Earthly matters: Farmland returns, permanent vs annual

Who sows sound investments harvests consistently strong returns. On this count, US farmland has struggled to decide where it stands of late. The asset class generated good returns in Q4 2016, at 2.89 percent; yet in Q3 2017 that had already been downgraded to 1.02 percent. Fortunately, Q4 2017 has brought investors good news, according to the latest results of National Council of Real Estate Investment Fiduciaries’s Farmland Index, which places performance on the period at 2.93 percent.

This largely owes to income returns, which closed out 2017 at 2.13 percent. Farmland values have been switching between being in the black and falling in the red each quarter since mid-2016. After a modest 0.31 percent fall in Q3, they appreciated 0.80 percent in Q4. The pattern also holds on a rolling four-quarter basis, with annual total return composed of a 4.61 percent income return and a 1.54 percent appreciation.

But the gap was widest between returns on permanent cropland and its annual equivalent, which scored returns of 5.23 percent and 1.21 percent respectively over the past quarter. Permanent cropland fared better both in income and capital appreciation terms, with cropland managing only a 0.26 percent appreciation in Q4. Over the trailing year, permanent cropland returns 8.14 percent, compared to 4.75 percent for annual cropland.

The difference narrows when looking at returns since inception, with permanent and annual cropland posting respective performance of 12.36 percent and 10.44 percent. Below is a more comprehensive look at the past four quarters.