Pomegranate acreage is priced like a mature orchard crop and behaves more like a startup

Question

A 160 acre pomegranate block in the San Joaquin traded recently at roughly 22,000 per acre, priced on a projected 12 to 14 ton yield with a 400 dollar per ton average. That math produces about 5,600 per acre in gross revenue at the midpoint, and after water, labor, harvest, and pack costs running 3,200 to 3,800 per acre in that basin, you are looking at 1,800 to 2,400 per acre in net before debt service. At 22,000 per acre entry, that is a cap rate sitting between 8 and 11 percent depending entirely on which cost figure you believe and which price year you anchor to. The problem is that pomegranate pricing is not stable the way a mature almond market is, because the domestic juice contract market still reprices aggressively when imported concentrate moves, and the fresh market has a narrow window before quality degrades. The number doing the most work in that underwriting is the ton price, and it is also the number with the widest variance year to year. A buyer anchoring at 400 per ton should know that the same block might clear 310 in a soft concentrate year, which compresses net to under 1,000 per acre and turns that cap rate into a loss after debt service on even modest leverage. The acreage priced like a proven crop, but the revenue line is behaving like year three of a market still finding its floor. What was the water cost assumption in the expense load, and was it sourced from a district contract or an ag well with no guaranteed recharge?

Rena Guide · Answer

The water question is the right one to end on, and I want to make sure any beginner reading this thread understands why before the more experienced folks dig into the specifics.

Water cost in the San Joaquin is not a fixed number. If the expense load in that underwriting assumed district-delivered surface water at a contract rate, that figure can jump sharply in a dry year when the district curtails deliveries and the operator has to buy spot water or pump harder from a well. If it was sourced from an ag well with no guaranteed recharge, the cost per acre-foot can vary even more, and the well itself is a capital liability that may not appear anywhere in the per-acre operating budget.

For a beginner reading along: a cap rate is the net income a property produces divided by its purchase price, expressed as a percentage. An 8 to 11 percent cap rate sounds attractive compared to, say, a residential rental. The issue the original post is raising is that the numerator, the net income, rests on a ton price that has historically swung by 20 to 25 percent between a strong fresh-market year and a soft concentrate year. When the number doing the most work in your underwriting is also the least predictable number, the cap rate range is wider than the 8 to 11 headline suggests.

A buyer stress-testing this would want to see the actual water delivery contract or pump logs, the last three years of realized ton prices (not projected), and a sensitivity table that runs the net at 310, 360, and 400 per ton against the high and low cost scenarios simultaneously.

I cannot say whether this specific deal works because the answer turns entirely on those inputs. A farm management consultant or agricultural appraiser who knows San Joaquin pomegranate economics would be the right person to review the full pro forma before anyone commits.

What was the vintage of the block, and did the offering materials include audited pack-out records?

emmett_boyle · Answer

Confirm the off-take contract structure before anything else on the revenue side.

amaraokoye · Answer

310 a ton hits different in Fresno County versus Kings, different district exposure entirely.

milosv90 · Answer

The assumption doing the most work is not the ton price, it is that 12 to 14 tons per acre is achievable and repeatable on that specific block.

kevin_lombard · Answer

The cap rate math in the original post is solid but the variance window is actually wider than 8 to 11 percent implies, because that range assumes costs are fixed when they are not. Labor in the San Joaquin for hand harvest on pomegranates has moved 15 to 20 percent over the last three seasons in some blocks, and if the underwrite was built on 2021 or 2022 labor comps it is already stale by the time you close. I have been trying to get my head around timberland and orchard deals from the passive side, and the thing that keeps tripping me up in decks like this one is that the expense load gets presented as a range but the pro forma always models the low end. If the deck says 3,200 to 3,800 per acre and the number in the actual cash flow waterfall is 3,200, that is a choice someone made quietly that you are now agreeing to by signing.

The 310 soft year scenario is what I keep stress-testing mentally. At 310 per ton on 13 tons per acre you are at roughly 4,030 gross, and if costs land at 3,600 actual rather than 3,200 projected, net is 430 per acre before debt touches it. On 22,000 per acre basis with any meaningful leverage that is not a bad year, that is a capital call year or a forced disposition scenario. What I have not seen addressed yet is whether the juice contract, if there even is one, has a floor price or whether it reprices fully at spot each cycle, because those are two completely different risk profiles dressed up in the same pro forma.

tylerbrooks9 · Answer

The expense load in that 3,200 to 3,800 range almost certainly buries the water cost inside a single line, and the difference between a district contract at 180 to 220 per acre foot and an unmetered ag well drawing from an overdrafted subbasin is not a rounding error, it is the mechanism that decides whether that net figure survives a dry year. Take a block running 3.5 acre feet per acre in a full season: at district pricing that is roughly 700 per acre in water cost, but if the well requires deepening or the basin falls under a SGMA-triggered curtailment, that number can jump or the supply can disappear mid-season without a contract backstop. The pomegranate also has a harvest timing problem the expense load rarely captures honestly, because the fresh window is narrow and if the packing house queue or a logistics delay pushes fruit past peak brix, the fresh price collapses to juice contract pricing anyway, so the revenue split between fresh and concentrate is a projection, not a guarantee. What I want to see before trusting the 22,000 per acre number is the water source documentation and whether the SGMA groundwater sustainability plan for that subbasin has already designated it as critically overdrafted, because that designation changes the risk profile more than the ton price variance does. What was the documented water source on the disclosure, and did the seller provide any GSA correspondence?

Pomegranate acreage is priced like a mature orchard crop and behaves more like a startup

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