Institutions' Farmland Index Yields Highest Q1 Return on Record

Published on: 10:05AM Apr 24, 2013

Mike Walsten

An index of farmland investments held by large pension funds posted its strongest first quarter gain on record. The index, founded by the National Council of Real Estate Investment Fiduciaries (NCREIF), rose 5.44%. That gain was comprised of 4.42% appreciation and 1.02% income return. This is the highest first quarter return since the index began in 1991, NECREIF states in a press release. The next closest first quarter return was 4.02% in 2006.

The 5.44% return is significantly higher than the 3.78% total return in the first quarter 2012 and the 2.38% total return from first quarter 2011. The difference in performance is all attributable to appreciation; income returns differed by one or two basis points.

The alternating trend of better performance between permanent cropland and annual cropland continued again this quarter, NECREIF states. Annual cropland had a 6.82% total return compared to permanent cropland’s 2.78% return. This marked the seventh consecutive quarter that the property subtypes alternated in outperforming each other. Annual cropland has outperformed permanent cropland in the first quarter the last six years. 2007 was the last time permanent cropland performed better in the first quarter.

The Mountain region was the best performing area in the first quarter, according to NECREIF. The 14.58% total return exceeded every other region by at least 500 basis points. Most of the return was driven by appreciation, 13.37%. The Pacific Northwest was the second best performing region with a total return of 8.05%. It was also the best performing region over the past four quarters with a 24.30% total return.

At the other end of the spectrum, the Corn Belt and Southeast regions were the lowest performers in the first quarter with a total return of 3.07% and 3.95% respectively. The Corn Belt was the highest performer last quarter, so a pause isn’t surprising. The Southeast along with the Southern Plains have been struggling over the past year. They were the two worst performing regions over the past four quarters.

The NCREIF Farmland Index consists of 549 investment-grade farm properties; comprised of 405 annual cropland properties and 144 permanent farmland properties. The index includes 183 properties in the Corn Belt, 122 in the Pacific West, 64 in the Delta States, 53 in the Pacific Northwest, 45 in the Mountain States, 33 in the Lake States, 25 in the Southern Plains and 23 in the Southeast. This data enhances the ability of institutional investors to price the risk of farmland investments across the United States.

The National Council of Real Estate Investment Fiduciaries (NCREIF) is an association of professionals with significant involvement and interest in pension fund real estate investments.

Click here for the full press release.

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