Farm Talk: Liquid Gold

In today’s episode of Farm Talk, Paul discusses liquid gold (or water, as it’s known in California). Farm properties in California are all about water – not just the availability of water, but also the cost of water.

Here in Southern California, summer is the arid time of year and farming is completely reliant on transporting water long distances. So, how we value farm properties is largely based on the cost of water. Neighboring properties can have drastically different water costs. One property could be low and yet the property across the street could be twice, three times, or even four times as expensive!

So when people are looking for farms, one of the primary questions is “What is the source of water?”. If it is county water, it can be significantly more expensive than well water.

Paul explains in detail how the water costs vary, and he breaks it down so that it is very easy to understand things like “acre feet”, and what the water cost of each acre of your farm may be per year. Water can become so expensive on some properties that it makes certain properties better for equestrian use, rather than farming.

This is a very interesting episode full of excellent information. Tune in to learn more!

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Transcription

Farm Talk: Liquid Gold

Liquid gold, also known in southern California as water. Farm properties here are all about water, and not just water availability but specifically the cost of water. We certainly realize that some places in the United States are underwater right now and we certainly feel for those folks – but here in southern California, it’s the arid time of year and farming is completely reliant on transporting water long distances.

How we value farm properties is largely based on the cost of water and specifically where I’m located, water on one side of the street could be double, triple or even four times as expensive as it is on the other side of the street. So, when people are looking for farms, one of the primary questions is what is the water source? Is it county water? Which would be considered expensive. Is it well water? Which would be significantly less expensive. The interesting thing, I always say, is the orchards don’t know how much the water costs, they just know how much water they need. There’s some truth to that. Avocados typically take between three and three and a half acre feet of water per year, that’s kind of the typical. If you were to flood one acre a foot deep, that’s considered an acre foot, so avocados take between three and three and a half acre feet per year. So, if the cost of water is $400 per acre foot and one acre of Avocados takes three-acre feet, the cost of irrigating that one acre would be about $1,200 per year.

With the more expensive water source, such as the county, water could be $1,200 per acre foot. Irrigating that same acre would cost $3,600 per year, and this of course is assuming that it doesn’t rain; these numbers could drop by about 20 to 25% depending on how much rainfall there is in a typical year. Then you have to multiply the number of acres on the farm. $1,200 per acre per year times 20 acres would be $24,000 per year, I’m not factoring in rain. At $3,600 per acre per year times 20 acres would be $72,000 a year to irrigate. You can then start to see the value of properties hinges on not just the availability, but the cost of water, because the more expensive the water, the less the farmer is going to net.

At some point the cost of water is so prohibitive that farming on certain parcels then does not make sense. Those properties might lend themselves to equestrian use or maybe crops that really don’t take as much water. Now again, rain can reduce these costs by 20%-25% but still – to be conservative when you’re valuing properties and buying properties, you need to factor in the cost of water. The properties with the more expensive water still have a value, but the price per acre or the value per acre can be greatly reduced, dependent on the cost of water at that property.

We’d love to hear from you! As always, feel free to email Paul@homeandranchsellingteam.com or message us.