Research - JULY 20, 2017

NCREIF Farmland Index performance improves in Q2 2017

by Jody Barhanovich

The National Council of Real Estate Investment Fiduciaries has released the second quarter 2017 results of the NCREIF Farmland Index. The total return for the second quarter was 1.63 percent, up from 0.49 percent last quarter and 1.25 percent in the second quarter 2016. The quarterly total return was comprised of a 0.57 percent income return and 1.06 percent appreciation.

Although agricultural prices remain under pressure, the farmland income return managed modest gains in the first half of 2017, at about 0.5 percent per quarter, similar to the income returns in the first half of 2016. Farmland appreciation had its best performance since fourth quarter 2015, following slight depreciation last quarter.

The trailing annual total farmland return was 6.55 percent through second quarter 2017, compared to 9.68 percent for the year ending second quarter 2016. The annual total return was comprised of a 5.18 percent income return and 1.32 percent appreciation.

The gap between permanent and annual cropland narrowed considerably in the second quarter with quarterly total returns of 1.67 percent for annual cropland and 1.56 percent for permanent cropland. Annual cropland slightly outperformed this quarter with a much stronger income return, at 0.87 percent, compared to only 0.17 percent for permanent cropland. However, permanent cropland appreciation, at 1.39 percent, outpaced the 0.80 percent achieved by annual cropland. Over the trailing year, permanent cropland returned 8.63 percent, compared to 4.90 percent for annual cropland. Since inception, total returns for these two categories have less of a gap with annualized returns of 12.34 percent for permanent cropland and 10.56 percent for annual cropland.

While all regions had positive total returns in the second quarter, performance varied widely. Two regions — Pacific West and Northwest — had solid appreciation of 1.49 percent and 6.23 percent, respectively. For the Pacific Northwest, this supported the strongest quarterly total return across the regions, at 7.05 percent. Two other regions — Southeast and Southern Plains — were the only areas with income returns above 1 percent, at 2.14 percent and 1.09 percent, respectively. Slightly positive appreciation also occurred in both of these regions. The depreciation trend continued in the Corn Belt and Lake States for weak total returns, while the Mountain States also experienced slight depreciation, at 0.05 percent, for the quarter.

The NCREIF Farmland Index consists of 705 investment-grade farm properties, totaling $8.1 billion of market value. These farm properties are comprised of 467 annual cropland properties and 238 permanent farmland properties. The index includes 222 properties in the Pacific West, 175 in the Corn Belt, 79 in the Delta States, 60 in the Mountain States, 57 in the Pacific Northwest, 40 in the Southeast, 36 in the Lake States and 20 in the Southern Plains. This data enhances the ability of institutional investors to price the risk of farmland investments across the United States.

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