Last year’s agricultural assets returned a healthy 12.63%, according to the NCREIF Farmland Index.  While it is certainly not as impressive as 2013’s farmland annual returns of 20.93%, the 2014 return was well within the long term average annual return of 12.89%, as can be seen over the last 20 years. This compares to the US stock market returns for 2014: Dow Jones rallied 8.16%, S&P 500 saw return of 11.81%, and the Nasdaq rallied 13.94%.  As you can see, farmland nearly outperformed all major US equity indices, but fell just short to the Nasdaq’s annual return.  Still, it is an impressive feat and continuation of farmland’s continued high returns.

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Permanent Crops Largely Outperformed Annual Crops

Digging dipper into the farmland and agricultural returns, it was found that “permanent” crops such as orchards, groves, vineyards, and others saw an even larger return in 2014, up 21.12%.  Almonds and pistachios on the West Coast carried the bulk of the returns, thanks to strong demand from consumers. Additionally, we saw a very strong performance for coffee in 2014, which rallied 43.70% in the past year. This compares to the “annual” crops, such as corn, wheat, soybeans, other row planted crops, saw returns of only 6.3%. The positive return for row crops comes in spite of wheat’s one year performance of -7.4%, corn’s one year return of -11.7%, soybeans dove -24.30%, and oats, which fell -27.90% in the past year.  Overall, these popular agricultural commodities saw issues with demand and bountiful harvests, pushing prices lower.

Meat Farmland Assets Gave Up Gains As Year Went On

Another important aspect of the farmland is the cattle or meats assets, which started 2014 out very strong, but later gave back gains as seasonal weakness hit prices.  Overall, in the past year, feeder cattle rallied 22.90%, live cattle rose 5.9%, and live hogs failed to hold on to its yearly gains in the year and finished -16.50%.  After largely struggling in 2012-2013, meat prices saw a substantial jump in 2014, which easily was seen at the supermarket for prices of beef overall.  As this writing, feeder cattle is off its high of $2.40 a pound, but still trades above the $2.00 a pound range at its current level of $2.10 a pound.  Live cattle saw 2014 high of $1.70 a pound, but has since fallen to its current level of $1.51 a pound. Lastly, hogs saw a 2014 high around $1.32 a pound, but fell to $.80 a pound by year’s end.

Overall, we are continuing to see a rise in demand for such agricultural products as pistachios, almonds, grapes for wine and other healthy and profitable options.  The California wine industry, for example, has seen a grape shortage particularly in 2010-2011 and this has allowed higher prices to remain, as demand sticks around.  Dr. Mike Veseth, editor of The Wine Economist, says that wine is gaining popularity particularly with “Millennials”, which he believes will continue to drive growth in the wine industry.  Pistachios have been found to contain many positive health benefits over the past few years and this certainly has been a cause for growth as well in that industry.  The point here is that meats and permanent crops are likely to continue to see price rallies in 2015, as the conditions may be ripe for a continuation rally. The contrarian view is that the rally in the asset class might be near.

Disclosure: None