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Works and Days

The Great California Land Rush

May 7th, 2013 - 12:06 am

Boom or Bust?

I have lived on the same farm for 59 years and seen at least three boom-and-bust farm cycles — one in the late 1960s, another in the early 1980s, and a third right now. I’ve witnessed raisins, for example, at $1,420 a ton 35 years ago, then $410 a ton, then $700 a ton — and now almost $2,000. The old wisdom insisted that almond acreage could never exceed 200,000 acres without a crash, that prices would never go over $1 pound to the farmer, that production could not go much over 3,000 lbs. per acre.

Now? There are now 800,000 plus acres of California almonds, prices near $3 a pound, and new varieties are creeping up to 4,000 lbs. per acre. Some almond orchards remind me of alien organisms: lousy soil, undersized trees, tiny roots — and loaded with nuts to the point that props are needed to keep the trees from toppling over, as agronomy keeps these artificial creations going with daily IV fusions of water and nutrients. It is almost as if anything on the tree that is not a nut is genetically superfluous.

When I began farming full-time in the cresting boom of 1980, vineyard or orchard went for almost $10,000 an acre. I saw it crash three years later and prices dip as low as $3,000 an acre for what was then called “Thompson Worthless” vineyards. By the 1990s, prices were back up to between $7,000 and $10,000 per acre — only to go back down too $5,000 by 2003. And now? Bare land can go for $15,000 an acre and up; a productive vineyard or nut orchard sells for $25,000 to $30,000. “They” say $35,000 an acre is on the horizon.

I am getting old and remain a cynic (see Fields Without Dreams and Letters From an American Farmer). All the same, I think eventually the latest boom will likewise bust. (Most of the “rich” I know out here made their money by emulating J.Paul Getty’s de facto rule of “buy low, sell high — everything can be sold or bought, all the time.”

Most of my friends in these parts disagree about a looming bust. Things are “different” now, they swear. Why? Human nature has been altered? The U.S. dollar has never been more stable? The debt is small? Governance is unusually competent? There will be plenty of water — new dams; the sneaky little smelt will get his comeuppance; salmon won’t get their water from mountains to the sea?

Booming for 100 Years?

But I digress, so let us count their reasons for optimism: 1) 400 million new empowered consumers in India and China enjoy a fig, some almonds, or a raisin or two as relish for their California rice, wheat, or beef, and will buy all they can of the state’s staples and specialty crops from our Pacific ports. Now both countries possess both the tastes and the wherewithal to pay for our farm exports.

2) America is no longer a nation of 250 million, but nearing 320 million souls. Seventy-million extra mouths translate into an entirely new consumer class the size of France right here in the U.S., prompting new domestic demand as never before.

3) Land is finite, or rather, shrinking. Suburbanization, shortages of water, higher costs — all that and more mean that we are not going to see all that much further increases in production. New hybrids, better technique, drip irrigation, novel fertilizers, intensification of farmland, and more are reaching their theoretical limits. Existing land is more likely to be encroached upon than new acreage opened up for farming.

The optimists believe that at last the supply/demand ratio has tipped their way. My late mother, dying from a brain tumor in the bust of the mid-1980s, was desperately trying to keep our money-losing farm. She used to plead with me: “Some day, land will be precious. Please, please don’t sell.” Maybe she was right about “some day,” but much of her efforts went for naught, and the land was sold under duress in the bust, for about one-sixth of what that land is worth now. The owners of my siblings’ land do not live nearby, but they are gracious people who magnanimously allow me to venture beyond my own 45-acre remnant and in the evenings walk the contours of the original farm of my ancestors. But now land is for money, money is for land — nothing more, nothing less.

4) Another reason for the boomers’ optimism: everything but land and food is bad and almost everywhere but the U.S. things are even worse off. There is no interest on passbook savings. Urban real estate is dicey after 2008. When — not if — the soaring stock market dives is the current betting. Land and the profits it provides are seen as good investments. The EU and its agricultural subsidies are in shambles. California’s competitors — mostly Europe’s Mediterranean agriculture — are bankrupt. India and China need food for their new yuppies. California agriculture is real: wonderful land, superb weather and climate, innovative farmers, and adequate water — for now.

5) Most importantly, this boom is said to be profit-based. The others in the past were more inflation- and speculation-driven, as hedges for inflation or brief aberrant commodity price rises. This land rush is supposedly based on bottom-line arithmetic. If almond orchards are high at $25,000 an acre, so are almond profits: 3,700 pounds per acre at $3 dollars a pound leads to a theoretical (everything in farming is theoretical) gross of over $11,000 an acre, and perhaps $7,000-$8,000 an acre net profit — or a 30% percent return on the investment the first year. (One local just bragged to me he could pay off his land in four years.) In the old days, booming land prices were never justified by such highly spiked commodity prices. I think the fast talkers are drunk who say “buy now at $25,000 an acre before it goes to $40,000.” But then I confess I thought they were inebriated two years ago when they were buying orchard at $12,000 an acre.

I want to be mistaken and believe the boom will only grow, but I have seen too many busts destroy too many lives of my friends and family. Still, whatever the truth, it is fascinating to watch, this mad scramble to make lots of money off the land — shysters, crooks, the audacious, the capable, the noble, the cynical, they are all out here involved in the way of the forty-niners. The old sandy hill with the half-dead vineyard down the road? No longer is it marginal land that is either poorly planted or sandy. So $6,000 an acre is poured into it — and, presto, out goes the pathetic vineyard and in comes hybrid almonds on computerized drip lines, overseen by corporate agribusiness experts. Who now cares about its sand, unleveled ground, and bad location? For investment purposes it is now “a California almond orchard” and that is all ye need to know.

The Homesteaders?

And how about the old agrarian ideal? Is the new boom enriching hundreds of thousands of families at last with money to spruce up their old Victorian clapboard houses on 100 acre ancestral plots?

Nope. They are all dead, buried, forgotten. While the successful corporate families are trying to expand, bigger money is also coming from the outside of agriculture: 401K investment funds, pension portfolios, insurance profits, safe havens for imperiled euros, or smart investments for coastal professionals tired of rising taxes and zero interest. The result is that if in 1970 I knew every family in a two-mile radius, I don’t know more than 10% of the landowners in my nearest vicinity now. Heck, I don’t even know if there are any landowners, rather than shareholders of some investment portfolios.

Stranger still, the land looks better, not worse, at least in the daylight. A corporate-type lectured me not long ago for writing an essay on the “Two Californias”: (if I could paraphrase him: “Your problem is that you chose to spend the night on your land. That’s dumb to hang out with copper-wire thieves, gang bangers, and the 18% unemployed. You’re supposed to live in Fresno, visit your land in the daytime hours, and leave the problems after dark to your foreman and the insurance company.”

Sort of like Hippo Regius and the Vandals circa A.D. 430?

Out with the Old, in with the New

Central California is also a magnet for very rich Punjabis. Their three-story gated castles of 6,000 square feet are suddenly commonplace. For every copper-wire thief, there is an immigrant agribusiness man who smiles and says: “No problem. I just got more barbed wire, more video cameras, more lights” — such an impressive confidence so characteristic of the immigrants who have always energized America.

The Sikh community arrives with capital, English, and education — and wishes to become even richer, better spoken, more highly educated, and more successful. In this nexus, land is not just a wise investment, but immediate proof of visible, tangible success, in the manner of the old idea of a landed aristocracy. A Punjabi acquaintance (I don’t know him well) also sermonized to me: “You guys are played out. You don’t have kids. If you do, they’ve moved away. You’re not up to it anymore.” He’s right: the old 19th century immigrant communities — Armenians, Japanese, Scandinavians, Portuguese — are dying off (if not completely assimilated) and the third generation mostly sold out and moved on, their plots recombined into latifundia. (At lectures I meet those in the audience who say, “I grew up in Visalia. We had a place in Madera.” End of story.) But as I replied to my Sikh interrogator: “What makes your community exempt from the same forces that saw the Armenians, the Dutch, and the Swedes leave farming?” Does anyone still believe in the old idea of labor laboris gratia?

The California Paradox

No one is more upset than I about the direction of California — valued citizens exiting the state, high taxes, poor services, terrible public education, substandard infrastructure, contempt for the law, liberal sermonizing coupled with boutique apartheid, shameless ethnic identity politics, and public union bullying. But that said, as I’ve written, California is hard to destroy in a generation. For now, the governor is right that his higher taxes, his pie-in-sky high-speed rail, the solar and wind cons, the public employee fiefdoms — all that will continue for the present for three reasons.

Old-fashioned Energy

One, there is a lot of oil and gas in the Monterey Shale formation. It is located right in the center of the state, ideal in terms of exploitation and transportation. Drilling off Big Sur would be one thing, drilling in the scorched, godforsaken West Side foothills, where nary a Bay Area professor or Santa Monica lawyer has ventured, is quite another. In Montecito or Lafayette, you can get fined for painting your house off-pink; out here you can move nine mobile homes behind it, dig some holes for outhouses, string Romex, create a low-rent compound — and the most regulated state in the nation becomes the most wild. At some point soon, fracking and horizontal drilling will start in earnest. The money will flow to ensure funding for one-third of the nation’s welfare recipients, for the schools that rank 48th and 49th in the nation, for the unfunded $300 billion in pension liabilities, for ad hoc, stopgap tinkering on the murderous sections of the 99 and 101, and for the environmentalists to save the next bait fish in line.

Techies

Two, you can clone elsewhere Silicon Valley, but as yet, not quite replace it. Yes, I know Sacramento is taxing entrepreneurship to death, and forcing relocations to Texas and the like. But that said, Silicon Valley grew where it did for three reasons and they have not much changed since my graduate days at Stanford when I saw it take off.

First, the corridor between the great universities Stanford and UC Berkeley ensured highly educated engineers, MBAs, lawyers, and professionals in general. Both universities, Stanford particularly, are doing quite well, and their expertise is now more embedded in private enterprise than ever, despite the cheap Occupy Wall Street/May Day rhetoric of the student plazas. Other nearby subsidiaries — UC Davis, UC Santa Cruz, several CSU campuses, Santa Clara, etc. — serve as satellite multipliers and purveyors of expertise. Second, the coast that’s nearby Silicon Valley faces an ascendant Asia, not a dying Europe. That means not just proximity to markets, but a blending of culture, particularly of highly intelligent and aspiring Asian professionals and immigrants, and a steady hand on the pulse of Chinese, Japanese, South Korean, and Taiwanese popular tastes. Third, there is a hip, cool culture in the Bay Area. I am not too fond of it, given its manifest hypocrisies that emulate medieval penance and exemption. The more one thirsts after riches and gives lip service to multiculturalism, the more the metrosexual hipster decries capitalism and seeks his apartheid world apart from the logical wreckage of his own ideology.

But I am also not stupid. When I sit in a café on University Avenue, the energy of the green, the gay, the feminist, the Obamaized techie, the Facebooker, et al is manifest. That sense of living in the “right” zip code means that they are willing to buy overpriced hovels and fork up astronomical prices for pedestrian food. Weird — but weirdly dynamic all the same. An engineer would rather have his family live in a 1,000 square-foot box in Mountain View than bring them up in a palace in Tulare. Most simply love Silicon Valley cool as much as much as I am glad to leave it each week.

Farming Cannot Move

The third and final reason why California sort of works when it should have gone broke long ago is, of course, the point of this essay — agriculture. You cannot pull up your pistachio orchard and transplant it to Texas or start almonds over in the Nevada desert. Agriculturalists hate what the state is doing to them: a cynical effort to overregulate, grow inefficient confiscatory government, overtax, and generally insult the entrepreneur on the cynical theory that farmers are going nowhere and so should pay bureaucrats a premium for allowing them to profit. And at $7,000-8,000 an acre profit, Jerry Brown’s high-speed rail, or Solyndra, or the Voice of Aztlan theatrics are small costs of doing business.

Tech income, oil and gas income, and farm income are pretty balanced and diverse incomes for the foreseeable future — and well apart from tourism, Hollywood, Napa Valley, banking, finance, and construction.

The Weirdest Place in the World

So California is both more poorly managed than any time in its past, more divided between rich and poor, more fragmented by opportunistic ethnic identity politics, more impoverished by massive illegal immigration — and never more naturally wealthy. The other day I drove through the verdant Central Valley on Manning Avenue. Each acre I zoomed by is producing thousands of dollars in global profits. At I-5, I looked out at fracking country, before descending into the land of Facebook, Google, and Apple — all on mostly poor roads, with terrible drivers and third-world public rest stops, and now and then passing inferior schools.

California may be in awful financial, social, civic, and political shape — but it is far, far from broke.

(Thumbnail image on PJM homepage by Shutterstock.com.)

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Top Rated Comments   
You're all missing it - including you, Doc.
When the Venetian trading merchants saw their shipping and banking businesses stalling out from competition with Spain, France, England and Holland, what did they do? They bought land in the Veneto and became wealthy aristocratic farmers. As Roman power declined, wealthy merchants in Roman cities moved out and bought land to settle on as....aristocratic farmers. Who do you think is buying California land now? "Latifundia" is a very accurate description of what's going on.
And 'Silicon Valley'? It's DEAD, folks. 3 years ago, the remaining companies started farming out their DESIGN ENGINEERING departments to china and india. Within the next 5 years, you'll see Marvell transfer it's corporate HQ to Shanghai, and the Bay Area chip outfits will be reduced to sales offices with some marketing people, while all the product definition, development and manufacturing happens overseas. Watch acres of office parks (many of them empty for over a DECADE) get plowed under in Silicon Valley so that the land can return to it's farming character pre-1970.
Energy? Fair enough. If there's oil in them thar hills, the hypocritical progressives in Sacramento will ignore their own environmental dogma in order to tax the new growth. But notice where that leaves California - a state with lots of agriculture and energy/raw material output. That's EXACTLY what you can say about the most economically active THIRD WORLD NATIONS.
Everyone should take a very careful look at LA and SF as well. It's clear as daylight that both cities are becoming very Third World, with tiny strips of very prosperous, pretty and well guarded neighborhoods stocked with private security, and a vast expanse of run down, dirty, disheveled hovels and ghettos where people scramble to scratch out a miserable living while dodging rampant criminality. I can see SF and LA turning into a Rio De Janeiro or Sao Paolo within the next decade.
1 year ago
1 year ago Link To Comment
I'm not buying what youre selling Mr Hanson. I live in the other valley over the hill from yours and I can assure you the wave of illegal South Americans do not want to come here to be "American". They want to bring Mexico with them here and demand I conform. The ONLY growth industries in Gilroy are Mexican restaurants and Mexican stores. And when I say "Mexican" I mean Mexican ONLY. The modern Liberal demands I give up my life and culture to a group of the 3RD World selfish miscreants... And for what again? SO they will buy our stuff? Hardly... Reconquista is well underway.
1 year ago
1 year ago Link To Comment
"California is hard to destroy in a generation."

Unfortunately, the Democrats consider that a challenge.
1 year ago
1 year ago Link To Comment
All Comments   (81)
All Comments   (81)
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Why does no one excoriate the connection between corporation and state? Everyone knows that corporations are creatures of the state. The corporation is bound by the laws governing its very existence and is therefore beholden to the state. You don’t have to be a politician to see how this begets crony farmers. The statists in power favor the cronies of corporate farms and the twain becomes one. Corporations that favor the criminals in power get their lobby loopholes and the criminals in power keep getting reelected by their crony popular majority by bestowing generous favors on their benefactors, and the vicious cycle keeps repeating. The only way to break the cycle is for crony voters to wake up and smell the stench of their own ill-begotten favors from the state.
1 year ago
1 year ago Link To Comment
There is a more important factor.
Governments can only be buddie buddie with chrony capitalists if the government has the size and power to influence things in the chrony's favor. That's why government needs to be very, very small, perhaps 1/10 of it's current size, with the rest of the power devolving back to the states and municipalities.
1 year ago
1 year ago Link To Comment
1/10 of the government's current size takes you back about 30 years, 1983. And Ronald Reagan was elected to cut back on the size of THAT government. (He failed.)

Even 1/100 of its present size is too big.

It pretty much doesn't matter what gets cut. Cut, cut, and cut yet again I say. Then dig out the roots. There has been no point in my life at which government has been too small.
1 year ago
1 year ago Link To Comment
Right on Stallion!!thanhks for giving us all the whole facts.Liz
1 year ago
1 year ago Link To Comment
RE: Farming Cannot Move

I live in Northern Minnesota, where as of today the lakes are still frozen and the frost is still deep in the ground. Not a great area for farming.

Yet all winter I've been able to buy reasonably good, reasonably priced, fresh tomatoes grown 80 miles away in Superior, WI, and blueberries better than we can pick here in July, delivered from Chile!
1 year ago
1 year ago Link To Comment
VDH wrote: "An engineer would rather have his family live in a 1,000 square-foot box in Mountain View than bring them up in a palace in Tulare."

Why doesn't the engineer tear down the small house on expensive land and replace it with a big house on expensive land? Seems to me that smart people would find a way to at least build an addition, a basement, or something on that land. Here in Texas we'd replace the 1000 square-foot box with a 3000 square-foot starter castle. Farmers Branch, TX even gives homeowners a tax break to demolish small homes and build larger more expensive less illegal immigrant friendly ones in their place. https://www.farmersbranch.info/live/participate/demolition/rebuild-program
1 year ago
1 year ago Link To Comment
Taxes and regulation, my friend. Just try getting the permits. Required environmental impact surveys, city and county taxes, etc., plus the increase in taxes on land values. Then the materials in California are ridiculously expensive. Then there's the nightmare of meeting the building code. California building inspectors are notorious for actively seeking to sabotage projects with red tape. It's so bad a neighbor back home actually threatened one with a rifle, just so he could build a garage. Improving land in California is a nightmare that just gets worse every year. It's so bad I saw a documentary that said it's actually cheaper and easier to strip a building to four standing walls and rebuild from that point because it avoids a huge portion of taxes and regulations.
1 year ago
1 year ago Link To Comment
from the Golden State to the Gold, 'n State

doo dah, doo dah

sand sun sea site a scene seen sad sight

do diddly dude ah day, YO!
1 year ago
1 year ago Link To Comment
Just moved from LA to the Midwest, to a beautiful and peaceful farming state. Anyone who stays in Calif. is in deep deep denial, even the brilliant Dr. Hanson. The funny thing is, my friends feel sorry for me because I had to leave fab LA due to high cost of living. I haven't told them yet that I will never even visit that toilet again, and I am a native Angeleno.
1 year ago
1 year ago Link To Comment
Congrats! I'm an escaped Californian myself. You're probably going to live an extra ten years from decreased stress alone. Take my advice, get a rifle and go shooting with your new red-state neighbors, then make it a point to gripe about Obama and the unions while you're there with them. If you're sincere about it, they'll know you're not a locust. Plus a range day is ALWAYS good for lowering your blood pressure.
1 year ago
1 year ago Link To Comment
The booms and busts are a result of Federal Reserve policy that sucks in greedy investors and then bankrupts them. This is what happened with Fannie and Freddie with securitizing Sub-prime mortgages. The Fed pumped lots of money into the system until they decided it was time to stick a pin in it. Chucky "cheese" Schumer inserted the needle with the IndyMac scare right there in Southern CA. The banks were forced to write down the value of the securities and the market collapsed.
It was not an accident. Allot of Wall Street guys from the CFR and politicians cashed in on the deal. They sell high, engineer the collapse, wait for the suckers to go into foreclosure and buy their property on the cheap. That is what will happen when the Fed cuts off the spigot or something big happens such as 9/11/2001.
The lesson to be learned is to not over leverage or they will take you to the cleaners.
1 year ago
1 year ago Link To Comment
CA is standing tall on a foundation of quick sand. Their arrogance and ignorance of human nature doesn't allow them to see they are slowing sinking. It will be too late for them once the natural resources are either used up or a natural disaster incapacitates it and the brain drain is complete.
1 year ago
1 year ago Link To Comment
For what it's worth, we still have plenty of water in Michigan. Top that.
1 year ago
1 year ago Link To Comment
There is only one universal truth. Everything cycles.
1 year ago
1 year ago Link To Comment
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