Pension Funds Note Lowest Q1 Farmland Returns Since 2010

May 4, 2016 02:35 PM

Total first-quarter returns from a portfolio of both annual and permanent farmland held by pension funds was a light 1.38%, according to the National Counti of Real Estate Investment Fiduciaries (NCREIF). The organization's Farmland Index's first quarter returns were comprised of 0.93% appreciation and 0.45% income return. The quarterly total return was down from 4.30% in the fourth quarter 2015 and 2.08% a year ago. Although seasonal income patterns generally lead to lower returns early in the calendar year, the first quarter 2016 total return was the weakest for an opening quarter since 2010, NCREIF says.

The annual total farmland return was 9.59% for the year ending first quarter 2016, down from 12.28% over the prior 12-months and 17.44% over the year ending first quarter 2014. The trailing year return was comprised of a 5.30% income return and 4.14% appreciation. Beginning in 2015, agricultural income has been challenged by the strong dollar, shifting demand to exporting countries with weaker currencies and encouraging farmers in those countries to expand crop acreage, for an increasingly competitive environment.

NCREIF states annual cropland had modestly stronger total returns for the first quarter, narrowing the gap between permanent and annual cropland performance. Annual cropland had a 1.59% total return for the quarter with 0.69% appreciation and a 0.89% income return. This was the fifth consecutive quarter of sub-1% annual cropland income returns, while appreciation was improved over the slight 0.28% increase in the fourth quarter 2015. Permanent cropland had its first negative quarterly income return since 2005, at -0.06% in the first quarter, with modest 1.20% appreciation for the quarter, for a 1.14% quarterly total return.

Over the past year, permanent cropland remains the stronger performer with a 14.17% total return, compared to a 5.83% annual total return for annual cropland. Historically, returns for these two categories are much closer with the since- inception-(4Q 1990) return for permanent cropland being 12.54% versus 10.87% for annual cropland.

The NCREIF Farmland Index consists of 665 investment-grade farm properties, which is comprised of 433 annual cropland properties and 232 permanent farmland properties.