OCTOBER 23, 2013

NCREIF Farmland Index reports best third quarter in years

by Reg Clodfelter

NCREIF has released the results of its third quarter 2013 Farmland Index, and the numbers are certainly improving. According to the report, the total third quarter returns were 2.94 percent, divided between 0.85 percent appreciation and a 2.09 percent income return. This was an improvement from the previous quarter’s return of 1.97 percent, and is the best third quarter the sector has seen since 2005.

The third quarter 2013 return numbers showed significant improvement over the third quarter 2012 return of 1.91 percent and the index’s third quarter average of 1.40 percent. The index also reported a trailing four-quarter return of 21.25 percent — the highest seen in nearly seven years and a significant improvement on the 17.64 percent four-quarter rolling return from a year ago.

“Third quarter 2013 returns were led by the Pacific West where many of the diverse crops grown in that region remain strong,” comments Christopher Jay, chairman of the NCREIF Farmland Committee and director of financial analysis with Prudential Agricultural Investments. The Pacific West saw a return of 5.27 percent for the quarter, divided between 0.84 percent appreciation and income of 4.44 percent. The region’s strong quarter was fueled by a 6.79 percent return from permanent crops, divided between 1.09 percent appreciation and 5.70 percent income. The region also saw a rolling four-quarter return of 24.72 percent, making it the runner-up to the Mountain region’s 24.86 percent nation-leading return over the same period.

The Lake States and the Southeast were the two regions that experienced the roughest third quarters, posting returns of 0.92 percent and 1.11 percent respectively. The Southeast also posted the lowest rolling four-quarter return in the nation at just 12.00 percent.

After two years of back-and-forth, permanent crops have outperformed annual crops for consecutive quarters and posted a record third-quarter return of 5.18 percent. In comparison, annual cropland posted a paltry 1.83 percent return this quarter. The 5.18 percent return for permanent cropland comprised a 0.85 percent return from appreciation and a 4.33 percent return from income.

“Interest in U.S. farmland remains firm from all potential buyers, including institutional investors," Jay states. It’s easy to see why after the best third-quarter return numbers in nearly a decade.

The NCREIF Farmland Index consists of 548 investment-grade farm properties; comprising 403 annual cropland properties and 145 permanent farmland properties. The index includes 178 properties in the Corn Belt, 123 in the Pacific West, 65 in the Delta States, 54 in the Pacific Northwest, 45 in the Mountain States, 34 in the Lake States, 25 in the Southern Plains and 23

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