US farmland investment returns dip

NCREIF’s farmland index shows investment returns for the asset class at a low 1.45%. But export volumes are up and land values are holding steady.

US farmland investment returns stood at 1.45 percent during the third quarter of 2014, a fall of 0.28 percent on the second quarter, according to The National Council of Real Estate Investment Fiduciaries (NCREIF).

US farmland has had a chequered reputation recently in the wake of a bumper harvest pushing key commodity prices down and listed farmland entities – such as real estate investment trust Farmland Partners – have suffered lower than expected trading prices.

The current investment return average is the lowest Q3 figure since 2010, which netted 1.03 percent.

Rental yields, that contribute to many farmland investors’ internal rate of return, are expected to take a hit in the medium term due to falling commodity prices, according to several farmland funds.

But lower product prices have been a positive for farmers in some ways. Soybean prices, which have fallen from $14.30 a bushel in June to $11.20 in September, have resulted in a sharp 57 percent increase in export volumes during the month of October, according to the USDA.

Also, farmland prices are the highest they have been for a decade in some parts of the US, so the assets are not dragging on portfolio values just yet. The Lake States region, where cropland values are currently $4,500 per acre, is one example.