The price of milk really dropped . Initially , schools were closed . Every kid gets a carton of milk every day at school . Restaurants were closed , so butter and cheese production has really gone down quite a bit . That really affected things like dairy pricing .
On the flip side , you ’ ve got fruit and vegetable crops that saw the opposite effect . Consumer demand for healthy products instantly increased when shoppers were staying home , trending toward health-conscious buying decisions . In grocery stores , within hours , the produce section was empty .
There was quite a bit of volatility on the commodity side , but the value of the real estate that produced those commodities wasn ’ t impacted in ways that weren ’ t already in place . Ag real estate is interesting in that it doesn ’ t see the swift reactionary adjustments to pricing that you see in commercial and residential . It usually takes at least two production cycles before we really start to see values adjust due to the commodity market . For example , right now , we ’ re seeing low crop pricing for the almond industry . It ’ s historically been $ 2 to $ 3 a pound , but at the end of 2020 it was between $ 1.50 to $ 2 . If that trend continues , we might see some pricing adjustments on almond orchards , but right now , we ’ re seeing it continue to be strong . That ’ s one example of the time frame for adjustments — and the pandemic didn ’ t really change it .
CIRE : CONSIDERING THIS DELAYED OR MUTED REACTION , DO YOU SEE ANY SIGNIFICANT CHANGES IN THE MARKET IN , SAY , THE NEXT 18 MONTHS ?
PHILLIPS : We ’ re going to continue to see strong demand for quality properties in desirable locations . For ag , what that means is quality soil and water . Water supply is going to continue to be a big driver for value — especially those in high production areas with irrigated lands , as opposed to those dry farmed or distributed via rainfall . You ’ re going to see trending increased values of properties that have solid water supply , meaning you have access to wells and a second source like canals , irrigation districts , or rivers . But again , it ’ s not as nearly as reactionary as other markets .
Because of this , you can see a little bit of increase in demand due to fluctuation in other areas of the economy , like the very big swings on Wall Street . Investors don ’ t like those wild rides , so they often turn to the stability of farmland as a safe haven .
One trend continuing to gain steam with buyers and existing farmers is sustainable or regenerative ag — with cover crops , conservation tillage , and integrated pest management . You see development for water use efficiencies . A lot of technology with crops on the irrigation side is through drip irrigation or zero-loss to evaporation . These advances are going to continue to add value to those high-value properties .
CIRE : SPEAKING OF ENVIRONMENTAL CHALLENGES , INCLUDING CLIMATE CHANGE , HOW ARE THOSE CONSIDER- ATIONS FACTORED INTO PRICING ?
PHILLIPS : If you plant a permanent crop in the ground , like a tree of a vine , it will need to have a consistent water supply for 50 to 100 years . You ’ ve got to trust in companies that are advising you about what to anticipate . There are some interesting things out there for due diligence . Software companies have consolidated water data from various sources and overlaid it with satellite imagery to allow buyers to see the water situation on a specific property . They offer full reports with full analyses available to buyers , lending institutions , insurance companies , appraisers , and so on , because evaluating risk is so important .
CIRE : FOR OUR READERS , WHO ARE OBVIOUSLY FAMILIAR WITH CRE BUT MAYBE NOT SO MUCH THE LAND SECTOR , WHAT UNIQUE CHALLENGES OR OBSTACLES ARE INHERENT IN AGRICULTURAL REAL ESTATE ?
PHILLIPS : There will continue to be market fluctuations when it comes to agriculture thanks to unforeseen events , weather , food safety issues , pandemics , political events ,
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nutritional fads , and changing tastes — these are completely out of human control and have a drastic effect on the bottom line . All of these actions can have an equal and opposite reaction , too . For example , if a huge weather event in Florida can wipe out the citrus industry for a year , then the growers in California and Texas will be in greater demand .
You ’ ve also got the trendy fad right now of a plant-based diet , meaning less beef and dairy . But that consumption is going to be made up somewhere else , right ? People aren ’ t eating less , they are just shifting . Milk alternatives is one example . You might see less demand , but you have almond milk and soy milk . If someone is privy to where the consumption trends are headed , they can take advantage .
CIRE : TAKING A STEP BACK AND LOOKING AT SCHUIL & ASSOCIATES , WHAT ’ S THE
KEY TO STAYING COMPETITIVE AS A MOD- ESTLY SIZED , FAMILY-RUN BUSINESS IN A VERY COMPETITIVE MARKET SPACE ?
PHILLIPS : Although the ag space is large and active , it ’ s still considered a niche market in the world of commercial real estate . In other areas , you ’ ve got huge global brokerage companies like CBRE , Cushman & Wakefield , Colliers , etc . Those are followed by an even bigger list of regional CRE companies . But there ’ s not really any large national or international company that dominates the ag real estate space . Regional companies like ours cover wide areas throughout multiple states and broad industries , but a lot of it is still made up from small , local brokerages — one- to five-person shops that only have one office .
Like I said , farmers are very relationship-based . They would prefer to work with
Doug Phillips
brokers they ’ ve known for a long time . A lot of our agents come from a farming background . They grew up in the area where their office is . So , not only do they have those types of relationships , the generations before them knew each other . It ’ s going to be hard for a big national company to come in and change that .
Nicholas Leider
Senior content editor of Commercial Investment Real Estate Contact him at nleider @ ccim . com .
Editor ’ s note :
This article is an adapted excerpt from a fulllength Commercial Investment Real Estate podcast . To listen to the full episode , head to SoundCloud , iTunes , Spotify or wherever you listen to your favorite podcasts . Don ’ t forget to subscribe , rate , and review .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 7