The end of California's drought has not answered all its
Returns for US farmland owners in 2017 made their weakest
start to a year on records going back to 1992, according to data from Ncreif, the
National Council of Real Estate Investment Fiduciaries.
At 0.49%, total returns for the January-to-March period undershot
the 0.65% reported for the first three months of 2002 which had represented the
lowest reading for a first quarter.
And the weak start to 2017 reflected a rare negative return
in the Pacific West, which is centred on California and has been a star performer,
helped by strong returns to the state's almond and tree fruit farmers.
"The Pacific West was the only region with a negative total
return in the first quarter as permanent cropland lagged, which accounts for
179 of the 220 farmland properties [surveyed] in the region," Ncreif said.
The Pacific West's performance represents a marked turnaround
on that in the last three months of 2016, when it offered the best returns of all
eight regions in which Ncreif divides the US.
Declining Q1 returns on US farmland
Source: Ncreif. Returns comprise both and price change and income
Indeed, the region has been a leading performer for the past
five years, thanks to its focus on permanent crops such as apricots, avocados
and peaches, rather than the annual produce, such as corn and soybeans, grown
in the likes of the Midwest.
The state is responsible for two-thirds of US fruit and nut
output, as well as more than one-third of vegetables output, according to
Ncreif flagged an "extended divergence in total farmland
returns by property type since 2012", with permanent cropland outperforming in
a way "unique to this cycle" in the landmarket.
"Historically, total returns for these two categories are much
closer as shown by the since-inception  return for permanent cropland of
12.40% versus 10.60% for annual cropland."
The slide in Pacific West returns also defies an apparent
improvement in California's agricultural output prospects, with deluges - which
have brought a record wet winter to the northern Sierra Nevada mountains, a
moisture reserve for much of the state - following on from persistent drought.
Drought conditions which began building in California early
in 2012 had spread to more than 90% of the state by May 2013 – and remained there
for three years, until the return of rains which have shrunk the reading to
8.2% of the state's area, according to latest US Department of Agriculture data.
All of the state's winter wheat was rated in "good" or "excellent"
condition in USDA data overnight.
However, the prospect of improved Californian production has
also undermined prices of the crops in which the state is a big player, with US
values of fruit and tree nuts 1.7% lower in February than a year before,
according to the USDA.
By contrast, prices of oilseeds, as popular in the likes of
the Corn Belt, were up 15%, a reflection of strong Chinese soybean imports.
Land prices ease
In fact, returns from Corn Belt farmland returned to
positive territory in the first three months of 2017, if only to stand at a
modest 0.35%, although that is the best performance in nearly two years.
The southern Plains, known in particular for winter wheat,
cotton and cattle, recorded the best returns, of nearly 2%, against a backdrop
of recoveries in prices in particular of cotton and cattle.
The overall US returns reading comprised 0.51% in income,
with land values seen depreciating by 0.02% - a third successive quarter of
decline, following on from a six-year spell of unbroken appreciation, according
to Ncreif data.