Funds Report Weak Returns from Cropland

Published on: 20:57PM Jan 25, 2016


Mike Walsten

Weakness in row-crop and wheat cropland returns continues, while returns from permanent cropland, such as vineyards and orchards, remain strong, according to the National Council or Real Estate Investment Fiduciaries (NCREIF). The group's quarterly Farmland Index pegs total return from farmland for the quarter at 4.3%, comprised of 1.67% appreciation and 2.64% income return.

The fourth-quarter gains were driven primarily by strong gains in permanent cropland, predominately located in the Pacific West. Permanent cropland had a 7.95% total quarterly return compared to annual cropland's 1.24% return. Permanent cropland’s return was split between a 4.64% income return and 3.31% appreciation. Meanwhile, annual cropland experienced slight appreciation (0.28%) with a 0.95% income return.

Over the past year, permanent cropland had a 17.00% total return, which is more than three times the 5.18% total return for annual cropland. Historically, returns for these two categories are much closer. Since inception of NCREIF's Farmland Index in the fourth quarter of 1990, the return for permanent cropland has averaged 12.62% versus 10.91% for annual cropland.

At 8.29%, the Pacific West remained the top performing region for total farmland returns in the fourth quarter with more than double the return of the Southeast (4.03%). The Southern Plains had a healthy quarter, returning 3.33%, while the Mountain States slipped to 1.63% for its lowest quarterly performance of the year. The Lake States (1.16%) and Delta States (0.12%) managed to eke out a positive total return for the quarter with income returns exceeding depreciation in both regions. The Corn Belt and Pacific Northwest were the worst performing regions for the quarter with negative 0.33% and negative 0.44% total returns, respectively. Depreciation was the drag on total returns for both regions over the quarter and the year, NCREIF says.

The NCREIF Farmland Index consists of 667 investment]grade farm properties, which is comprised of 427 annual cropland properties and 240 permanent farmland properties. The index includes 219 properties in the Pacific West, 175 in the Corn Belt, 70 in the Delta States, 58 in the Pacific Northwest, 48 in the Mountain States, 36 in the Lake States, 32 in the Southeast and 21 in the Southern Plains. This data enhances the ability of institutional investors to price the risk of farmland investments across the United States.

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