Just when we think the situation with Central Valley agriculture is a complicated as it can get (Who farms what and where?  Who buys what is grown?  How does all that affect soil, water, air, and people?), we learn about another player: specialized investors and large pension funds buying up farmland.

The LA Times reports that farm and ranch land values are at a record high as a result of this buying spree.  According to the Times article,

“Some of the highest-priced land is in the almond-growing region of San Joaquin Valley’s Tulare County, where an acre can fetch $15,000 to $19,000. Just two years ago, the price was in the $13,000-to-$16,000 range, according to surveys by the American Society of Farm Managers and Rural Appraisers’ California chapter.”

The articles says that Chinese middle-class demand for almonds and pistachios is driving up prices for those crops, which makes the land they are grown on more valuable.  (A review of the “Made in” tags on our holiday purchases will remind us all of why the Chinese can afford to develop a taste for imported nuts.  It’s less clear how these rising land values are tied to U.S. food security.)

Stocks and bonds aren’t doing all that well right now, which makes farmland investment more attractive.  But that could change, and investors could go elsewhere again.  This happened during a land market boom and bust in the early 1980s.

Similarly, the Chinese economy could slow and demand could drop.

High land values are attractive to farmers, but they see how quickly the situation could turn.  For example, farmland prices have dipped during recent drought years.

Investors should know that the sustainability of California agriculture depends on water.  In a severe and prolonged drought, there won’t be enough water to sustain some of the state’s current agricultural practices, no matter what schemes are developed to transfer that water around.

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