Modest third quarter farmland performance on stronger income, slight depreciation

The National Council of Real Estate Investment Fiduciaries (NCREIF) has released the third quarter 2017 results of the NCREIF Farmland Index. The total return for the third quarter was 1.02 percent, down from 1.63 percent last quarter and 1.40 percent in the third quarter 2016. The quarterly total return was comprised of a 1.34 percent income return and depreciation of 0.31 percent.

After modest gains of about 0.5 percent per quarter in the first half of the year, the income return strengthened in the third quarter, yet remains below its long-term average of 1.69 percent. Farmland values have been shifting between appreciation and depreciation each quarter since mid-2016 and, after 1.06 percent appreciation last quarter, had another quarter of slight depreciation.

The trailing annual total farmland return was 6.15 percent through third quarter 2017, compared to 8.56 percent for the year ending third quarter 2016. The annual total return was comprised of a 4.94 percent income return and 1.17 percent appreciation.

The gap between permanent and annual cropland continued to close in the third quarter with quarterly total returns of 1.21 percent for permanent cropland and 0.89 percent for annual cropland. Permanent cropland outperformed for the quarter as its 1.95 percent income return more than offset 0.74 percent depreciation. Annual cropland performance for the quarter was dominated by its income return with appreciation nearly flat, at 0.01 percent. Over the trailing year, permanent cropland returned 7.98 percent, compared to 4.71 percent for annual cropland. Since inception, total returns for these two categories have less of a gap with annualized returns of 12.27 percent for permanent cropland and 10.50 percent for annual cropland.

All but one region had positive total returns in the third quarter, although half experienced depreciation. The Southern Plains (1.72 percent), Pacific West (1.52 percent) and Mountain States (1.28 percent) led regional performance for the quarter. Among these three, only the Pacific West had depreciation, which was offset by a 2.03 percent regional income return. The Corn Belt (0.88 percent) and Southeast (0.72 percent) had modest appreciation to support total returns, while depreciation in the Delta States (0.63 percent) and Pacific Northwest (0.26 percent) was a drag on mildly positive total returns. The only negative regional quarterly total return was in the Lake States, at –1.54 percent, which had a modest income return and 1.86 percent depreciation.