A new report shows market conditions in local agriculture are generally stabilizing — though not improving much — as investors in Kern County farmland take in the bad news about upcoming restrictions on groundwater pumping and, to a lesser degree, lower commodity prices and a continuing labor shortage.
Thursday's update from Bakersfield's Alliance Ag Services Inc. points to big year-over-year drops in the value of properties with minimal surface-water supplies, and more modest decreases in areas with more reliable access to irrigation.
The good news is that farmland prices have generally held steady during the last several months, suggesting the worst may have passed. But as one observer noted, it's possible valuations could fall again as regulators begin to review local water agencies' plans for complying with the Sustainable Groundwater Management Act, better known as SGMA.
The price of farmland is considered a broad-based measure of how well local agriculture is performing financially. Rabo AgriFinance has reported that Kern ag property values shot up about 125 percent between 2010 and 2015, when the price of commodities like almonds were very strong; prices have since settled down significantly, mostly because of worries that SGMA will take large swaths of land out of production.
Local farmland has in recent years attracted major investors, such as insurance funds and others with deep pockets. That has increased the value of some farmers' holdings, even as it has priced out some smaller farmers.
Alliance Ag's report shows a wide disparity in the price performance of local farmland, based mainly on water access. Overall, properties in the county that are part of water districts served by the Kern River are down no more than about 5 percent from a year ago, while on the other end of the spectrum, areas not part of a water district have fallen as much as 20 percent.
The company's primary broker, farmland appraiser Michael G. "Mike" Ming, said there's no guarantee prices won't continue to decline as SGMA nears a key deadline, January 2020, when the state will receive and begin to review local proposals for meeting the requirements of SGMA.
"I think that you’re going to find that the closer we get to that January 2020, I think you’re going to see those (land) values kind of deteriorate a little bit, especially on (areas not served by a water district)," Ming said. "Because we really don't know what’s going to happen. There’s a lot of risk in the market.”
He added that there's a good chance prices will rise somewhat if negotiators in Washington are able to strike international agreements to end the product tariffs that have lowered the overseas competitiveness of almonds, pistachios and other Central Valley products.
Ronald Fumasi, vice president and senior analyst at Rabo AgriFinance, observed that SGMA's effects have mostly been incorporated into local land values, but that "details can always change."
"Remember, the state still has to receive, review and accept (or not accept) groundwater sustainability plans" required under SGMA, Fumasi said by email. "So I am not willing to rule out more downside movement."
But he also pointed to a significant "bright spot": the recent federal move to revisit an official biological opinion that has kept more water from flowing south from the Sacramento Delta.
Fumasi noted that recent farmland valuations can be deceiving.
Properties considered low-quality because of their limited access to water might not be marketable at any price, which he said creates an incentive to seek out land with the best water availability. But people holding preferred farmland may not be willing to sell even at higher prices, he added.
Fumasi also noted that SGMA is not the only factor in farmland price declines. Tree nut prices are off their historic highs and farm labor costs continue to increase, both of which have weighed on Central Valley property valuations.