Beginning in late 2011 and continuing into 2012, there’s been increased real estate activity in the Pacific Northwest, driven by strong fruit prices and expansion within the tree fruit sector. However, in Michigan, there have been few sales of orchard properties in the lake shoreline region the past three years, and it is expected there will be poor demand in the near future when the effects of the 2012 season are realized.
The 2012 season was the tale of opposites for Northwest and Michigan tree fruit producers. In the Northwest, apple and cherry producers had record crops, while producers in Michigan picked the smallest crop in memory.
In Michigan, unseasonably warm March weather caused fruit trees to break dormancy and bloom up to a month early. The warm weather in March was followed by a number of freezes in April, which decimated the 2012 apple and cherry crops.
In the Northwest, most notably Washington State, apple growers produced a record apple crop of 121 million packed boxes and expected to benefit from an otherwise short Northern Hemisphere apple crop. Some growers sustained damage in a widespread hailstorm in July, but most had crop insurance coverage, helping to offset their losses.
The 2012 Northwest cherry crop finished at 23 million 20-pound boxes, more than 13 percent larger than the record crop of 2009. The crop was impacted by rain, hail, heat, and a surplus of small cherries.
Michigan cherry growers harvested 11.5 million pounds of cherries, or about 6 percent of the previous three‐year average. A crop loss of this scope not only affected the growers directly, but also impacted local communities and service businesses supporting the fruit industry. Some of the losses will be offset by higher crop prices and crop insurance proceeds. However, few insurance options existed for cherry producers. It is too early to tell what the long-term impact to asset valuations and farm businesses will be. Certainly, growers will be making some changes to business plans in response to the 2012 crop losses.
In the Northwest, real estate activity in the tree fruit orchard areas was very slow from 2010 until about a year ago. Since late 2011, and continuing into 2012, there has been increased market activity. Strong fruit prices and expansion within the tree fruit sector are driving land values. Open irrigated crop values have increased from an average range of $4,000 to $6,000 per acre up to a range of $8,000 to $10,000 per acre within a very short time frame. There is significant market strength, and this trend is expected to continue through the end of 2012.
Market demand exceeds the available supply, based on realtor listings. The prevailing strong market conditions for good quality land that is suited for permanent plantings have increased because of competition between vertically integrated fruit packers, investment companies, and adjoining commercial growers taking advantage of lower interest rates and better commodity returns to expand their operations.
Sales of better-than-average orchard blocks have sold at elevated levels. Average-to-better quality orchard tracts have sold in the $8,500 to $12,000 per acre range within the last 12 months, and the better apple/cherry orchards have sold for $20,000 per acre. But real estate listings in Michigan paint a different picture.
Throughout the past three years, there have been very few sales of orchard properties from Michigan’s Lake Michigan shoreline. Sales of mature, productive orchards or vineyards rarely take place. Instead, ground typically changes hand once plantings have reached the end of productive life and the land is ready for significant capital reinvestment.
Sites suitable for orchards range from $4,000 to $7,500 per acre. Sites suitable for wine grapes have sold for upwards of $19,000 per acre.
Emphasis on efficiency
The fundamentals of land values are the same for orchard ground as in other areas of agriculture, with greater emphasis on efficiency. Larger commercial farming operations have been expanding, vertically integrating, and have made up the principal buyers in the market.
As always, location is a key factor. Blocks located farther away from the farming headquarters, or in more isolated areas, are the first to be offered to the general market. Blocks nearby, or on adjoining land, often sell at a premium. The majority of sale properties are marketed and sold privately, without involvement from realtors or brokers.
The effects of the 2012 season have not been realized by the market at this time, but it is expected that there will be poor demand and little expansion over the next two to three years in Michigan’s tree fruit producing areas as equity positions recover.
—GreenStone Farm Credit Services of East Lansing, Michigan, also contributed to this report.