Trends in Agricultural Land & Lease Values

CaliforniaPresented by the

California State Board of Food and AgricultureJuly 7, 2015

Sacramento, California

DisclaimerThe land value and lease data presented today and in the Trendspublication represents a general range of sales and rental data for each stated market. Specific sales or leases may be present in the market which are higher or lower that the ranges noted. Due to many factors, one should not assume that all of the farms or ranches within a certain market area or crop will fall within the ranges shown.

We strongly recommend that you obtain the assistance of a trained professional in your area to determine the value or appropriate rental level for a specific property.

CAUTION!

Rapidly changing conditions for irrigation water supplies in 2015 and beyond due to the current drought may have a material impact on the land values and rental data presented today and in the Trends publication.

CAUTION!

Ground water regulation is imminent, and its implementation could change most commonly held perceptions about farmland markets.

REGIONS 1, 3, 4 and 5The Sacramento and San Joaquin Valleys

and Sierra Foothills, (west)

The Great Central Valley

REGIONS 1, 3, 4 and 5The Sacramento and San Joaquin Valleys

and Sierra Foothills, (west)

Primary Market Driver:• Profitability in permanent plantings

– almonds, walnuts, pistachios, table grapes and citrus

• Water: – amount, stability of supply, quality and cost

Secondary Market Drivers:• Scarcity:

– lack of available properties on the market

Primary Market Driver

Nut Crops:• All California nut crops compete in the world market

• Prices tend to trend together

• Demand fueled by:– Positive nutritional news

– New products/uses

– Limited growing areas (worldwide)

– Rising incomes in Asia

Almonds:• Average grower returns

– increased from $1.45 to $2.87 (‘08 – ’13), a 99% increase

• Bearing acreage– has increased over 20% during that same period +/- 900,000 acres

• 2014 crop was “short”, 1.8+ billion pounds

• 2015 estimate is near same levels at 1.8 billion pounds

• Current spot prices are over $4.00 per pound

• Drought conditions have, and continue to constrain supply

Primary Market Driver

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Grower Return / Ac

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Region 1 Region 4

Region 5 Region 3

SJ Valley North

Sac Valley

Kern/Tulare

Fresno/Madera

Walnut Orchards

Walnuts

Walnuts:• Average grower returns

– increased from $.64 to $1.86 in (‘08 – ’13) a 190%increase

• Bearing acreage– increased 30% during that same period to +/- 300,000

• 2014 crop was approximately 1.1 billion pounds

• Availability of nursery stock continues to limit new plantings, (Chandler, Howard and Tulare)

Primary Market Driver

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Walnut Production and Returns

Total pounds Grower Return

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Region 1 Region 5

Region 3

SJ Valley North

Sac Valley

Kings/Tulare

Pistachios

Pistachios:• Average grower returns

– increased from $2.05 to $2.51+ (‘08 to ‘14)

• Bearing acreage– increased 100% during that same period to +/- 270,000

• Current non-bearing acreage– could equal 175 million pounds

• 2014 crop was approximately 514 million pounds– Impacted by drought, low chilling hours

• Industry expects 1 billion pound crop before 2020

Primary Market Driver

Price Vs. Return Per Acre and Trend

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Pistachios

Region 4 Region 5

Kern/Tulare

Fresno/Madera

Wine Grapes:• Not a stellar year in 2014

• Prices down

• Some un-contracted grapes went un-harvested

• Light Thompson Seedless crop

• Many vineyards were pulled out and redeveloped to other permanent plantings, primarily nut crops

Other Primary Market Drivers

Soft Fruits:(table grapes, stone fruit, citrus)

• Expansion by– large growers

– vertically-integrated operators

• Price recovery in:– Prunes

– Canning peaches

• No freeze in citrus (successful crop)

• Stronger orchard/grove prices for most crops

Other Primary Market Drivers

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Soft Fruits

Region 1 PrunesRegion 4 Stone FruitRegion 5 CitrusRegion 5 Table GrapesRegion 3 Cherries

Lodi Cherries

Sac Valley Prunes

R5 Table Grapes

R4 Tree FruitR5 Citrus

Water:• Now a primary driver

• Knowledgeable buyers have always focused on water

• Can, and will remain, property specific

• The current situation is worse than 2014

• Even best districts are facing limits

• Permanent plantings are not just facing a bad year…

• Potential loss of entire investment

Secondary Market Driver

*Source: NBC Bay Area

Is it time to go back to Oklahoma??

Scarcity:• Limited availability of good to excellent properties

• Especially those with good water conditions

• In light of their current earnings this is not surprising

• Older plantings at/near end life are available

• Some sellers would rather sell than drill a new well

Other Primary Market Drivers

• In most areas• Disconnect between land price and land rent

– Market is driven by permanent plantings

• Values for land in “fringe” or untested areas have increased significantly – Market is driven by permanent plantings

• Commodity prices for most row crops remain favorable

• Dairy profitability returned in 2014, but must compete with nut growers for land

Impact on Land Values

$0

$5,000

$10,000

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$25,000

$30,000

$35,000Open Land

Region 1 Region 4

Region 5 Region 3

SJ Valley North

Sac Valley

Kern/TulareFresno/Madera

$0

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$30,000Crop Land-Water Imports

Region 4 Region 3

Region 5

Water Supply Risk

REGION 2The North Coast

Napa, Sonoma, Marin, Lake, Mendocino, Del Norte, Trinity and Humboldt Counties

Primary Market Driver:

• Profitability in the wine industry,(Wine prices drive grape prices drive vineyard values)

Secondary Market Drivers:

• Scarcity: lack of land available for vineyard development• Control: Manage grape supplies and costs• Water: Irrigation and frost control

Profitability in the Wine Industry:• Unlike nut crops…• Wine profitability links to general economy

– Luxury good

• Three good to great harvests in a row (‘12, ‘13, ‘14)• Increasing prices despite bigger crops• Increased profitability to growers• Concerns about “cost of goods” for wineries

Primary Market Driver

Profitability in the Wine Industry:• Rising grape prices

– plus

• Strong yields, (unprecedented three years in a row)– Equals

• Good grower returns in 2012, 2013, and 2014

Primary Market Driver

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Wine Grapes

Scarcity:• Best areas essentially planted out• New development constrained by erosion, scenic

view and stream set-back regulations• Approved projects are expensive, time-consuming

and UNCERTAIN• Basic laws of economics are pushing values higher

Secondary Market Drivers

Control:• Rising grape prices concern wineries• To control cost, wineries purchase vineyards

Secondary Market Drivers

Water:• Not a significant driver in 2014

• Winter 2014/15 was actually fairly normal

• Impact of regulatory and compliance issues will continue to be felt

Secondary Market Drivers

REGION 6The Central Coast

Alameda, Santa Clara, San Mateo, Santa Cruz, San Benito, Monterey, San Luis Obispo, Santa Barbara and Ventura Counties

Primary Market Drivers:

• Profitability in the wine and vegetable industries• Growth in the berry industry, (strawberries, raspberries and

other bush berries)

Secondary Market Drivers:

• Scarcity: lack of land available for purchase/development• Control: Manage grape/berry supplies and costs• Water: Irrigation and frost control

Profitability in the Wine Industry:• Like the North Coast, most production areas of the

Central Coast enjoyed strong yields in ‘12, ‘13 and ‘14

• Prices have increased• Unlike North Coast, water is much more of a concern• Some locations (Paso Robles) water is a dominant

factor

Primary Market Driver

Profitability in the Vegetable Industry:• Profitable year for most vegetable crops

• 2014 sales transactions were limited in most areas

• Local growers and investors are the typical buyers

• Demand for land for purchase or to lease, especially for berries, appears strong

• 2014-15 winter season in the desert was break-even to moderately profitable, strong demand for land and thus values and rents in 2014 remains in place

• Impact of California drought, (Huron)

Primary Market Driver

Growth in the Berry Industry:• Prices and yields were generally good in 2014 after a

disastrous start in Camarillo in 2013• Increased acreage of other berries, particularly raspberries and

blackberries, (how many new hoop houses are out there?)• Labor cost and availability remain as issues• Impact of fumigation restrictions

Primary Market Driver

Growth in the California Berry Industry

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Crop Value

ThousandsPl

ante

d A

cres

Raspberry Planted AcresStrawberry Planted AcresStrawberry Crop ValueRaspberry Crop Value

Planted Berry Acres in California

- 2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000 18,000 20,000

1995 2013 1995 2013 1995 2013

Crop Value Up To

$1.3 Billion

San Luis Obispo & Santa Barbara

CountiesPlanted Acres Up

108%

Crop Value Up To

$675 MM

Ventura CountyPlanted Acres Up

312%

Monterey & Santa Cruz Counties

Planted Acres Up 89%

Crop Value Up To

$821 MM

Scarcity:• Several large transactions in 2014• Historically, most properties were not exposed to the open

market but privately negotiated between buyer and seller• In recent years, there has been more broker involvement

Control:• Buyers for vineyards and row crop land for vegetables or

berries are looking to control output and costs

Secondary Market Drivers

Water:• Most areas of the Central Coast rely on groundwater

• Increased vineyard development in recent years in the Paso Robles area and dry conditions combined to lower water levels

• In August of 2013 an injunction on further well development was issued by the county

• The impact on land values and future vineyard development is unclear

Secondary Market Drivers

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Coastal Cropland

San Benito Santa Cruz

Monterey SLO-SB

Ventura

REGION 7Southern California

Los Angeles, Orange, Riverside, San Bernardino, San Diego and Imperial Counties

Primary Market Drivers:

• Urbanization is key, both to pace of transition of farmland to other uses and demand for nursery, sod and other products, (exception is the Imperial and Palo Verde Valleys)

• Water: cost, reliability and availability. Impact of water agreements with urban agencies

• For some crops and areas, agri-tourism is crucial, (Temecula Valley)

• Impact of foreign competition on avocado, floral and other specialized crops

• Impact of "big box" stores and and real-estate development on nursery business

• The higher quality farmland in the Imperial Valley is impacted by winter vegetable crops and markets

• Commodity prices for most row crops grown in the Imperial and Palo Verde Valleys remain favorable.

Secondary Market Drivers

REGION 8Mountain Areas

Alpine, Amador (East), Calaveras (East), El Dorado (East), Inyo, Lassen, Mariposa, Modoc, Mono, Nevada, Placer (East), Plumas, Shasta, Sierra, Siskiyou and Tuolumne Counties

(Comments are generally applicable to other ranching areas)

Primary Market Drivers:

• Livestock prices• Impact of drought on crop acreage, feed availability and costs

Secondary Market Drivers:

• Impact of recreational, retreat and homesite buyers remains mostly muted after 2008 recession

• Commodity prices remain attractive for feed and other crops• Several mountain valleys have seen increases in strawberry

plant acreage

• Limited sales activity across most of California• 1031 Exchange transactions remain limited• Prices generally stable and marketing periods for higher

quality grazing land are shorter than 2013• Cattle prices are high due to historically low cattle inventories

and growing export markets• Drought has increased demand for higher quality ranches in

Northern California• Some land formerly used for grazing is being converted to

permanent plantings

Ranch Properties

$0

$2,500

$5,000

$7,500

$10,000Rangeland

Interior, West Interior, East

Inland Coast Coastal

SummaryCalifornia

• California commodities have enjoyed an impressive run• In most markets increasing profits have driven farm values to

record highs• Acute drought event threatens many growers in 2015• Long term water policy will have long term ramifications• Property in areas with threatened ground and surface water are

at risk• Property in areas with good water will continue to be attractive

Trends in Agricultural Land & Lease Values

CaliforniaPresented by

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