The National Council of Real Estate Investment Fiduciaries (NCREIF) has released the fourth quarter 2018 results of the NCREIF Farmland Index. The total return for the fourth quarter was 2.85%, up from 1.29% the previous quarter, but down from 2.93% in the fourth quarter of 2017. The quarterly total return was comprised of a 2.19% income return and appreciation of 0.66%.
Fourth quarter income return for the Total Farmland Index was six basis points higher than last year when the fourth quarter income return was 2.13%. Farmland values continued a marginally positive trend in the fourth quarter, posting appreciation of 0.66% after registering appreciation of 0.22% in Q3.
Rolling Annual Total Returns
The trailing 4-quarter total farmland return was 6.74% through fourth quarter 2018, compared to 6.19% for the 4-quarters ending in the fourth quarter 2017. The annual total return was comprised of a 4.47% income return and 2.19% appreciation.
Permanent cropland outperformed in the fourth quarter with quarterly total returns of 5.09% for permanent cropland and 1.50% for annual cropland. Permanent cropland outperformed on both income and appreciation, with an income return of 4.29% and appreciation of 0.80%. Annual cropland performance for the quarter was split between its income return of 0.93% and appreciation of 0.57%. Over the trailing year, permanent cropland returned 8.23%, compared to 5.92% for annual cropland. Since inception, total returns for these two categories have a smaller gap with annualized returns of 12.20% for permanent cropland and 10.28% for annual cropland.
Seven of the eight NCREIF regions registered positive total returns in the fourth quarter. The Pacific West (5.23%), Delta States (2.06%), and Mountain regions (1.84%) led regional performance for the quarter, with the Pacific Northwest (-0.27%) the sole region to post a negative total return. One region, Pacific Northwest (-0.88%) posted negative income for the quarter, while three regions; Lake States (-0.67%), Corn Belt (-0.39%), and Southern Plains (-0.28%), posted negative appreciation. This was the tenth straight quarter, and the nineteenth quarter out of the last twenty, that the Lake States Region has posted depreciating values, resulting in a cumulative decline in value of 16.4% for the region since Q4 2013.
The NCREIF Farmland Index consists of 900 investment-grade farm properties, totaling $10.2 billion of market value. These farm properties are comprised of 660 annual cropland properties and 240 permanent farmland properties. The index includes 243 properties in the Corn Belt, 228 in the Pacific West, 137 in the Delta States, 73 in the Mountain States, 62 in the Southeast, 56 in the Pacific Northwest, 44 in the Lake States and 22 in the Southern Plains. The index includes data provided by the following firms: Gladstone Land, Hancock Agricultural Investment Group, Prudential Agricultural Investments, UBS Farmland Investors, US Agriculture, and Westchester. This data enhances the ability of institutional investors to price the risk of farmland investments across the United States.