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Demand for Farmland Grows: Investors Are Increasingly Sinking Their Money into Valley Ag Real Estate.

Posted on: Sunday, 7 May 2006, 12:05 CDT

By Sanford Nax, The Fresno Bee, Calif.

May 7--Farmland in the central San Joaquin Valley is in strong demand, often by buyers who have little interest in the crops.

As a result, the value of agricultural real estate in the Valley rose last year, according to appraisers who compiled the 2006 Trends in Agricultural Land and Lease Values report.

In many cases, investors are more interested in the land than in the crops, with the possible exception of almonds, which are expanding in acreage and value.

Investors are buying farm ground using 1031 exchanges, which enable people who sell property to invest in other real estate tax free.

"There is an abundance of money," said Gary Rudolf, an appraiser in Fresno who helped compile the report for the American Society of Farm Managers and Rural Appraisers. "Everyone is a speculator. Everyone wants to hold real estate."

In some cases, people are selling pricey real estate along the coast or in Southern California and buying 20-acre and 40-acre plots in the central San Joaquin Valley as home sites, particularly on the east side of the Valley.

The price of those properties ranges from $5,000 to $25,000 per acre, based on location. "One of the last frontiers is the $5,500 an acre, 40-acre parcel," Rudolf said.

In other cases, farmers are selling their land close to city limits to developers and reinvesting in farmland elsewhere, or in other types of real estate, such as shopping centers. The developers, in turn, buy land to hold until they need it, which can be in two decades, and receive income from the crops, appraisers said.

Buyers are coming from all over, said appraiser Tony Correia of Fresno. "It's nice if the crop makes a little bit of money, but there is a tenuous relationship between the value of the land and what they can earn by growing a crop," he said.

Almonds are one of the commodities in demand; returns to growers have been strong. "Profits are at historical high levels, and that has had an impact," said Steve Runyan, an appraiser in Bakersfield.

Because prices are so high, more almonds are planned. Thus, the pressures of supply and demand could push returns down in 2007 and 2008, he said. Look for growers of aging almond land to bulldoze those trees and plant anew.

Land devoted to raisin grapes also climbed in value, due in part to more favorable commodity prices but more from demand stemming from families seeking a rural lifestyle.

"In vineyards, the income is not coming from farming," Rudolf said.

Tree fruit growers in Madera and Fresno counties suffered poor returns in 2005 as the industry consolidated, the report said. "These markets are dominated by large, vertically integrated operations that control a larger percentage of the production and marketing of tree fruit," the report from the American Society of Farm Managers and Rural Appraisers stated.

However, citrus farmers saw prices rebound slightly, while some growers are favoring specialty varieties in an attempt to prolong the season. "Mandarin continues to be the specialty fruit in vogue, as marketers attempt to attract more consumers to the easy-peeling fruit," appraisers said in the report.

In Tulare County, demand for cropland is being driven by new and expanding dairies, which number about 370.

Dairy operators in Southern California are selling their operations for $500,000 an acre to developers -- the number of cows in San Bernardino County has declined from 300,000 to about 170,000 -- and buying land in Tulare County for $5,000 an acre, although the trend has slowed a bit because of environmental considerations, Rudolf said.

"Single-family home prices hit record levels [in Riverside and San Bernardino counties], which has created strong demand for the land under the old dairy facilities, with values continuing to trend higher," the report stated.

The reporter can be reached at snax@fresnobee.com or (559) 441-6495.

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Copyright (c) 2006, The Fresno Bee, Calif.

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Source: The Fresno Bee

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