(Photo: Adobe Stock)

By Natalie Willis, Reporter, Valley Ag Voice

Despite the recent 2023 Land Value summary from the U.S. Department of Agriculture showing that agriculture land value increased by 7.4% from 2022, Kern County’s ag land value remains on a steady decline. This decline has a marked peak in 2014 — the year the Sustainable Groundwater Management Act came to fruition.  

“When SIGMA was implemented, it actually took probably six months for the market to realize what was happening. Six to 12 months,” Mike Ming, Accredited Rural Appraiser, and owner of Alliance Ag, said. “We reached a high of about $15,000 per acre for a district and lands in Kern County, and since then it’s just been a steep decline down to somewhere around $4,700 an acre.” 

In comparison, the USDA report shows that U.S. farm real estate value — a measurement of all land and buildings on a farm — averaged $4,080 per acre in 2023, up $280 from 2022. Cropland value increased by roughly 8% and pasture value increased 6.7%. The annual report is meant to provide a broad scope of the overall health of the national agriculture industry, but Ming explained that the ag economy is generally regionally specific.  

“I mean we went from 3% to 8% loans in 12 months which is a shock,” Ming said. “I think there’s areas of the ag economy in the United States that are doing just fine…but I think that in California, because we do a lot of different crops that are not done across the United States, we’re feeling it a lot harder than say the Midwest.” 

Declining commodity markets and increased interest rates have distinctly affected national agriculture, but ag value in midwestern states such as Iowa and Kansas have remained steady. California may not be seeing the same bottom line as commodity prices and interest rates are coupled and anchored by water restrictions.  

NO WATER, NO VALUE 

“Water is the key for every model that’s run now in the acquisition of agricultural properties, and it’s going to be that way going forward. Even more scrutiny is going to be placed on the water supply, the water resources that property has,” Ming said.  

According to a previous article in Conterra Ag Capitol, land values in the state have become more volatile as SGMA threatens groundwater pumping, and less water results in cash flow consequences.  

This is especially apparent in Kern County water districts where values have steadily decreased since SGMA. Alliance Ag’s report shows that open farmland in state districts such as West Kern Water District declined by roughly 58%. In areas not served by district water — white lands — value decreased 9% to 16% annually since 2015.

(Graphics provided by Alliance Ag) 

Whereas other areas of farmland in the nation have seen strong 2023 farm incomes and high land value levels. Recently, DTN hosted its virtual Ag Summit where farmland specialists expressed a general optimistic outlook on farmland values for next year.  

Howard Halderman, President of Halderman Farm Management based in Indiana, explained that there were exceptional yields in the fall.  

“That, combined with the potential for declining interest rates, layered on top of soybean prices hanging in there at a high level, I think we’re in for steady land values at these high levels through 2024,” Halderman said. 

The lack of available water resources in Kern County — one of the top agriculture producers in the nation — has led to a depressed market and extensive acres of fallowed land.  

“We know that the market is depressed with commodity prices being depressed and demand is on the lower side. We’re hopefully starting to see demand come back but it’s just a very tough time for the ag space in general,” Ming said. “But you see that when you see all the dead trees and the dead vines, the dead vineyards.” 

COMMODITY COMPARISON 

Kern County saw a notable shift in its top commodities for the 2022 crop year and was displaced by Tulare as the number one ag producing county. Its top five commodities remain the same — grapes, citrus, milk, almonds, and pistachios.  

Ming explained that the value of table grapes, listed as the top commodity, has less to do with the product itself and more with the land value of vineyards.  

“Really, it’s bad. It’s mostly, except for a couple of instances where there’s a specific variety the market still likes, vineyards are basically land value,” Ming said. “They’re high on the commodity list just because we have so many acres of it.”  

For the remaining commodities, aside from milk production, citrus production has maintained its value while the market is declining for almonds and pistachios, which each require significant amounts of water. 

According to Ming, farmers looking for answers to the declining market hurting their bottom line should turn to row cropping until the market stabilizes.  

“Let’s sit tight,” Ming said. 

LOOKING FORWARD 

The future of farming in the Central Valley may mean greatly reduced acreage, Ming explained. Studies have shown that California farmland has been shrinking for some time. Almond acreage has been especially impacted, with a reduction of 74,000 acres in 2023, according to the Land IQ 2023 Standing Acreage Final Estimate.  

Buyers of ag land are generally keen on what the real water allocation is to that property, and given the substantial reduction in pumping capacities, California’s land value is not comparable to other agricultural states. 

“There are studies out there that are showing substantial reduction by the fallowing of acres in the valley, say, from the Delta down to Kern County, and it really depends on your water resources,” Ming said. “If they’re State Water Project…they’re probably 30% to 35% reliability long-term average, that they can expect if they get contract water.” 

He emphasized the proper management of water districts as a key to a forward-looking ag industry. 

“I just think that it’s really going to come down to the best water, and the best land, and the best run water districts,” Ming said. “I don’t think SIGMA is going to pass, it’s going to be real and it’s going to have teeth.” 

Still, the future of farming in the valley is not all that grim. Those who have been farming for multiple generations have gone through depressions like this, Ming said. California farming families are notorious for coming out stronger and better despite the adversity faced by the government, the market, and even the weather.  

“We are the breadbasket of the United States and the world. We can hold onto that fact and just understand that we are going through a compression of ag acres,” Ming said. “We need to be farming as efficiently as possible in the right water districts.” 

And the right water districts, according to Ming, are the ones with the most water. 

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