Returns for US grain land investors lowest since at least 1980s
Returns from investing in US land growing annual crops such as grains and soybeans has fallen to its lowest since at least the 1980s – opening up a two-tier farmland investment market.Investment in arable land planted with crops such as corn and wheat, which are replanted every year, returned 4.7% last year, according to the National Council of Real Estate Investment Fiduciaries (Ncreif).That figure - comprising income from growing crops as well as changes in land values - was the "weakest annual total return for the property type since inception" of the data series in 1990, said Ncreif, whose farm data are drawn from properties estimated at $8.0bn.And the slowdown was underlined by a negative return, of 4.6%, on investment in land in the Corn Belt, a region including big corn and soybean producing states such as Illinois, Indiana and Iowa.Although the council did not split out the mix between income and land values in the data on annual cropland, it acknowledged a "sharp depreciation" in Corn Belt farm prices in the October-to-December period.Land price fallsThe data tie-in with other reports on the US land market too, with a survey by Creighton University last week revealing a 38th successive monthly decline in farm values in major agricultural states such as Illinois, Kansas and Nebraska.Central bank data two weeks ago revealed prices in Texas falling across all three major land types – irrigated, non-irrigated and ranchland – for the first time in eight years.MetLife, one of North America's largest agricultural mortgage lenders, has forecast US land prices falling by some 20% from their peak, usually seen as having occurred early in 2015, and a floor seen being reached next year.MetLife, like other commentators, has blamed the decline on weaker farm profitability, which has reduced the appeal of buying land, with the potential for rising US interest rates being cited by some observers as a headwind too.'Unique divergence'However, Ncreif highlighted that not all types were seeing such as slowdown, with investors in permanent cropland, such as orchards and groves, seeing a positive return of 10.1% last year....MORE
If interested see also:
For 13th Straight month, Rural Economies Slump In Creighton University Economist Survey; Farm Loans Being Restructured
And many more, use the 'search blog' box if you desire more.As we've been saying for years, most recently in February's "USDA Chief Economist Makes A Case For Farmland ":
It's too early.Well, La Niña is dawdling in its arrival, so no help from the weather to reduce bin-busting harvests, commodity prices continue their downtrend and land prices follow at a respectful distance.
Even though we think we'll see some upward price pressure [on crops] come late summer, after a meandering downtrend, the reality of farmland investment is that it is only worth a multiple of the cash flow.
(unless you're on the edge of a metro area and have some non-public zoning info)