California Agricultural Land Values Outlook 2016

California agricultural land values have had an impressive run, especially in recent years. Due to a limited supply, increasing global demand for specialty crops, and an ongoing desire for continued expansion by established producers, the historical upward trend in land values will remain intact over the longer-term. In the short term however, Rabobank’s land value models project a drop in per acre economic values of agricultural land in 2016, followed by a continued but more moderate decline in 2017, for most cropland in most regions.

picture of California counties

Report summary

The rise…

California agricultural land values have continued to rise over time. California’s climate and relative adequate availability of surface water and groundwater have made it the most productive agricultural state in the US for many years, and allowed it to become one of the world’s most critical production regions for high-value specialty crops. Exceptionally strong prices for specific specialty crops have led to rapidly increasing profitability and rising land values. At the same time, low interest rates and relatively high credit availability (competitive lending environment) have recently contributed to the rise in land prices.

…and fall

Driven largely by high tree nut prices in the Central Valley, relatively inexpensive surface water in the Imperial Valley, and tight supplies in general, traditional agricultural producers and institutional investors have been willing to pay more for agricultural land. But with tree nut prices falling rapidly, some, albeit minimal, drought relief, and a doubling or even tripling in land prices, it should not be surprising that land values would give some of their gains back in the short-run. Even in an environment of increasing global demand for specialty crops, California producers have shown the ability to rapidly overdo the short-run supply-response, which results in lower crop prices.

What will the short term bring?

A significant decline in land values during 2016 and 2017, for some crops in some areas, is due to bring them back to 2013-14 levels in most cases. Vineyard property values on the North Coast and Central Coast regions will hold in 2016, and experience modest appreciation in 2017. Central Coast vegetable and berry land values continue their more modest, but more consistent, long-term upward trend in 2016-17. Growers who have taken on less debt for real estate acquisitions, and have not negotiated unsustainable lease rates on marginal yielding properties, find themselves in a more sustainable situation than others.

  • Roland Fumasi

    Head of RaboResearch Food & Agribusiness - North America
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  • Vernon Crowder

    Senior Analyst - Fresh Produce
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