Finding less ag property for sale? It is all about high commodity prices! growers seldom sell when commodity prices create good profits. More people sell ag land when thier income is down, than when it is up. It is just human nature. Whe good times are heara nd we are enjoying it, we give no though to the possiblitiy of a downturn. Consequently few sell during a peak period.
A dairy producer commented, "We are in the dairy busines and wheather we like it or not, we can't sell out. There are no reasonable buyers". This seems to be a good assessment of the industry in California today. The time will come when that will change!
Sheila Bair of FDIC said last fall, "Farmland could be the next real estate bubble." The concern seems to come from the fallen values of commercial and residential real estate, expecting that the next decline will be in ag land since the value gain has been 58% in infaltion adjsuted terms since 2000. Is it possible? Could there be a repeat of the 1980's ag disaster? What is different today? The big difference is that farm debt is much lower and land is not leveraged like it was in the 80's. It could happen if the low leveraged properties are used to finance new acquisitions. Not likely to happen with bank financing as scarce as it is. Remember people won't quit eating and populations are still significantly increasing while the world inventory of basic commodities is extremely low.
Spread your Risks - The old saying of not placing all of your eggs in one basket has helped many people in various in ag productions to offset losses in one section by gains in another. For instance: Dairymen who owned a producing orange grove, walnut grove or an almond orchard have been able to use income from these crops to subsidize the dairy operation.
The Euro has been tanking and the Dollar gets pushed higher as investors from all over the world perceive the U.S. Dollar to be a stable or the most stable currency they can buy. Consequently it becomes more difficult to sell our ag commodities. Some experts expect the Euro to be history within the next five years. How many other currencies will be declared worthless? With most nations creating more money every day, will any currency have value over the next few years?
The Agricultural Commodity prices are notoriously fickle and highly susceptible to bugs, weather, government subsidies, etc. But you won’t see people stop eating and agricultural land is like REAL money, not the paper that is being created in the trillions! Serious investors have used ag land for ages to protest their wealth from government dilution of paper money.
Nervous Wall Street is beginning to recognize that farmland is a key asset class - something that could add a stability factor in a portfolio. Ag land values have held very strong during the recession and an annual increase in demand for ag commodities may well keep the prices at current levels and possibly higher.
Water - In 1997 Beijing declared its water reservoirs unfit for drinking. Since then things have gotten worse. Water wells are up to 1/2 mile deep and over the last 50 years approximately one half of the non-renewable water in Northern China’s huge aquifer has disappeared. It is estimated that 70% of China’s source of water is unsafe. China now has the highest rate of stomach and liver death, mostly due to polluted water. Can this happen in California? Not anytime soon as our source of water is the Sierras.
Interest Rates - For the past 7 years interest rates for home loans have averaged below 6%. This is a highly unusual situation. From 1973 through 2002, home loans ranges from a low of 6.54% (2002) to as high as 16.63% (1981). The average for the 37 year period is 9.08%. It would appear that any loan locked into a below average rate, will over the long haul be a good loan. How fast can interest rates change? Consider this : 1978 - 9.64%, 1979 - 11.2%, 1980 - 13.73%, 1981 - 16.63%!
Without positive structural changes in California milk pricing, the dairy industry in the state will be on the decline. Other areas in the U.S. will look more attractive to many producers and the next generation of dairymen could well set up shop elsewhere. If this begins to happen, what will the consequence be to the values of existing facilities? Certainly something to consider and all the more reason to battle for better milk pricing.
Land Values - Since 1985 we have compiled a list of all the farm and ranch sales on a monthly basis in Tulare County. Included are range land sales, orchards, vineyards, row crop lands, dairies, cold storage plants etc. A list of current sales can be obtained on a monthly basis. Information included: Parcel size, plantings, county recording numbers, property location, price, plus names of sellers and buyers. Ask for Jeanie when calling on this.
Chapter 9 (Part 1) of “The Dutch Migration” has just been added to our website - (www.theranchcompany.net)
