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US farmland returns held back by indecisive land prices

Southern Plains was the best performing region while Lake States recorded negative performance in Q3, according to NCREIF.

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Southern Plains was the best performing region while Lake States recorded negative performance in Q3, according to NCREIF.

Income growth proved to be the major driver of US farmland returns in the third quarter of this year, helping assets record positive yet modest performance over the period.

Total returns nationally reached 1.02 percent, down from 1.63 percent in the last quarter and 1.4 percent in Q3 2016, according to the National Council of Real Estate Investment Fiduciaries’ farmland index. Much of the boost was due to stronger income, which grew 1.34 percent; land values, in contrast, fell 0.31 percent.

Income gains are stronger now than at the beginning of the year, when they stood at just 0.5 percent. Yet they remain below their long-term average of 1.69 percent, according to NCREIF. Farmland values, meanwhile, have been oscillating between timid growth and shallow slumps. They had recorded a 1.06 percent increase in Q2.

The trailing annual return is still some way off the better years, at 6.15 percent through to Q3 2017 versus 8.56 percent for the year ending Q3 2016. Income has proved to be the consistent engine of returns, providing nearly three-quarters of the annual boost.

Row-crop farmland seemed to be catching up – gradually – with its permanent-crop peer, with total returns for Q3 at 0.89 percent and 1.21 percent respectively. Over the trailing year, permanent cropland was still largely in front at 7.98 percent, compared with 4.71 percent for annual cropland. Region-wise the picture remained diverse, as the below chart illustrates.

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