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How Institutional Investors Value Farmland

To track land values, those of us in agriculture often rely on land-grant universities, the REALTORS® Land Institute, American Society of Farm Managers and Rural Appraisers, the Federal Reserve, and other sources. However, there is a relatively unknown, and perhaps more accurate, source that is updated quarterly based on actual appraisals of the assets within the index. This is unique, because most land values surveys use opinions of the people surveyed and are not based on professional appraisals. 

The National Council of Real Estate Investment Fiduciaries (NCREIF), based in Chicago, Illinois, collects information from institutional farmland managers and calculates an index for U.S. farmland. Similar to benchmarking an equity or fixed income investments, institutional investors are able to benchmark their U.S. farmland investments. NCREIF also produces indexes for commercial real estate and timberland. 

The NCREIF Farmland Index was first published in January 1991. The index consists of only agricultural properties, so no ranchland or pastureland. All properties have been acquired, at least in part, on behalf of taxable and tax-exempt institutions and held in a fiduciary environment. Currently, there are seven institutional farmland managers who provide data to NCREIF to calculate the index. 

As of December 31, 2017, the market value of the index was $8.5 billion in farmland across the U.S., consisting of $4.8 billion in annual cropland and $3.7 billion in permanent cropland. The index is made up of 727 assets, consisting of 483 annual cropland assets and 241 permanent cropland assets. In 2007, the index consisted of 369 assets made up of 253 annual crop assets and 116 permanent cropland assets, with an overall market value of $1.1 billion.  

Many institutional investors use the index to benchmark their own farmland portfolios. Since inception, total returns for the index were 11.46%, consisting of 6.89% of income and 4.41% for appreciation.

The index also provides a breakdown of return data by annual cropland and permanent cropland. As of year-end 2017, annual cropland reported a total return of 4.89%, consisting of 4.89% income and 5.36% appreciation. Permanent cropland reported a total return of 12.36%, consisting of 9.67% income and 2.63% appreciation.  

The index also provides output related to annual and permanent cropland. It is divided into these regions: Corn Belt, Delta States, Lake States, Mountain States, Pacific Northwest, Pacific West, Southeast, and Southern Plains.

The largest region by market value is the Pacific West at $4 billion. It is exclusive to the state of California and consists mainly of permanent cropland (almonds, pistachios, wine grapes, and walnuts). 

The largest annual cropland region is the Delta States at $1.3 billion, followed by the Corn Belt at $795 million.  

By crop type, the index’s largest subindex is annual commodity. Corn, soybeans, rice, cotton, wheat, and barley make up the majority of the annual commodity subindex. Current market value is $2.5 billion.

On the permanent cropland side, the largest subindex is wine grapes with a market value of $1.5 billion, followed by almonds.    

The NCREIF Farmland Index is the only institutional farmland index in the U.S. and, until recently, worldwide. Two years ago, NCREIF assisted in setting up an Australian farmland index to assist institutional investors in benchmarking their cropland investments throughout Australia.   

For more information about the farmland index, visit ncreif.org.

about the author

Steve Bruere is the president of the Iowa-based land brokerage firm Peoples Company.

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