America’s No. 1 agricultural state, California, did not fare any better than the rest of nation last year with a drop of $9 billion in cash receipts, a 17 percent plunge from the previous year.
The drop was not unexpected for Vernon Crowder, senior vice president of Rabobank in Fresno, Calif. However, the size did surprise him. The drought had plenty to do with the nose dive, but significant drops in dairy and nut prices also contributed.
Unlike Midwest corn and soybeans, the prospects for a California turnaround are good.
“The California ag industry has been doing well (economically) over the past five years with high commodity prices and crop shortages,” Crowder added. He expects California agriculture will see a rebound this season as the drought has let up and improvements, albeit small, in commodity prices.
The veteran agricultural economist told the annual gathering of the Western Cotton Shippers Association recently at Harris Ranch in Coalinga, Calif. that commodity prices may not be as robust over the next five to 10 years as in recent seasons, but should be sufficiently profitable for most producers, especially those who did not invest in high priced land or orchards recently.
“Although $9 billion went away last year, the industry should be relatively stable coming into this year,” in an industry he calls “resilient,” despite its many challenges. “The reality is this industry continues to be profitable…and we expect it to grow more in the future.”
Mexican economy impacts California
Challenges include labor availability and cost, environmental issues, and food safety.
Labor will continue to be in short supply, partly because the Mexican economy is doing well and there are jobs there, eliminating the need to cross the border to find work. Also, Crowder said the Mexican family structure has changed and thus population growth has slowed. A decade ago there was an average of seven children per family. Today it is about two.
Overall, this has created more jobs in Mexico and California farm labor shortages, increasing overall labor costs.
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Although there has been much news lately about mandating minimum wage for farm laborers, Crowder said most are already earning more than that, and a new minimum wage law to take effect in 2022 likely will have minimal impact.
This likely will not be the case with the recent signing of a bill by Gov. Jerry Brown mandating overtime for more than eight hours of work for farm workers, who are currently paid overtime if they work more than 10 hours in a day or 60 hours in a week.
Crowder said workers will likely earn less overall. Rather than paying overtime past eight hours, employers will look for additional workers to mitigate overtime costs. However, Crowder said it will prove difficult to find those additional workers.
Overall, Crowder said the bill will increase labor costs.
New laws and regulations to manage air quality, surface water runoff, and groundwater availability will continue to challenge California agriculture. Other, changing environmental regulations are impacting water availability, particularly through the Delta, the turnbuckle for moving water from the north to the south.
Crowder is “absolutely convinced” there will be a solution to the Delta bottleneck, but it will probably take 20 years.
In the interim, Crowder said improved water marketing systems and managing groundwater more efficiently will get farmers through the future as they have during the drought years. Known water supplies defined through regulations could actually enhance land values, he predicted.
Calif. farm land prices
There has been an “amazing appreciation” in land values over the last decade, more so lately. Crowder said open land selling for slightly less than $7,000 per acre as recently as a year ago escalated to $22,000 to $23,000 per acre.
High commodity prices forced up those land values, but with falling crop prices, land prices have cooled. Top quality land is off about 10 percent from a year ago; land with water problems could be off as much as 30 percent.
Those skyrocketing land values were not from speculators, but farmers flush with cash from high commodity prices. He does not forecast a land value meltdown created by speculators like the 1980s as lenders are more disciplined this time around.
He expects land values to return to “more historical values.” Farmers looking to expand will find more reasonable prices in the future.
Food safety has become a menacing issue for agriculture and not just with crops that “hit the ground.” It has become a pervasive risk to every food handler due to the chance of a false positive contamination issue. One of those can literally break a company. Crowder said hopefully DNA testing and extensive trace back procedures can identify and minimize risks.
Crowder also went through economic outlooks for key crops in the state.
Almonds are the state’s No. 2 crop and No. 1 export. The nut crop took a 50 percent dive from record prices since last year’s crop was larger than expected and this year’s harvest will certainly be a near record one.
Yet, prices are still profitable for most growers, especially those who did not spend too much for new orchards or land for new trees. He expects prices of about $2.30 per pound to repeat itself over the next decade.
“Almonds have more upside than downside,” he said.
Walnuts also took a similar price plunge, but he does not expect as much of a rebound as almonds due to increased worldwide production and more California production from new orchards. Instead of a $1.20 per pound average over the next decade, he said it would be closer to an 85 cent average.
This will be a record pistachio crop year after a disaster last season and this will reduce prices, yet he expects the smiling nut crop to be profitable for most at a projected average of $1.75 per pound. He agrees with the projection that pistachio production will hit 1 billion pounds by 2020-2021.
The outlook for table grapes, berries (strawberries, blueberries and blackberries), and vegetables also remain good with better quality and in the case of vegetables more contracted production.
Crowder estimated 50 percent of the state’s vegetable growers know what they will make before the crop is planted via contract agreements, taking speculation out of vegetable production.
Citrus is turning into an easy-peel mandarin market. It’s cannibalizing the Navel market.
“It is amazing how much consumers like the convenience of easy peel. I don’t think mandarins taste as good as a good Navel, but convenience sells today.”