Orchard and specialty crop farmland outlook
Rising interest rates and a higher trending dollar could pull the value of orchard and specialty crop farmland lower over the next several years according to a new report from Rabobank International.
The report, called “Land Values Peaking Out—But Not Down,” concludes that the single greatest risk to U.S. agricultural land values is looming higher interest rates.
The rise in interest rates—and corresponding pressure on land values—is not expected immediately. But higher interest rates could push up the value of the dollar and reduce the export competitiveness of U.S. fruits, vegetables and nuts. That could lower land values by double digit percentages within several years, according to the Rabobank report.
Rabobank Food & Agribusiness Research and Advisory senior analyst Sterling Liddell, author of the report, said current Federal Reserve policy seems to indicate no significant increase in interest rates until 2014 or 2015.
Late September interest rates for 10-year treasury notes are about 2.65 percent. The worst-case outlook for the rise in 10-year treasury note interest rates would see them top out at about 6 percent, according to Liddell.
The dollar has shown volatility and gained strength against the Mexican peso and Argentina real, Liddell said. “It’s been volatile, but over time we would expect to see increasing interest rates increase the investment in U.S. dollars, which would drive up the value of the U.S. dollar.”
The Rabobank report predicts a decline in farmland values in the central U.S. of 15 percent to 20 percent over the next three years, while the decline in land values in the Southeast and the western U.S. won’t be as severe. Land planted to grain and oilseeds is most susceptible to decline, the report said, as rising stocks are lowering prices.
“While an increase in interest rates will have a similar impact on agricultural land values throughout the country, the amount of change will depend on the type of crop production and proximity to urban areas,” he said. “The changes seen in land values in the West, especially those in California, should be less dramatic than that of the rest of the country,” Rabobank senior analyst Vernon Crowder, report co-author, said in the report. “This is due in large part to the diversity of crops grown in the region.”
Orchards, vineyards and irrigated land in the western U.S. have seen big increases in land values in recent years—land values have doubled in some regions since 2006—because of strong market prices and growing export demand, according to the report.
For example, California’s Tulare County farmland devoted to grapes sold for $9,500 per acre in 2006 but rose to $19,000 per acre by 2012, according to the report. California’s Ventura County strawberry land rose in value from $60,000 per acre in 2006 to $71,500 per acre in 2012. California’s Monterey County row crop land rose in value from $31,000 per acre in 2006 to $40,000 per acre in 2012. California’s Fresno pistachio acreage rose in value from $11,500 per acre in 2006, to $29,000 per acre in 2012.
California orchards with good yielding almond trees can sell from $18,000 to $25,000 per acres, according to the report. A rise in interest rates of 1.5 percent could reduce the value of almond orchards by $1,800 per acre, according to the report. If interest rates were to rise by 3 percent, the value of the land could fall as much as $5,000 acres, Crowder said in the report that rising interest rates will be the main factor in any decline in the value of farmland, but a rising value of the dollar could suppress exports.
Increases in land values were expected to be modest in California in 2013 and 2014 because of drought conditions in some regions and reduced surface water deliveries.
Florida land values have come under pressure because of citrus greening disease and import competition in the vegetable sector, according to the report.
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