An index used by pension funds for benchmarking shows returns from farmland holdings continue to decline. The Farmland Index maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF) shows the total return for the third quarter was 1.02%. That is down from 1.63% the previous quarter and down from 1.40% a year earlier. The quarterly total was composed of 1.34% income return and depreciation of 0.31%.
After modest gains of 0.5% per quarter in the first half of the year, the income return strengthened in the third quarter, yet it’s still below its long-term average of 1.69%. Farmland values have been shifting between appreciation and depreciation each quarter since mid-2016 and, after 1.06% appreciation the previous quarter, experienced another quarter of slight depreciation.
Closing the Gap.
The gap between permanent and annual cropland continued to tighten in the third quarter with quarterly returns of 1.21% for permanent cropland and 0.89% for annual cropland. Permanent cropland outperformed for the quarter as its 1.95% income return offset 0.74% depreciation.
Annual cropland performance for the quarter was dominated by its income return with appreciation nearly flat, at 0.01%. During the trailing year, permanent cropland returned 7.98%, compared with 4.71% for annual cropland. Total returns for these two categories have less of a gap with annualized returns of 12.27% for permanent cropland and 10.50% for annual cropland.
All but one region had positive total returns in the third quarter, although half experienced depreciation. The Southern Plains (1.72%), Pacific West (1.52%) and Mountain States (1.28%) led regional performance for the quarter. Among these three, only the Pacific West had depreciation, which was offset by a 2.03% income return. The Corn Belt (0.88%) and Southeast (0.72%) had modest appreciation to support total returns, while depreciation in the Delta States (0.63%) and Pacific Northwest (0.26%) was a drag on mildly positive total returns.
The only negative regional quarterly total return was in the Lake States, at -1.54%, which had a modest income return and 1.86% depreciation.
The NCREIF Farmland Index consists of 699 investment-grade farm properties, totaling $8.1 billion in value. These properties are composed of 465 annual cropland properties and 234 permanent farmland properties. The index includes 218 properties in the Pacific West, 163 in the Corn Belt, 80 in the Delta States, 66 in the Mountain States, 57 in the Pacific Northwest, 41 in the Southeast, 36 in the Lake States and 20 in the Southern Plains.
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