Februar y/March 2014
KERN BUSINESS JOURNAL
11
Wells Fargo has ‘strong outlook’ for agriculture By Scott Rhodes
W
ells Fargo continues to have a favorable overall outlook for California agriculture, and the San Joaquin Valley is no exception. Our long term outlook is strong, based on the fundamentals of growing demand in an increasingly connected world with a finite supply of prime farm land. And while we believe the long-term trend line looks good, there will be down cycles. The questions we are all asking are: When will they happen? How long will they last? And how deep will the impact be? Crop yields will see some year-to-year variability, driven by a number of factors, including extreme temperatures. California commodity prices, in general, remain strong, driving up farm gate revenues. With world demand a major contributing factor, we need to keep a cautious eye on economic policies. For example, a change in the value of the U.S. dollar versus Asian currencies could impact the current strong foreign demand for nut crops. Since 2005, the Chinese yuan has strengthened 30 percent versus the dollar, and U.S. tree nut exports to China have gone from $100 million to $1.7 billion. The large 2013 corn crop, combined with lower demand for fuel ethanol and resulting lower corn prices, is providing some needed cost relief to the dairy sector. The two big issues in agriculture are water and labor. Most of California is in the third year of a drought. Allocations by state and federal water districts have been cut deeply. Although dialog at the state level and among counties is increasing, we still have a long way to go to get to a sustainable, predictable water supply. In the near term, it’s possible that we will see regulation on drilling and plantings, because several areas of the state have experienced significant over-drafting of ground water. Land price volatility is expected as available water is recognized as the most critical driver of value. California agriculture is faced with labor shortages and higher costs. These higher costs are likely to remain. We expect farmers to look increasingly at investments in labor reducing technology. Rob Yraceburu, head of Wells Fargo’s National Food and Agribusiness Division and a valley native, pointed out the benefits of using technology to increase production versus increasing
Bakersfield Californian file photo
Since 2005, U.S. tree nut exports to China have gone from $100 million to $1.7 billion.
acreage. From micronutrients to irrigation to trellis systems, we believe that many farmers will see the economic advantage of investing in yield optimization technologies. In the world in general, and agriculture is no exception, volatility has increased. Commodity prices, from land to inputs to crops, likely will see bigger swings in the future than they have in the past. The industry must build the financial and operating flexibility to deal with these swings at every point in the food value chain. Wells Fargo food and agribusiness experts discuss critical issues in Food for Thought, a free monthly newsletter, available at http://bit.ly/18qtXAH. Scott Rhodes is the senior vice president of Wells Fargo’s regional commercial banking office.
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