If there’s one valuable takeaway from the roller coaster in Central Valley ag land values these last several years, it’s that market conditions can look repulsive or inviting depending on your position.
Edison-area farmer Steve Murray understands this, along with the added twist tree growers like him face lately.
Thanks to 2014’s Sustainable Groundwater Management Act — SGMA, the dreaded anti-overdrafting law you’ve probably heard about — Murray expects growers will try to buy up land as a way of making sure they have enough water to irrigate the acreage they already own.
Why? Because under SGMA, how much water farmers can pump from the ground will be determined by how much farmland they own. In other words, they’ll need more land to grow the same amount of food. For them, recently plunging prices are a good thing.
But not if their heart isn’t in it. Farmers worried about the drought and the industry’s long-term prospects may want to let go of their dirt assets. And because of unfortunate timing, they’ll have to do it at prices well below the peak of about 2015.
“It’s either a good time to sell or a good time to buy, depending if you’re committed to ag or you’re committed to being fiduciaries to your family’s assets,” Murray said.
Ouch. But if that sounds rough, get a load of the numbers Rabobank put out the other day.
After southern Central Valley farmland prices rose by about 125 percent between 2010 and 2015, they slipped about 7 percent during the two years that followed, Rabobank said. It expects prices to fall another 12 percent by the end of 2019.
SGMA is the biggest factor in the price slide, the bank suggested, but not the only one. It also pointed to lower tree nut prices, low capitalization rates for investors, rising production costs and “economically unsustainable land valuations.”
Kern County farmland broker and appraiser Michael Ming isn’t much more optimistic, about prices or SGMA.
He sees ag real estate holding its value in some parts of the county, notably in the northern part of Kern, but slipping later this year the farther south you go — a geographic trend Rabobank noticed, too.
Again, water becomes the most decisive ingredient: Ming predicts water districts fed by the Kern River will see price changes this year ranging from a gain of 10 percent to a decline of 5 percent. He estimates areas served by water districts but which have only wells will fall in value by between 10 percent and 20 percent in 2018.
“It’s really going to be based on your ability to bring water to your property,” he said.
Danny Andrews, a Maricopa-area grower and shipper of fruits and vegetables, is one of the bullish farmers Murray refers to. That is, he’s not looking to sell because “there’s always going to be a demand for food.”
But neither is he planning to buy additional land.
One problem is that interest rates are rising. Another is that it’s getting harder to get land with reliable (and affordable) access to water.
So, for him, it’s neither the right time to buy or the right time to sell. What might have been a good opportunity just lost some shine.
“For me,” he said, “I’m just going to sit and watch.”
John Cox is the business editor for TBC Media.