2018 looks strong for nursery/greenhouse growers

January 14, 2018

Northwest Farm Credit Services’ 12-month profitability outlook remains strong for the nursery/greenhouse sector. Pricing is favorable; early bookings for 2018 are strong as buyers secure plants, although inventory shortages continue for certain plant varieties. Strong economic indicators will support continued growth for the industry. Consumer preferences are shifting to lower maintenance plants and landscaping. Hiring landscapers is a growing trend and the landscape industry is growing 3.9 percent annually, according to the IBIS World market report. According to the National Association of Landscape Professionals (NALP), 40-percent of Americans with a yard hired professionals for landscape care last year, compared to 35-percent in 2013. Census Bureau data indicates the median lot size of new, single-family detached homes is declining. In 2016, the median lot size dropped below 8,500 square feet, the smallest on record and 26 percent smaller than 30 years ago. Regional differences in lot sizes are driven by density of developed land and land availability. Reduced consumption is a global trend. In the U.S., this includes a movement toward smaller living spaces, which is raising demand for compact shrubs and container gardens. Homeowners have become more interested in holistic landscapes that promote well-being, opting for raised gardens and portable containers. U.S. job growth remains positive. November unemployment was a decade-low 4.1-percent with 228,000 new jobs. Still, the labor-force participation rate is stagnant at 62.7-percent. Access to labor remains a key concern for most nursery/greenhouse producers as competition for quality labor grows. The H2-A visa program is critical to the industry’s labor force, which is one of the top agricultural sectors using the H2-A program, according to the Department of Labor. Also, higher wages to attract workers, minimum-wage hikes and healthcare costs are increasing overhead. Producers may have a difficult time passing increasing costs of labor onto consumers. Understanding cost of production is critical as increased labor costs will impact inputs and compress margins. Producers are focused on production efficiency and labor productivity, with many implementing more mechanization. Tight supplies and high demand drove up Christmas tree prices, which have steadily gone up. The National Christmas Tree Association reports the 2008 average cost of a tree was $36.50. Prices stabilized somewhat until 2015 and 2016 when the average price spiked to $50.82 and $74.70, respectively. 2017 prices were expected to increase by more than 10- percent. Drier summers and exceptionally wet springs for the last few years have led to seedling supply shortages. Additionally, many nurseries reduced seedling inventory during the economic downturn, decreasing the number of uncontracted trees currently on the open market. The tight tree market is compounded by increased disposable income, which has increased demand for live trees. Growers who maintained inventory levels through the downturn are poised for strong profits. U.S. housing starts surged in October and November to a seasonally adjusted annual rate of 1.256 and 1.297 million units respectively. The increase was driven by rebuilding activity in the South due to hurricanes and flooding. Strong longer-term demand for both new home and repair segments is likely. Robust gains were also noted in the Northeast and Midwest regions. Residential building permits jumped 12.4 percent in October compared to September to an annual pace of 1.297 million, signaling strong construction in the pipeline. For more information or to share your thoughts and opinions, contact the Northwest Farm Credit Service Business Management Center at 866-552-9193 or bmc@northwestfcs.com.