Farmland values just keep growing

Just like those 350 California crops the land where they grow just keeps increasing in value.  It seems to prove that old piece of investor advice: “Buy land; they aren’t making any more of it.”

A recent study reported in the bi-monthly update published by the Giannini Foundation of Agricultural Economics, located on the Davis campus of the University of California, indicates that agricultural land in California has not only tolerated the bust that overcame other real estate holdings, but it continues on a seven-year boom.

Admittedly, according to one graph illustrating points in the report the three major values studied — all housing, non-metro housing and farmland — the other two have shown greater value since 1995.  But after 2005 the other two have fallen below the graph’s horizontal bottom line, while ag land has held firmly above it.

Authors of the report are Jennifer Ifft and Todd Kuethe, both economists at the Economic Research Service, United States Department of Agriculture (USDA) in Washington, DC.  They point out that only a few agricultural businesses are publicly traded, leaving farm land as a major arena for those who want to invest in agriculture.

A more intense analysis of agriculture’s favorable economic status and its attendant land values has been published by Rabobank.  Its focus is on the factors that might cause a bubble to develop and eventually burst, impacting outsiders who invest in farm land and farmers alike.

The bank’s report, prepared at the direction of its vice president and chief agricultural economist Vernon Crowder, concludes that agriculture’s current robustness is dependent on some factors considered economically fickle — strong commodity prices, low interest rates and a limited supply of farm land — but strong worldwide demand is helping prevent the development of a typical economic bubble.

Concern that a bubble might be developing results from the substantial increase in the value of farm land, from 20 to 70 percent over the past 20 years depending on its location, crops grown on it and the economic stability of farmers on the land.

The scope of the bank’s report is the entire country, but it zeroes in on some California crops that have shown and are still showing robust returns.  Strong corn, grain and other commodity prices have given a substantial boost to the value of Midwest farm land.  But worldwide demand for California’s specialty crops, particularly almonds and pistachios, supports the underlying value of the land on which they’re grown.

It cautions investors to watch for developments that pressure commodity prices downward, higher sustained costs of production or increased interest rates.  Any one or a combination of any of the three is sure to send farm land values lower.  It says the specialty crops are vulnerable to changes in international trade policies

The bank’s report relies on another recent survey which showed that 75 percent of purchases of Midwest farm land involved purchases by farmers, and only about 20 percent by investors.  Even purchases of farm land adjoining urban areas has slowed, as developers of homes and businesses have backed off in the face of reduced demand for both housing and small business units.

Stability rather than exciting growth opportunities seems to characterize farm land ownership now and for the foreseeable future.  But careful observance of trends and conditions that affect commodity prices is advised, for both potential investors in farm land and farmers who are using it.

California agriculture has seen tremendous agricultural expansion through the years as a result of investors, and some losses have occurred when basic economic warning signs were ignored.  But the stabilizing influence continues to be farmers who value the land for its productive capacity and its potential for supplying the needs of hungry people worldwide.  

Even city folk can understand the value of preserving farm land, if for no other reason than “they aren’t making any more of it.”

Don Curlee is a agriculture consultant in the Valley. His column appears each Monday in The Recorder.