US farmland prices fall for first time in six years

24.10.2016

US farmland prices have fallen for the first time in six years, real estate professionals said, flagging the Corn Belt as the weakest market for investors, and highlighting depreciation in wheat-growing country too.

US farmland values dropped by 0.2% in the July-to-September period, the National Council of Real Estate Investment Fiduciaries (Ncreif), slipping from the 0.7% growth seen in the previous quarter.

"This was the first quarter with quarterly farmland depreciation since the third quarter 2010," the council said, flagging value declines in areas including the southern Plains, a major US wheat-growing area, and the Corn Belt, the focus of corn and soybean production.

Indeed, in the Corn Belt, total returns – that is, land price changes combined with income – came in a negative 3.5% on an annual basis.

'Significant and negative impact'

The report adds Ncreif - whose data are closely followed by the market, and quoted, for example, by listed land investor Farmland Partners - to the list of commentators who have flagged a depreciation in US land prices, a weak crop prices lower the appeal of farm investment.

Separately, research by Creighton University showed prices falling for a 35th successive month, and indeed at an accelerating rate.

Creighton's land price index fell to 25.0 from 43.0 in September, and falling even further below the 50.0 level which indicates a neutral market.

The university data, drawn from a survey of lenders, showed further weakness in the farm equipment market too, with a sector index easing to 13.1 points this month from 14.3 in September.

"Weakness in farm income and low agricultural commodity prices continue to restrain the sale of agriculture equipment," said Ernie Goss, the Creighton economics professor in charge of the survey.

"This is having a significant and negative impact on both farm equipment dealers and agricultural equipment manufacturers."

Orchards vs corn fields

However, the Ncreif data showed overall returns from farming remaining positive in most areas, with the boost from income more than offsetting value declines.

The council estimated total returns in the July-to-September period at a positive 1.40%, although that was behind the 2.45% recorded a year before.

On an annual, the return came in at 8.56%, with that on annual cropland, at 4.79%, eclipsed by the 13.14% achieved from investing in permanent crops, and the likes of apple orchards and almond groves.

Indeed, the return on annual crop land is at amongst its lowest levels on data going back 20 years.

US farmland prices have fallen for the first time in six years, real estate professionals said.

Third quarterly results of the National Council of Real Estate Investment Fiduciaries, NCREIF Farmland Index revealed a total return of 1.57% income return and 0.17% depreciation.

"This was the first quarter with quarterly farmland depreciation since the third quarter 2010," said NCREIF.

Land falls were also confirmed by a survey by Creighton University, which showed this month's farmland and ranchland-price index for October fall to 25.0 from September's 40.3.

"This is the 35th straight month the index has languished below growth neutral 50.0," said the survey.

Modest performance to-date in 2016 has slowed returns for the trailing year.

The annual total farmland return was 8.56% for the year ending third quarter 2016, down from 12.74% over the year ending third quarter 2015, according to NCREIF.

Corn Belt leads decline

Total returns in four out of eight regions – South Plains, Delta States, Corn Belt, Lake States – have all seen depreciation.

However, the Corn Belt (-3.53%) is the only region with negative annual total returns

Nevertheless, performance in the Southern Plains, Delta States and Corn Belt have still been position for the quarter, as the income return offset depreciation.

Permanent cropland outperforms

Permanent cropland has outperformed annual cropland for the quarter, though both saw modest improvement.

Annual cropland had a 1.07% total return for the quarter with a 0.88% income return and 0.19% appreciation.

The permanent cropland total return was 1.81%, comprised of a 2.44% income return and 0.62% depreciation.

"Over the past year, permanent cropland remains the stronger performer, with a 13.14% total return, compared to 4.79% for annual cropland," said NCREIF.

"Historically, total returns for these two categories are much closer with the since inception (fourth quarter 1990) return for permanent cropland being 12.44% versus 10.73% for annual cropland."


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