Rabobank report notes continued profitability a leading cause for infrequent land sales in the Golden State.
The overall value of California’s farmland rose slightly in 2011, though trailed behind the same value increases experienced by Midwest land owners.
The information is detailed in “U.S. Farm Land Continues to Dazzle,” a report released today by Rabobank’s Food and Agribusiness Research & Advisory (FAR) group.
The piece, an update to FAR’s June 2011 report ‘Blowing the Farm Land Bubble,’ notes that according to the USDA, California’s cropland land values increased by just 1% in 2011 and 20% overall since 2005. Alternatively, Midwest land values have shown 20% to 30% increases through the latter half of 2011 and into 2012. Rabobank attributes the higher-than-projected growth rate to increased prices for corn, soybean and wheat prices and low interest rates. Within its small increase in statewide land values, the greatest area of appreciation for California has been for land that has reliable water resources.
“California’s crop diversity and profitability continues to shield any major overall downturns in land values for the state,” said Vernon Crowder, senior vice president and agricultural economist with FAR and contributor to the report. “There are some sectors, like dairy, whose losses affect the land and facility values of those specific sectors, but on the whole the state’s farms are well capitalized and diversified.”
Crowder notes that steady and strong profits are deterring farm operators from selling, amid attractive offers from domestic and international buyers – many from outside of the agricultural arena. The most sought after land from California buyers is for permanent crops such as pistachios, almonds, walnuts, mandarins and grapes, all which have enjoyed robust yields and prices in recent years. However, the report warns that those crops while attractive now, are more susceptible to corrections in the future, given the costs involved to redevelop the land for other crops.
Rabobank expects that revisions to the USDA data will show that overall farmland value in California increased closer to 5% and will do the same for 2012 with values in the San Joaquin Valley rising near 20% percent. Crowder cautions however that while the short-term outlook for farmland values in California appears attractive, they are subject to various risks.
“Higher interest rates and the appreciation of the U.S. dollar are always factors to consider when you’re talking about the outlook of farmland values,” said Crowder. “Equally important, water shortages in California can quickly depress land values, as evidenced by the dip we experienced between 2008 and 2010.”