In our last two posts, we’ve provided insight into land value trends in Iowa and Illinois. Since corn and soybeans are the most dominant crops being grown in the Midwest, typically land values in the two states will move in concert with each other as both are equally affected when grain prices move up or down.
This week we’re going to look at a recent land value study from California. The report (Trends in Agricultural Land and Lease Values), compiled by the California Chapter of the American Society of Farm Managers and Rural Appraisers, looks at both row crop acreage and permanent plantings. The “Golden State” leads the U.S. in terms of agriculture sales each year (for perspective – Iowa is second and Illinois is seventh) and grows over 400 different crops. This crop mix is the direct result of a diverse climate and a wide variety of soil types.
After reading the report, you quickly learn that the most important issue currently in the far west is the availability of water. Unlike the Midwest, where we rely almost entirely on rainfall for our crops, California agriculture depends heavily on irrigation. That doesn’t seem like a problem until you realize that the demand for water far exceeds the supply. This creates a scenario where agricultural interests have to compete against metropolitan areas for water. And different crops have to compete against each other to determine which has the greatest economic return relative to the amount of water used.
With the world’s population continuing to grow at a rapid pace, I personally believe that there will be three constraints to producing an adequate supply of food in the future: 1. the amount of land available for crop production; 2. the rate at which new technology can increase the output for each acre being farmed; and, 3. access to reliable sources of water. Farmers in California are on the front lines of this war for water. And even though it might seem like an irrelevant concern to those farming in the Midwest today, I think it’s an issue that will become quite important at some point in the future. Sooner versus later water will replace oil as the world’s liquid gold. And to think, most of the growing areas across the Corn Belt get this resource for free.