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Western Farmland Value Trends

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Benjamin Ward
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Home > Education & Events > September 2019 > Western Farmland Value Trends
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The Pacific Northwest, California, and Western Ranch Lands are home to a large array of agricultural industry, contributing to an equally diverse range of farmland value trends throughout the region.

The western U.S. is a unique and diverse place with an array of opportunity, and the agricultural land base is no exception. There are many micro markets comprised of specialty crops, processors, and climate. There are also large scale sprawling ranching enterprises. While it’s nearly impossible to determine an accurate per acre adjustment over time for each state, I will do my best to provide a general overview of the Pacific Northwest, California, and Western Ranch Lands.

The Pacific Northwest
The Pacific Northwest continues to see strong farmland values and increasing markets. This is a very diverse area with many different crops being produced, multiple climates, and varying commodity markets. Hemp production is becoming popular, though many traditional farm operators seem to be leasing land with investment and lifestyle farmers taking on the crop risk. There is array of seed crops, specialty crops, vegetable crops, orchard crops, and vine crops all in addition to many feed crops grown throughout the area.

Markets have generally been strong with an influx of buyers relocating from other states, expanding operators, investor buyers, and recreational type buyers as well. Transplants and retirees from other areas of the country — most notably California — have been very present in the market, which helps support land prices. Many times these buyers are utilizing 1031 monies or profits from other real estate sales to fund their new purchase. Investment buyers are typical institutional buyers seeking large acreage, performing ag operations that can be easily leased for a return.

Recreational buyers have become more present in the market as well, particularly in the last year. These buyers are more concerned with the recreational enjoyment and amenities of a property than its income potential. Desired recreational lands includes lands with timber cover, live water, seclusion, and access to public lands.

Most prevalent sellers in this market are:
  • operators reducing debt
  • estates
  • investors profiting by land sales
  • retiring operators
As stated, the real estate market is considered to be stable and strong to increasing in many areas. Quality of the farmland, 1031 exchange transactions, low supply of land for sale, aggressively expanding operators, irrigation/water availability and quality are the driving forces of value. The most recent USDA land trend data for Percent Change from 2017 concludes “No Change to increases of 5%.” The Dollars per Acre value range is represented as $920 to $3,150 throughout the Pacific Northwest. This data is reflective of the Farm Real Estate Values and is published by the USDA. Please refer to the map illustration at the end of the article.

California
California continues to be a dynamic market place. This very complex state is an integral part of the global ag economy. There are vast commodity markets that exist only — or largely — within the confines of the state lines. Almonds, for example, are grown for production in very few locations around the world and the citrus market is dominated by two states, one being California.

California, while benefiting from its temperate climate, is still largely at the mercy of Mother Nature. Over the past few years drought has influenced crops as well as spurred ground water regulations. Starting in 2020, California will begin the implementation of the Sustainable Groundwater Management Act (SGMA), requiring government and water agencies to halt overdraft and bring groundwater basins into balanced levels of pumping and recharging. With this will start the metering of groundwater wells.

As the act has not yet been implemented, set standards or targeted rates or amounts have yet to be established. Nor has there been any speculation for land value adjustments for properties impacted by SGMA as there are many variables, and more questions than answers currently.

Other California agricultural issues include:
  • availability of farm labor and migrant workers
  • labor laws
  • tax structure
  • state regulations
California’s land markets are considered stable and demonstrating strong prices. The markets have slowed, compared to a few years back, as buyers become more strategic regarding purchases.

Regulations, drought, and commodity prices are also contributing to the slower market pace. As with the Pacific Northwest, most sellers are operators reducing debt or downsizing, as well as retirees and relocating operators.

This market has also seen some investors active and selling real estate. Expanding operators, and investment-motivated buyers are interested in these opportunities. Irrigation development has slowed and many expansion purchases are strategic. The California real estate market is currently supported by competition for properties, income returns, development potential, and commodity prices. The 2018 Farm Real Estate Value by State data supplied by the USDA indicates a percentage increase of 3.4% from 2017 and a dollar per acre of $9,000. Please see the map below for reference.

Western-Farmland-Value-Trends-graph.png

Western Ranch Lands
With a low inventory of quality production ranches, the ranch market throughout the western states is quite strong. Currently in the market realtors, operators, and appraisers report a strong demand for ranch operations. Even with the strong demand, there are limited transactions of these property types, typically related to the balance of the operation, size, and price point. There is no known percentage adjustments over time, however it is noted that it is most common that sales prices and listing prices of ranch type properties are increasing.

There are, conversely, many recreational type ranches offered on the market. Typically these ranches are not balanced units, meaning they cannot support a set number of livestock on an annual basis. Additionally, these ranches possess limited winter feed production in comparison to their grazing potential.

Will prices hold?
At this time, most of the cereal crops have been harvested, many seed crops are preparing for harvest, hay crops are on the make, some fall ground prep has started coming behind the grain crops in an effort to get them irrigated up prior to the irrigation districts ceasing for the season. Commodity prices are fluctuating and many variables seem to be unsettled in the agricultural industry.

The west is coming off of a very good water year where most irrigation districts were operating with a full allotment of water, the spring moisture helped set planted crops, and the livestock grazing lands benefited from abundant forages. So far wildfires have been limited, and — with any luck — this will hold out through the end of the summer and into the early fall, since the last few years have been so devastating. Overall the market is considered to be in good health with stable to increasing land values, active markets, and favorable interest rates.
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