Farmland indexed by the National Council of Real Estate Investment Fiduciaries (NCREIF) dropped to 1.97 percent this quarter, down from 5.44 percent last quarter, even though farmland performance overall is trending upward. Year-on-year returns were also down slightly from 2.34 percent in Q2 2012, according to information found by Timothy Pollard, who created a chart that does a great job of showing the difference between seasonal change and overall trends.

Farmland Prices

The composition of returns were 0.83 percent appreciation and 1.14 percent income. The trailing four-quarter return through Q2 2013 was 20 percent, 11.64 percent from appreciation and 7.8 percent from income.

Unique NCREIF Farmland index

The NCREIF index is unique in that it only looks at farmland that is at least partially held by tax-exempt organizations, primarily pension funds, which means that the land it monitors is held in a fiduciary environment. Farmland is added to or removed from the index when data contributing members buy and sell assets, so the index isn’t intended to measure agricultural productivity. Instead, it’s a measure of a certain class of investors’ success within this market.

Since agriculture is perhaps the most explicitly seasonal industry, year-on-year growth and trailing four-quarter growth are much better measures than sequential growth, which is dominated by these seasonal effects. But this is the first quarter to see a year-on-year dip since 2010.

There have been concerns that farmland in the U.S. is the next bubble, with reports that land prices could drop by as much as 20 percent this year. While a slight decrease is by no means a trend, and is nowhere near a 20 percent reduction in value, pension funds that are over-committed in agriculture might take this as a sign that easy returns are coming to an end.

NCREIF Farmland index