The decline in crops prices has seen farms in the key Corn Belt area offer negative returns for a second successive quarter, and in the most important period of the year, far underperforming the gains enjoyed by investors in orchards and groves.
Investor returns in US farmland fell to a five-year low of 10.4% in 2015, down from 12.6% the year before, the National Council of Real Estate Investment Fiduciaries (Ncreif) said.
The decline reflected in particular a drop in returns for the October-to-December period, which fell to a six-year low of 4.3%, from 6.6% in the same period of 2014 – for what is seasonally the strongest quarter.
The close of the year brings the conclusion of crop sales campaigns, and sharing of revenues from them, according to Ncreif.
But total returns from Corn Belt came in at a negative 0.4% for the period – representing a second successive quarter in the red for the region, after a negative 0.1% in the July-to-September period.
‘Depreciation was the drag’
Still, it was actually a drop in land prices, rather than tumbling income, which represented the greatest market depressant for Corn Belt land investors.
“Depreciation was the drag on total returns,” the council said, The comments tally with a survey from Creighton University last week which showed land values in key US agricultural states falling in January for a 26th successive month.
The Ncreif data showed negative depreciation too in the Pacific Northwest, a major region for growing white wheat.
Fruits vs grains
By contrast, just south in the Pacific West, which includes the major fruit and vegetable-growing state of California, total returns reached 8.3% for the October-to-December period, thanks to good performance in the US market for permanent cropland, such as orchards and groves.
“The gap between permanent and annual cropland performance continued to widen in the quarter,” NCceif said. “Permanent cropland, which is predominately located in the Pacific West, had an 8.0% total quarterly return compared to annual cropland’s 1.2% return.”
For the full year, permanent cropland returned 17.0%, more than treble the 5.2% from land designated for annual crops.
The institute added that “historically, returns for these two categories are much closer”, with an annual rate of 12.6% and 10.9% respectively since 1990.