Not surprisingly, returns on pension-fund-owned farmland slipped in the first quarter of 2014, according to the quarterly update from the National Council of Real Estate Investment Fiduciaries (NCREIF). The association's Farmland Index indicates a total return for the quarter of 2.41%, comprised of 1.53% appreciation and 0.88% income return. NCREIF is an association of professionals with significant involvement and interest in pension fund real estate investments. The NCREIF Farmland Index consists of 550 investment-grade farm properties; comprised of 406 annual cropland properties and 144 permanent farmland properties. The index includes 176 properties in the Corn Belt, 124 in the Pacific West, 66 in the Delta States, 54 in the Pacific Northwest, 46 in the Mountain States, 35 in the Lake States, 25 in the Southern Plains and 23 in the Southeast.
NCREIF notes the 2.41% first-quarter return is below the 5.44% total return of a year earlier and the 3.78% total return for the first quarter of 2012. The figure is also down compared to the fourth quarter of 2013's 9.26% total return. Christopher Jay, Chairman of the NCREIF Farmland Committee and Director of Financial Analysis with Prudential Agricultural Investments, notes: "The harvest of several different crop types, as well as the reappraisal of a disproportionate number of the properties in the index, take place in fourth quarter. Because of this, a first quarter drop off is not unexpected. The one-year total return remains strong at 17.44%."
There is typically a decline from the fourth quarter to the first quarter due to conclusion of the sale of the crops and the revenue sharing that goes with that. The average total return over the history of the index is 2.89% and the first quarter average is 1.84%. The 0.88% income return is the smallest since first quarter 2010.
The trailing four-quarter total return dropped significantly from 20.91% to 17.44%. That is the lowest total return over a four-quarter period since first quarter 2012. The split on the trailing four-quarter return was 8.42% appreciation and 8.57% income. The four-quarter rolling return from a year ago was 20.47%.
Annual cropland slightly outperformed permanent cropland in the first quarter. This property subtype performance is typical in the first quarter. This year, 2014, makes seven consecutive first quarters and 16 of the past 20 first quarters that annual cropland has outperformed permanent cropland. Annual cropland returned 2.42%, split 1.52% appreciation and 0.91% income. This was the second smallest income return for annual crops since the index began in 1991. The rolling four-quarter return declined to 11.92%, the lowest total return since second quarter 2011. The rolling four-quarter income return of 4.02% is the lowest since the index began.
The Pacific Northwest was the best performing region with a total return of 3.97%. This return just exceeded the Mountain region’s 3.56% and the Pacific West’s 3.36%. The Northwest’s return was split 3.41% appreciation and 0.56% income. The region’s return was driven by annual crops, which returned 8.27% including 1.21% of income and 7.06% appreciation. On a rolling four-quarter basis, the Pacific West’s 30.96% was more than double the next closest region.
The Lake States and the Delta States were the worst performing regions for the quarter with 0.30% and 0.80% total returns, respectively. The Lake States had (0.47%) appreciation and the Delta States (0.11%). The Southern Plains also had negative appreciation, (0.02%). On a rolling four-quarter basis, the Southern Plains had the lowest total return, 7.89%.
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