Institutional Farmland Index Posts 9.3% Gain in Q4

Published on: 15:04PM Jan 22, 2014

Mike Walsten

An index of institution-held farmland rose slightly more than 9% in the fourth quarter of 2013, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). The NCREIF Farmland Index, which consists of 546 investment-grade farm properties throughout the U.S. The total return for the quarter was 9.26%, comprised of 5.02% appreciation and 4.24% income return, says NCREIF. This is above third quarter’s 2.94% total return, but below fourth quarter 2012’s 9.56% total return.

The fourth quarter typically has the highest income and total return, states NCREIF. The average total return over the history of the index is 2.89% and the fourth quarter average is 6.08%. Excluding 2012, this quarter’s total return was the highest quarterly return since fourth quarter 2006.

The trailing four quarter total return dropped slightly from 21.25% to 20.91%. That is the second highest total return over a four-quarter period since fourth quarter 2006. The split on the trailing four-quarter return was 11.50% appreciation and 8.73% income. The four-quarter rolling return from a year ago was 18.58%.

For the third consecutive quarter, permanent cropland outperformed annual cropland. Permanent cropland had a 16.85% total return compared to annual cropland’s 5.63% return. Permanent cropland’s 16.85% return was split between 6.19% appreciation and 10.66% income. This was the best performance by permanent cropland since fourth quarter 2005. The income return was also the highest since fourth quarter 2005. The rolling four quarter return was 29.77%, split 10.14% appreciation and 18.57% income, the highest since third quarter 2006.

The Pacific West was the best performing region by a significant margin with a 17.49% total return. This was split 7.96% appreciation and 9.52% income. The next closest region was the Delta region with a 6.39% total return. The Pacific West’s strong return was driven by permanent crops which returned 20.74% including 12.56% of income. On a rolling four quarter basis, the Pacific West’s 32.05% exceeded all the other regions with the Mountain region’s 24.64% being the next closest.

The Southern Plains and the Mountain region were the worst performing regions for the quarter with 1.97% and 2.77% total returns, respectively. The Southern Plains only had 0.79% appreciation and the Mountain region’s income return was 0.99%. The Southern Plains was also the worst performer on a rolling four quarter basis at 12.04%, just trailing the Corn Belt’s 13.05%.

Christopher Jay, Chairman of the NCREIF Farmland Committee and Director of Financial Analysis with Prudential Agricultural Investments, notes: "Farmland continues to have impressive returns with 2013's total return of 20.91%. The year had strong performance in all regions of the country and in many commodity sectors, but this was especially true for permanent crops in the Pacific West, which were led by almond and pistachio properties. The 2013 total return marks the third consecutive year with returns over 15%. Eight of the past ten years have also seen returns over 15% on a total farmland basis. Global macroeconomic trends are continuing to shape demand for agricultural products with favorable results for both income and asset values."

The NCREIF Farmland Index consists of 546 investment-grade farm properties; comprised of 400 annual cropland properties and 146 permanent farmland properties. The index includes 175 properties in the Corn Belt, 124 in the Pacific West, 66 in the Delta States, 54 in the Pacific Northwest, 45 in the Mountain States, 33 in the Lake States, 25 in the Southern Plains and 23 in the Southeast.

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