US farmland returns, measured by income and appreciation, were just 0.49 percent during Q1 of this year, according to the latest farmland property index from the National Council of Real Estate Fiduciaries (NCRIEF) released last week.
The index measures farmland investment growth based on 683 property-level valuations contributed by seven institutional farmland owners.
The Q1 return was comprised of a 0.51 percent income return and a slight depreciation in underlying land value of 0.02 percent. The index had returned 2.89 percent in Q4 2016 and 1.38 percent in Q1 2016.
Dipping returns in recent quarters mark a contrast from both recent and historical performance of the index, which has tripled since 2000. The year 2016 closed with the lowest annual total farmland return since 2009, at 7.09 percent, compared to 10.35 percent in 2015 and 12.63 percent in 2014.
“After healthy harvests between 2011 and 2014, the agricultural sector has more recently been met by a stronger dollar and slower global growth, inhibiting both price and export growth. These combined forces are moderating total farmland returns,” NCREIF wrote in the report.
NCRIEF director of research Sara Rutledge told Agri Investor that, as opposed to other asset classes such as stocks and retail property, total farmland returns never went into negative territory during the economic crisis. As a result, she said some slowdown in returns from a higher base is inevitable, and that investors are likely to continue to be attracted to farmland despite the softening index.
“There is a bit of safety in farmland as an asset class,” Rutledge said. “Stable performance is over the long-term… likely means that there could be continued interest in farmland as an asset class.”
NCRIEF also noted that the diversion between annual and permanent crop land earnings, with earnings on the latter falling behind the former during Q1, was unique to this cycle.
“Historically, total returns for these categories are much closer as shown by the since inception return for permanent cropland of 12.4 percent versus 10.6 percent for annual cropland,” according to the report.
Regionally, NCRIEF reported that the Southern Plains and Pacific Northwest regions both saw the strongest growth of about 2 percent total returns over the first three months of 2017. That compared with about 1 percent returns shown in the Mountain and Delta States regions, 0.35 percent returns in the Corn Belt and 0.31 percent in the Lake States region. Only the Pacific West region saw negative total returns in the Q1.
The companies contributing farmland property data to the NCRIEF index are Cottonwood Ag Management, Gladstone Land Corp., Hancock Agricultural Investment Group, Prudential Agricultural Investments, UBS AgriVest, US Agriculture and TIAA-affiliate Westchester Group Investment Management.