Cautious reception to NCRIEF land appreciation boost

Appreciation in US farmland values during the second quarter was the strongest since the fourth quarter of 2015, according to the National Council of Real Estate Fiduciaries.

In its Farmland Property Index, released Thursday, NCRIEF said that US farmland markets saw total returns of 1.63 percent in the second quarter, comprised of 0.57 percent income return and 1.06 percent appreciation. The findings suggest an improvement over both the 0.49 percent growth NCRIEF reported last quarter and the 1.25 percent growth during the second quarter of last year.

Jeff Conrad, president and founder of separate account-focused private equity firm AgIS Capital, told Agri Investor that he was surprised by NCRIEF’s Q2 findings, calling the appreciation numbers stronger than he expected.

“I think you really have an anomaly here,” he said, highlighting the fact that NCRIEF’s methodology means the index could be reflecting the timing of appraisals more than any recent change in land values. “The fundamentals in the marketplace that I see don’t support this report.”

Conrad stressed that while NCRIEF Index remains the best tool for gauging the state of US farmland markets, the USDA’s National Farm Income readings and his own market observations do not suggest a meaningful increase in farm incomes that would support a second quarter appreciation of the scale suggested in the report.

In its statement, NCREIF said the region displaying the strongest performance during the second quarter was the Pacific Northwest, which had appreciation of 6.23 percent and 7.05 percent returns when counting income. Conrad said that improvement was likely driven by developments in apple markets, a crop that is widespread in the region.

“What could be caught in there is some of the new varieties that have been planted. Maybe they are getting some appraisals done on new crops like honeycrisps, that are appraising and selling for quite high figures,” he said.

Overall, Conrad said that his expectation was that US farmland prices will come under pressure in the near term, despite some early reporting that cast NCRIEF Q2 report as a positive turning point for the market.

“This is not the turn,” Conrad said.

NCRIEF’s index draws data from 705 investment-grade properties owned by: Cottonwood Ag Management; Gladstone Land Corp; Hancock Agricultural Investment Group; Prudential Agricultural investments; UBS AgriVest; US-Agriculture and TIAA- affiliate Westchester Group Investment Management.

Composed of 467 row crop and 238 permanent crop properties, more than half the farmland properties in the index are concentrated in the Pacific West (222) and Corn Belt (175) regions, with the remainder distributed among the Delta States (79), Mountain States (60), the Pacific Northwest (57), the Southeast (40), the Lake States (36) and the Southern Plains (20) regions.