An important index maintained by pension funds reflects an upswing in farmland values nearly nationwide. The Farmland Index, maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF) the total return for the first quarter of 2018 was 1.32%, down from 2.93% last quarter, but up from 0.49% in the first quarter 2017. The quarterly total return was comprised of a 0.51% income return and appreciation of 0.81%.
First quarter income return for the index was the highest registered in the first quarter of the year since 2015, when the first quarter income return was 0.82%. Farmland values continued a modest upward trend in the first quarter, posting appreciation of 0.81% after registering appreciation of 0.80% in Q4.
The trailing four-quarter total farmland return was 7.07% through first quarter 2018, compared to 6.15% for the year ending first quarter 2017. The annual total return was comprised of a 4.61% income return and 2.38% appreciation.
Annual Farmland Return Turns Up
The gap between permanent and annual cropland flipped in the first quarter with quarterly total returns of 1.25% for permanent cropland and 1.37% for annual cropland. Permanent cropland underperformed on income, but outperformed on appreciation, with an income return of 0.03% and appreciation of 1.22%. Annual cropland performance for the quarter was again dominated by its income return of 0.87% with appreciation rising modestly to 0.50%. Over the trailing year, permanent cropland returned 9.52%, compared to 5.24% for annual cropland. Since inception, total returns for these two categories have less of a gap with annualized returns of 12.29% for permanent cropland and 10.40% for annual cropland.
All but one region had positive total returns in the fourth quarter. The Delta States (2.06%), Southern Plains (1.46%), Pacific West (1.40%), and Pacific Northwest (1.34%) led regional performance for the quarter. All regions posted positive income for the quarter. The Lake States was again the only region to post a negative total return (-0.42%), driven by depreciation of 0.92%. This was the seventh straight quarter, and the sixteenth quarter out of the last seventeen, that the Lake States Region has posted depreciating values, resulting in a decline in value of 14.4% for the region since Q4 2013.
The NCREIF Farmland Index consists of 735 investment-grade farm properties, totaling $8.7 billion of market value. These farm properties are comprised of 497 annual cropland properties and 238 permanent farmland properties. The index includes 225 properties in the Pacific West, 179 in the Corn Belt, 83 in the Delta States, 69 in the Mountain States, 56 in the Pacific Northwest, 48 in the Southeast, 36 in the Lake States and 20 in the Southern Plains. This data enhances the ability of institutional investors to price the risk of farmland investments across the United States.