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Returns from US farmland fall to lowest since 2001, as Corn Belt values ease

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Returns from investment in US farmland fell to their lowest in 2017 in 16 years, despite a pick-up in prices in the October-to-December period, real estate agents said.

 

Total returns for investors in US farmland came in at 6.2% for 2017 – down from 7.1% the year before, and the weakest figure since the 2.0% reading recorded for 2001, the National Council of Real Estate Investment Fiduciaries (Ncreif) said.

 

The fall reflected softer readings for both criteria – income and appreciation – which make up the index.

 

Income dropped to 4.6%, from 5.2% in 2016, while price growth slowed by 0.4 points to 1.5%.

 

Volatile market

 

The downbeat full-year performance defied a pick-up in the final three months of the year.

 

“Farmland values have been shifting between appreciation and depreciation each quarter since mid-2016 and, after modest depreciation of 0.3% in the July-to-September quarter, registered appreciation of 0.8% in the October-to-December quarter,” Ncreif said.

 

The figure, which compared with a fall in values of 0.8% in the last three months of 2016, tallied with other reports showing some improvement in the US farmland market, most lately a Creighton University survey which saw values still declining, but at their slowest pace since July 2014.

 

‘Sixth straight decline’

 

However, the recovery in overall values in the latest quarter disguised weakness in the key crop producing region of the Corn Belt, with the neighbouring Lake States seeing a fall in value of 3.9%.

 

In fact, “this was the sixth straight quarter, and the 15th quarter out of the last 16, that the Lake States region has posted depreciating values,” Ncreif said.

 

Values in the Lake States region, which includes states such as Minnesota, a major spring wheat, corn and soybean growing state, are now down 13.6% over the past five years.

 

Permanent vs annual cropland

 

In fact, investment in annual cropland overall has continued to underperform, bringing returns of 1.2% in the latest quarter, compared with 5.2% from investment in permanent cropland, such as orchards or vineyards.

 

“The gap between permanent and annual cropland widened in the fourth quarter,” Ncreif said.

 

By region, the outperformance of land planted with permanent crops was reflected in 5.0% returns from the Pacific West region, which includes some major vegetable and fruit growing areas.

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