqueduct volume prompting vigorous groundwater pumping by farmers who have invested in trees. But in recent years pumping has caused adjacent land to sink along both the east and west side canals with subsidence (sinking land) damaging canal infrastructure to the tune of millions of dollars. So far the state has picked up the tab, but the issue is in litigation.
The water and land value issue is not just SGMA but drought. Land close to a surface water source has always been more valuable than land without the choice.Westside rangeland can go for $500 an acre while pistachio orchards can fetch $45,000 an acre.
The whole picture is complicated. Karen Ross, Secretary of the California Department of Food and Agriculturw says it’s a difficult situation for farmers, particularly due to low commodity prices and increasing production costs. “It’s unusual to have so many crops struggling at the same time,” she said in a recent interview.
The California Farm Bureau contributed to this story.
captions:
Winter chill brings summer fruits (and nuts). But warmer, shorter winters can disrupt the chill that fruit and nut crops—and related local economies—depend on.Chart shows winter chill hours measured in Fresno.
Huge variation in average rainfall
walnut prices head for the cellar