Farmland strong returns continue, despite (or because of it’s “bubble designation”).
The National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index total return was 2.45% for the third quarter, up from 1.16% in the previous quarter.
The Farmland total return included 0.96% appreciation and 1.49% income return. According to NCREIF, the annual total returns for farmland were in the range of 5% to 10% before the recession in 2001 and experienced a significant increase during the 2004 to 2007 housing boom.
Farmland total annual returns
The annual total return for farmland declined during the 2008 financial crisis until 2010 declined, but it was never below 5%. The NCREIF reported that the annual returns of farmland rose above 20% following the recovery from the financial crisis.
According to the NCREIF, the total annual farmland returns of 12.74% for the period ended in the third quarter represent a healthy performance compared with historical standards.
A strong income return of 8.08% was the main driver for the annual return combined with a 4.42% appreciation.
Permanent cropland continues to outperform
The NCREIF reported that permanent cropland continued to outperform annual cropland in the third quarter. It is the fourth consecutive quarter the permanent cropland achieve strong performance.
During the quarter, permanent cropland recorded a rotal quarterly return of 3.26% (2.20% income return and 1.06% appreciation) compared with annual cropland’s 1.8% return (0.92% income return & 0.88% appreciation).
Permanent cropland achieved a total return of 23.98% over the past year, five time higher than the 4.54% total return for annual cropland.
The Pacific West total farmland returns for the period was 3.85% compared with the 3.17% for the Mountain Stares and 3.08% for the Southeast. The NCREIF noted that the income and appreciation of Pacific West were strong at 2.15% and 1.70% respectively.
“Pacific West returns are generally strongest in the fourth quarter when income is realized from the sale of crops. Due to a strong close to 2014, the Pacific West still leads all regions on an annual basis with a total return of 24.85% for the year ending in the third quarter 2015,” according to NCREIF.
During the quarter, Southern Plains, Delta States, and Pacific Northwest reported total farmland returns of more than 1%. On the other hand, the Lake States and Corn Belt regions were delivered the worst performance with 0.11% and negative 0.05% total returns, respectively.
