Sharp declines in tree-nut prices are erasing some gains seen in California land values over the past decade, according to a new report by the Food & Agribusiness Research (FAR) and Advisory, a unit of Rabobank Group, which also owns California-based bank Rabobank N.A. Despite this setback, the state's agricultural land values are on solid ground. Limited land supply, global demand for specialty crops and producers' operational expansions are expected to restore the state's historical upward trend in the long term.
''Agricultural land prices are giving back some of their increases, particularly in regions where tree-nut prices have had an impact on previously rising valuations,'' said Roland Fumasi, a senior analyst with Rabobank's FAR unit. ''Nut prices have since plummeted from their highs in the past year to 18 months. But California remains among the most productive zones in the world for high-value, specialty crops, so impacted land valuations may rise again later in this decade.''
The report, ''California Land Values: Outlook 2016,'' analyzed USDA cropland values and rural land sales data from the American Society of Farm Managers and Rural Appraisers (ASFMRA). Rabobank also interviewed rural real estate appraisers, and used a set of econometric equations based on crop prices and macroeconomic variables to estimate likely changes in the average economic value of rural land in each California region. It notes that land will not necessarily trade hands at the estimated values, since long-term growers tend to have a long-term outlook and hold onto high-yielding properties.
Sacramento Valley: Short-term speed bumps loom
Agricultural land values in the Sacramento Valley have soared in recent years compared to all other regions in the state, according to the report. From 2010 to 2015, the region's compound annual growth rate (CAGR) based on ASFMRA data was 18.2 percent, vastly higher than the CAGR of 5.0 percent between 1999 and 2010. The biggest increases were fueled in part by specialty crops including tree nuts, some of which are now experiencing significant price declines. Accordingly, falling walnut prices could drive some land values down 31 percent in 2016 and 15 percent in 2017.
San Joaquin Valley: Drop in tree nut prices expected to soften land
Like its Sacramento Valley neighbor to the North, recent declines in tree nut prices are creating a general downward expectation. The severity of the drop will depend on the specific area of the valley, crop type and water access. Between 1999 and 2010, the valley's agricultural land values rose at an average CAGR of 6.5 percent, and 15.5 percent between 2010 and 2015.
North Coast: Modest vineyard value increases through 2017
The report estimates modest growth in vineyard land values in 2016 and 2017. The North Coast vineyard market has experienced above-average sales growth in recent years, but the global economy's impact on premium California wine may result in slower growth.
Central Coast: Generally in line with its historical trends
Insulated from the impact of fluctuating tree nut prices found in other regions, the Central Coast is expected to stay generally in line with its historical trends. One characteristic, especially in vegetables, is that a large portion of production is grown on contract, with prices based largely on production costs. This dynamic has resulted in a gradual and relatively consistent upward trend over many years -- even as production costs have risen. The report estimates that this trend will continue for vegetable and berry land in all regions of the Central Coast, with growth of 3 percent to 4 percent in 2016 and 2017.
Southern California: Land value to remain generally flat
Most Southern California regional land values have remained relatively flat, with the most notable exception being land in the Imperial Valley that has limited adaptability to grow annual produce or permanent crops. This type of ground saw an 88 percent increase in value between 2012 and 2015; it is estimated to fall 16 percent through 2017.
The full report is available to clients of Rabobank and the news media