Written by David Castellon
Starting in 1999, prices for agricultural land in the South Valley experienced a decade of steady growth in value, averaging about a 5.5 percent increase on a compounded, annual basis.
And if you were looking to sell ag land after 2010, the news got even better, as values rose by almost 20 percent on average over the next five years, with some ag parcels nearly doubling in value, said Roland Fumasi, vice president and senior analyst for Rabobank Research Food and Agribusiness.
As for what drove that trend, it was nuts — almonds, pistachios and walnuts — that experienced growing demand among consumers around the world, pulling prices higher.
That, in turn, drove up prices for Valley farms already growing nuts, as well as inflating the prices for land growing citrus, grapes and other crops that could be converted to nut-growing operations, he said.
But over the past year-and-a-half, demand for U.S.-grown nuts has softened, and with it the values of ag land in the Valley, said Fumasi and other local real estate experts.
Certainly, there were a number of factors involved, “but one of the most critical was a rapid rise in tree nut prices and tree nut profitability,” he said during his presentation last month on the Fresno County Economic Development Corporation’s 2017 Real Estate Forecast.
“But we know in the last 18 to 24 months — timing depending on the specific nut crop — those [commodity] prices have dropped by roughly 50 percent, said Fumasi, explaining that California nut growers increased their production and acreage due to the high demand for their products, “and finally the supply growth in California tree nuts caught up and, in some cases, outpaced the demand. That drove the prices down.”
In addition, California nuts saw increased competition from nuts grown in Spain, South Africa, China and other countries, while a strengthening U.S. dollar made nuts grown here more expensive, driving some buyers to seek cheaper nuts from those other countries.
Valley ag land values peaked in late 2015, when good walnut groves sold for about $40,000 an acre. Now they sell in the high $20,000 to low $30,000 range, said Craig Larson, a senior vice president for the Farmlands Department of Pearson Realty Fresno.
Oddly, nut pricing had pretty much everything to do with driving the movement of ag land prices in recent years, while the market largely seemed to ignore the past five years of the worst drought in California’s recorded history, said Stanley Xavier, president and chief executive officer of Correia-Xavier, Inc., a Fresno-based agricultural appraisal and consulting firm.
Now that the market for ag land has slowed, water is becoming an important consideration, as potential buyers are waiting to see the plans that groundwater sustainability districts across the state are required to develop under California’s Sustainable Groundwater Management Act of 2014.
Those plans will determine how water basins will sustain groundwater in their regions over the next 50 years. While plans will be different, it seems likely — particularly in the Valley, where the state’s drought hit the hardest — that farmers will face restrictions on how much groundwater they can use, something they’ve never had to do before.
“There’s a slowdown in development [of land] to permanent plantings as the market is waiting to see what the impact of the California water policy is going to be in specific areas,” Xavier said. “There is a degree of uncertainty until those groundwater management plans get set in writing and implemented.”
But that will be a long wait, as groundwater sustainability agencies have until 2020 or 2022 to develop and implement their plans.
Not that this or the declining land values have altogether stalled ag land sales.
Ag land still is economically viable, particularly in areas that have good access to surface water, Xavier said.
“Those areas are holding their value, and there is activity there. In the other areas, where that situation doesn’t exist, there is a lack of market activity,” he said.
“At the more marginal-yielding ground — with water challenges, for example —[parcels with] almonds certainly were the most hardest hit, giving back about 30 percent of their valuations in 2016, and cropland on the westside was the next hardest hit, with a 17 percent decline last year,” Fumasi said.
For his part, Larson said, there still are areas where ag land sales are vibrant.
“We just sold six [farms] in the last month, and so there are buyers out there, and some of them don’t hesitate at all,” he said. “We are seeing a little slowdown, but only because of commodity prices, because almonds are $3 a pound compared more than a year ago, $4.50.”
People who know the land and the weather here in the Valley seem particularly willing to buy ag land now, even in areas with water issues, including the Terra Bella area, “because they know the nuances of their water. But it can be difficult to get investors to go in certain areas.”
The break from back-to-back drought years thanks to this past winter’s heavy rain and snowfall is helping.
“I will say this: Everybody I talk to in the farm industry, it’s a breath of fresh air to see water,” Larson said. “If we did not have the rain and then snow this winter, I would be looking for a job. There are certain areas, they were running short of water. Even north of Reedley, where I live.
“If not for this [rain], the farmers would have buckled under,” and lot more farms would be on the market now, while ag land values would have plummeted, Larson said.
A buyer recently told Larson that he loves the current slowdown in the market, because now he has time to consider and evaluate before buying land.
“People are still buying, but it takes a little longer to sell the properties,” he said. “Before, you had to buy fast, or it was selling in a day.”
“This is not doom and gloom for ag land values in Fresno County. We think that yes, ag land values still need to come in line with more historical trends,” Fumasi said, adding that ag land values may have gone up too fast in recent years.
But for the most part, he predicts long-term, positive trends for ag land here.
“They’re not making any more of the land, and we’re sitting in the most productive agricultural region in the world.”