US farmland overtakes timberland in investor returns

27.07.2017

Timberland has fallen back behind farmland as a US investment, thanks to notable improvement in income from growing annual crops – although there remain worries yet over the agricultural economy.

US timberland investors earned a return of 0.7% for the April-to-June period, down from 0.8% the previous quarter and 1.0% a year before, reflecting a flat performance for land price growth, the National Council of Real Estate Investment Fiduciaries said.

"After a flat year for appreciation in 2016, timberland has only had marginal appreciation thus far in 2017, at 0.13% in the first quarter and 0.08% in the second quarter," the council said.

Returns in the US South provide particularly weak, undermined by land price depreciation of 0.3% over the April-to-June quarter.

'Much stronger returns'

By contrast, returns from farmland jumped to 1.6% from 0.5% in the January-to-March period, topping too the 1.3% reported a year before, Ncreif said.

The improvement reflected in the main a return to growth in land prices, of 1.1%, after three successive quarters of falling values.

"Farmland appreciation had its best performance since fourth quarter 2015."

However, income returns "managed modest gains too", of 0.6%, reflecting in particular a "much stronger" performance by farms growing annual crops, such as grains and vegetables, as opposed to the permanent crops, such as tree fruit.

'Negative cash flows'

The data came for a quarter which witnessed some buoyancy in grain prices, wheat in particular, lifted by dryness concerns in Australia, Europe and North America.

However, results last week of a survey of lenders by Nebraska's Creighton University showed land prices in major US growing states falling in July for a 44th successive month, amid worries over farm profitability.

"On average, bankers expect 15.1% of grain farmers to suffer negative cash flows for 2017," Creighton said, flagging the dent to prospects for some operations from "drought conditions".

The overall rural economy was rated at an index level of 40.7, below the 50.0 neutral level, which was actually recorded for June.

"This is the largest one-month decline we have recorded since November 2008, or in the middle of the national recession, "said Ernie Goss, Creighton economics professor in charge of the survey.


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