The total return from farmland owned by pension funds rose during the fourth quarter of 2017, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). The NCREIF index shows the total return for the fourth quarter of 2017 was 2.9%, up from 1% last quarter and even with 2.9% in the fourth quarter 2016. The quarterly total return was composed of a 2.1% income return and appreciation of 0.8%.
Signs of Improvement. Income returns for the index consistently strengthened throughout the year, closing out 2017 at 2.1%. Farmland values have been shifting between appreciation and depreciation each quarter since mid-2016, and, after a modest drop of 0.3% in the third quarter, registered appreciation of 0.8% in the fourth quarter.
The total farmland annual return was 6.2% through the fourth quarter of 2017, compared to 7.1% for the year-ending fourth quarter 2016.
The annual total return was composed of a 4.6% income return and 1.5% appreciation.
The gap between permanent and annual cropland widened in the fourth quarter with quarterly total
returns of 5.2% for permanent cropland and 1.2% for annual cropland.
Permanent cropland outperformed in both metrics, with an income return of 3.7% and appreciation of 1.5%.
Annual cropland performance for the quarter was again dominated by its income return with appreciation rising modestly to 0.3%. Over the trailing year, permanent cropland returned 8.1%, compared to 4.75% for annual cropland.
Since inception, total returns for these two categories have less of a gap with annualized returns of 12.4% for permanent cropland and 10.4% for annual cropland.
Regional Outlooks. All but one region had positive total returns in the fourth quarter. The Pacific West (5.0%), Pacific Northwest (2.9%) and southern Plains (2.3%) led regional performance for the quarter.
Despite recording the strongest appreciation return among the eight NCREIF farmland regions during the fourth quarter, the Pacific Northwest was the only region to post negative income (-0.65%). The Southeast (1.7%) and Delta states (1.55%) had modest appreciation to support total returns, while depreciation in the Mountain (0.5%) and Corn Belt (0.3%) was a drag on mildly positive total returns. The Lake States was the only region to post a negative total return (-2.4%).
The only negative regional quarterly total return was in the Lake States, at -1.5%, which had a modest income return and 1.9% depreciation. This was the sixth quarter, and the fifteenth quarter out of the last sixteen, that the Lake States has posted depreciating values, resulting in a decline in value of 13.6% for the region since the fourth quarter of 2013.
The NCREIF Farmland Index consists of 727 investment-grade farm properties (486 annual cropland properties and 241 permanent farmland properties), totaling $8.5 billion of market value.