Concerns are rising in Kern County's agricultural community that a looming interest rate hike could halt California's farming boom.
The overriding worry is that the Federal Reserve's plans to wean the economy off low interest rateswill drive up borrowing costs and, as a result, strengthen the U.S. dollar.
If that happens, and many economists expect it will, it would make California ag exports more expensive overseas.
It's unclear how widely any slowdown would be felt locally, much less whether it would ultimately hurt farmers long accustomed to market ups and downs.
But considering how quickly Kern's farmland values have climbed since the start of the recession -- between 33 percent and 74 percent, depending on the location, water access and crop -- county property tax revenues would probably take a hit over the next few years.
On the other hand, lower ag land prices could make it easier for farmers to expand their operations -- providing they've saved enough money and not gone too deeply in debt.
"If you see land values going down, then I think that would open up opportunity for buying land and expanding what we do," said Steve Murray, owner of Murray Family Farms, which grows some 200 varieties of crops on about 300 acres near Edison.
DECLINES AHEAD BUT NO CRASH?
A report last month by ag lender Rabobank predicted that Central U.S. farmland values will drop by as much as a fifth during the next three years. It forecast lower prices for Midwestern staples like corn and soybeans, which have seen small declines this year.
The Western United States will see a more moderate decline in ag land prices, the report said, because of the region's greater crop diversity compared with the Midwest and closer proximity to urban areas.
What there won't be is a 1980s-style collapse in U.S. land values, or anything resembling the bursting of a bubble, Rabobank's report emphasized.
"I personally don't use the term 'bubble,'" said Vernon Crowder, a senior analyst with Rabobank International's Food & Agribusiness Research and Advisory group, which prepared the report. He explained that the farmland price increases of recent years have been well supported by farmers' earnings, which wasn't the case in the 1980s.
Still, the "B" word has come up as outside investors turned to farmland as a good place for their money during the recession. Rabobank and others have noted a sharp increase in investor land purchases, even as they agree that the majority of acquisitions have been by agricultural interests.
Other trends back the idea that a sharp, broad-based downturn in farmland value is unlikely: Many farmland purchases made since 2009 were done in cash, so there is less debt to be serviced if interest rates jump.
Also, some of the most expensive ag property includes water rights, which is expected to have long-term value as Southern California -- and its thirst -- continues to grow.
IMPACT ON COUNTY GOVERNMENT
Kern's rising farmland values have led to higher property taxes on the county's so-called Williamson Act properties, which generally encompass the county's farmland.
Such acreage is now valued at about $3.8 billion -- a 52 percent increase since 2010 that translates to an additional $13 million a year for local schools, cities, special districts and county government, Kern County Assessor-Recorder Jim Fitch said.
While he declined to speculate about future farmland values, Fitch emphasized that his office bases assessments of such property primarily according to how much the land earns, or would earn, in rental prices.
"The commodities are doing very well, and so we have seen rents increase a great deal," leading to higher valuations and property tax revenues, he said.
Rabobank's Crowder pointed to strengths and potential weaknesses for certain crops popular among local farmers.
Pistachios prices, he said, depend largely on demand from Asia. Kern County farmers heavily invested in the nuts could have a hard time finding a market if that overseas market were to shrink, he said.
He was more bullish about another crop that has seen increased local acreage: mandarins. Even in the face of a heightened threat from the Asian citrus psyllid pest, Crowder said growing domestic demand has improved the fruit's prospects.
"The consumer really likes the product," he said. He cautioned that there could be a concern if mandarins end up cutting into demand for navel oranges, which also take up significant amounts of local acreage.
At this point, more people are still looking to buy farmland than there are plots for sale, and it's this imbalance that has kept prices strong, said farm and ranch broker Robb Stewart, an accredited farm manager with Pearson Realty in Bakersfield.
He and Kern County Farm Bureau Executive Director Benjamin McFarland said there is a growing recognition among local farmers that things could soon shift in favor of buyers with money to spend.
Assuming interest rates do rise, what happens next will depend on individual farmers' financial situation, they said. Those who need to borrow will have a harder time, while people with cash on hand will find bargains.
Also, Stewart said farmers who took on loans with variable interest rates to buy their land are talking lately about locking in those rates as a preventative measure.
"I don't know whether they're doing it, but they talk about it," he said.
McFarland said that although the situation may appear delicate from the outside, farmers are used to changing business conditions.
"We adapt. This is what we do," he said. "We can't control everything and we have to make the best decision for our business, our family business, to make sure that we keep moving forward."