Concern is rising that the recent decline in commodity prices may threaten Kern County’s farmland boom, a decade-old phenomenon that has attracted investors and bolstered growers’ assets even as it has raised the costs of farmers who rent.
Two Central Valley market observers say a variety of factors weighing against nut prices lately, including higher interest rates, international trade headwinds and a larger than usual 2015 almond crop, have begun to affect agricultural real estate values.
Bakersfield farmland broker Michael Ming said in his 2016 market forecast, released this week, that ag real estate buyers “have begun to pull back” and are now valuing properties based on expectations commodity prices will remain lower “for the foreseeable future.”
Rabobank’s senior analyst, Senior Vice President Vernon Crowder, said some property sales already under way have been renegotiated because of the recent drop in nut prices.
“We expected to see some price adjustment” in ag real estate values, he said. But, he continued, “it was probably a bit bigger than we expected.”
Crowder said the local market for farmland is in no way vulnerable to the kind of bust seen in the 1980s, mainly because farmers have done most of the buying in recent years, not speculators.
“We don’t expect a crash,” he said.
Predictions of generally small valuation declines after several years of accelerating price increases have until recently been based almost entirely on water availability. Demand has been weakest for farmland without ample groundwater access or adequate surface water deliveries.
Ming’s forecast said this view is now coupled with concerns about commodities.
“We expect the 2016 ag market will track lower commodity prices and escalated water fears,” he said.
Not everyone thinks commodity prices will drive the ag real estate market.
Broker Kevin Palla, who delivered a farmland forecast at a well-attended real estate conference last week, said he remains bullish. Market fluctuations don’t change the fact that property is being operated by experienced farmers.
“These corrections will be handled and dealt with, but you still have extremely strong demand for their production, and they’re continuing to increase it and create a better product,” he said.
Crowder said some types of cropland have stronger prospects than others because of varying demand for locally grown commodities.
Almond prices have recently slipped 20 percent to 30 percent to about $3 per pound for farmers, he said, and walnut prices are down about a third.
California table grapes continue to experience strong demand overseas, Crowder said, as do mandarins.
Reasons for the changes in nut prices are the strong dollar, which makes U.S. products less affordable for importers. In the case of almonds at least, more acreage dedicated to orchards, combined with improved weather conditions, have increased supply, Crowder said. Foreign competitors are also increasing production, which also cuts into prices.
While walnuts are still profitable, prices are likely to fall below their average during the last 10 years, which Crowder said will expand their domestic consumption. But he predicted almond prices are expected to stay above their 10-year average of about $2.50 per pound.