BY CALEB HAMPTON

AgAlert

Water credits, farm equipment, a piece of the farm itself. These are some of the assets farmers have sold this year to finance their operations. 

Typically, many farmers take out yearly operating loans to pay for labor, fertilizer, fuel and other input costs, and then they pay back the loans after harvesting and selling their crops. But as the farm economy struggles, lenders have pulled back, and some farmers are liquidating assets to continue farming. 

“What’s happened is the working capital—those loans—just dried up,” said Bill Berryhill, who farms in Stanislaus, San Joaquin and Sacramento counties. “It’s a little tough to farm without any operating money.”

A fourth-generation farmer and former California Assembly member from 2008 to 2012, Berryhill expanded his winegrape acreage about 20 years ago, buying a vineyard in Clements where an unbroken mosaic of vines extended through rolling hills to Lodi and beyond. 

“That was my leap of faith in the wine business,” he said. 

Today, pressure to yank out vines has left the grape-growing district checkered with barren plots as growers try to balance supply with shrinking demand. 

The wine industry’s woes have caused wineries to terminate contracts with grape growers and offer rock-bottom prices for out-of-contract grapes sold on the spot market. Last year, a record portion of California’s vineyard acreage went unharvested, with grapes left to rot on the vines. 

This year, without buyers lined up for all of his grapes, “we were cut off,” Berryhill said of his lender’s denial of an operating loan. Other than a harvest loan, which doesn’t cover costs such as pruning, crop protection and other inputs prior to picking the grapes, “we’re operating on our own money,” he said. 

The scenario has played out this year across California’s winegrape sector. 

“It’s definitely been a problem,” said Jeff Bitter, president of Allied Grape Growers, a grower-owned marketing group that sells winegrapes for 400 growers across California. “Lenders are saying, ‘Without a contract, we’re going to take a different look at this,’ and you certainly have some lenders saying, ‘We’re not going to look at it at all.’ We’re seeing that now more than we ever have.”

A challenging environment

Jill Jelacich, American AgCredit head of regional banking for the Central Valley, said the bank understands the cyclical nature of the farm economy and has developed lending practices to help farmers get through rough patches. 

At the same time, she said, Farm Credit system lenders are “required to lend within certain parameters” to safeguard the institution, which is cooperatively owned by its customers. 

“Anything that impacts the ability to generate a positive operating margin” can make it more challenging for the bank to approve a loan, Jelacich said. That can include low crop prices, high input costs and trade uncertainties, among other factors, she said. 

When it comes to winegrape growers without a winery contract, Jelacich said, American AgCredit considers a borrower’s overall financial picture when underwriting operating loans. 

“That said, having a contracted revenue stream does help mitigate risk for our customers,” she added. “If our farmer isn’t able to sell their grapes for more than the cost to grow, they may be challenged to repay the loan.”

Challenges have only mounted for winegrape growers during the past few years, as each year more long-term winery contracts expire, leaving more grapes to compete for sales on the spot market. This year, about half the state’s winegrape acreage may be out of contract, Bitter estimated. 

The current winegrape market “is probably one of the most challenging environments we’ve navigated for decades,” Stephen Rannekleiv, a strategist at Rabobank, said in January. 

Tough decisions

With loans harder to come by for many growers, the need to self-finance has come at a difficult time. Farmers across various commodities have operated at a loss for consecutive years, leaving some with little cash in reserve as they face the prospect, without lender support, of another year in the red.

“There are a lot of tough decisions that farmers are having to make right now,” Berryhill said. 

To raise the cash he needed to continue farming his Clements vineyard, Berryhill sold 22 acres of pinot grigio he owned near Turlock.  

In other circumstances, the walnuts and almonds Berryhill grows might have helped him get through “tough sledding” in the winegrape market, but prices for those crops have also been depressed. 

“I’m pretty diversified, but everything was bad,” he said. “It’s the perfect, disastrous storm.”

While liquidating property is always an option for farmers who own real estate, equipment or other assets, agricultural real estate professionals said they have seen a surge this year of parcels across the state being sold to raise money to cover short-term farming costs.  

“I’ve witnessed it myself,” said Landon Fernandes, an associate at Graham & Associates, who primarily serves Kern, Kings and Tulare counties, with sellers telling him the sale “is going to help me get through the growing season.”

Farmers are selling off pieces of their land “so they can live to fight another day,” said Buzz Gill, realtor at Stromer Realty, who works with growers from Merced County to Tehama County.

Casey Bloomquist, grower relations representative at Schuil Ag Real Estate, said he has seen older orchards and water-distressed farmland sold as growers cut their losses and prioritize their best ground. 

“It’s survival mode,” said Bloomquist, who works with growers in Kern and Tulare counties. 

Farmland isn’t the only asset farmers are liquidating. In addition to selling his 22-acre vineyard, Berryhill said he sold stock and a nonfarm property his family owned. 

Fernandes, whose family owns a dairy in Tulare County, said farmers in the area who stored up water credits in recent years and “have more in the piggy bank” are selling the credits to water-starved neighbors to raise operating money. 

“You weren’t seeing this creativity you’re seeing now five years ago,” he said. 

Drastic measures

In addition to low commodity prices and high farming costs, California’s Sustainable Groundwater Management Act has impacted lending and pushed some growers to sell land, especially in the San Joaquin Valley.  

With SGMA projected to force hundreds of thousands of acres of farmland out of production by 2040, land values in parts of the region plummeted during the past few years as it became evident where groundwater pumping restrictions may soon make it unfeasible to continue growing high-value tree crops. 

Farmers in these areas have reported challenges securing operating loans, as both their crops and real estate—two sources typically used as collateral to secure loans—have lost value. 

“Declining farmland values can put pressure on a customer’s balance sheet and their ability to take on additional debt,” Jelacich said. 

The lack of operating cash, on top of numerous other challenges, has driven some farmers to “pull the plug on the whole thing” and get out while they can still cover their debts, Fernandes said. 

But that isn’t the whole picture. Real estate professionals said plenty of farmers, optimistic that better times may lie ahead, are selling a piece of their farm so they can keep farming the rest of it. 

“Farmers do a great job of surviving tough times,” Bloomquist said. “Sometimes that calls for drastic measures.”

— Courtesy of the California Farm Bureau.