Markets, water availability prove key in land values

Despite market unknowns created by the pandemic and lower commodity prices, California agricultural land values remained largely stable, an indication buyers have confidence in the long-term land market in the state: This was a key takeaway from a virtual business conference held by the California Chapter of the American Society of Farm Managers and Rural Appraisers.

The conference also discussed impacts of the Sustainable Groundwater Management Act on California land values.

Even though record supplies of the state’s highest-value crops led to lower prices for farmers last year, appraisers said the softer prices also helped move those products. General expectations that commodity prices will improve in the next few years have kept almond and walnut orchard values stable throughout the Central Valley, they added, though they noted sales activity was down in 2020.

Tiffany Holmes, a rural appraiser for Edwards, Lien & Toso in Hilmar, pointed to the stability of almond and walnut orchard values, even with prices for those nuts trending lower last year. Pistachio orchards in the central and southern San Joaquin Valley increased in value because commodity prices were “well above” production costs, and the trend is expected to continue this year, Holmes added.

“Buyers have found that pistachios are a good long-term investment in areas with both surface and groundwater supplies,” which are decreasing due to regulation, she said.

SGMA continues to affect land values, but appraisers reported most cropland markets saw little change from 2019, even with completion of draft groundwater sustainability plans, or GSPs, for nearly all San Joaquin Valley groundwater sub-basins.

For example, Central Valley cropland with good water sources stayed stable last year, said Janie Gatzman of Gatzman Appraisal in Oakdale.

Even though land values in the Sacramento Valley fell slightly, she said that had more to do with the quality of the properties available. Gatzman said properties with good water sources were already purchased from 2015 to 2017 and developed into permanent crops, and buyers now find that “more outlying and less desirable properties are the only ones available.” Land values did not change much for cropland with fairly reliable surface water and groundwater resources, she added.

Concerns related to SGMA drove a difference in Tulare County cropland values, Gatzman noted.

In the county’s Kaweah sub- basin in the north, which does not include groundwater pumping restrictions in its draft GSP, cropland values remained stable, she noted. But values in Tule sub-basin districts fell 10 percent or more in 2020, because at least four of the six draft GSPs in the sub-basin call for some level of groundwater pumping restrictions.

“There was definitely pressure on land values in the southern half of Tulare County in 2020,” Gatzman said. “That might change in 2021 as the pumping restrictions are better understood and they see whether or not those GSPs will be accepted by (the Department of Water Resources), but there is certainly uncertainty and concern in that region this year.”

After passage of SGMA, she said, the value for land with no surface water has fallen, whereas properties with surface water have increased in value. She pointed to eastern Fresno and Madera counties, areas that rely solely on groundwater for irrigation, noting how values have dropped well below values of cropland in the two counties with good surface water.

“That’s definitely a SGMA impact, as a lot of farmers are selling out of those areas that do have groundwater pumping restrictions,” Gatzman said. “They’re trying to get into the better districts that have more stable water supplies and no groundwater pumping restrictions. That’s definitely putting upward pressure on orchard values in those areas.”

David Orth of New Current Water and Land LLC, a water consulting firm in Fresno, said farmers throughout the San Joaquin Valley, particularly those in the Westlands Water District, “proved to be very resilient” as they dealt with surface water uncertainty and ongoing reductions in those supplies. But he said that resiliency will be “severely tested” with current surface water conditions and as early implementation of SGMA starts to affect individual farmers.

Due to impacts from SGMA, Jim Zion, managing partner of Meridian Growers in Madera, said he expects orchards on the west side of the San Joaquin Valley to shrink as farmers move to more secure water districts in the north. He noted seeing “quite a bit of movement to sell orchards on the Westside,” with plantings of pistachios going into Sacramento Valley locations such as Arbuckle, Chico and Corning.

“I just don’t know if increased plantings up in those areas will offset some of the losses we’re going to see on the Westside,” he said.

Winegrape vineyard values have remained largely stable throughout the state, according to appraisers. Holmes said the stability occurred in spite of challenges created by the pandemic and California wildfires, many uncontracted grapes, slowing sales and large bulk inventories in early 2020 that became more balanced in the fall.

Sales of commercial vineyards located in well-established areas with grape contracts and young to mid-life vines supported stable values, she said. In contrast, Holmes said vineyards in secondary and outlying areas with limited grape contracts and vines past their mid-life motivated sellers and indicated slightly lower prices and stable to declining values.