U.S. farmland returns remained challenged in 2020

U.S. private farmland investments generated a total return of 3.1% in 2020 as reported by NCREIF, dropping 173 basis points (bps) from the prior year. U.S. farmland performance in 2020 reached the lowest annual level of total returns since 2001 (when the NCREIF Farmland Index returns were 2.0%) and was 747bps below the 10-year average of 10.6%. Declines in 2020 farmland returns occurred for both annual cropland (down 19bps) and permanent crop properties (down 421bps). Regional farmland performance varied significantly. Return performance also varied considerably across crop type: Almonds, apples, and wine grapes generated negative returns, while pistachios and row crop investments had healthy returns.

In 2020, U.S. private farmland investment returns, at 3.1%, were the second lowest in the history of the National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index. Last year’s declining total returns resulted from tumultuous domestic and international market conditions associated with the COVID-19 pandemic. The 2020 economic downturn began in late Q1, dealing direct impacts across food and agriculture sectors challenging the entire business ecosystem of food retailers, processors, and farmers. On the one hand, food demand from food-away-from-home outlets, such as restaurants and entertainment venues, plummeted. Concurrently, row crop farmers contended with a significantly lower fuel demand from reduced travel that brought down the demand for corn for ethanol production. These pandemic-generated disruptions were reflected in declines in farmland income returns, which decreased by 112bps from 2019, and negative capital appreciation, the first negative appreciation since the low points reached in 2001 to 2002.¹

The USDA estimated that 2020 U.S. crop cash receipts moved up 0.3% over 2019.²  The increases were primarily driven by stronger government direct payments in 2020. The USDA estimates that financial support from the federal government in forms of direct payments and ad hoc support programs topped $46 billion in 2020, marking a 106% increase over 2019.² A major factor in the expanded government support was the sizable “supplemental and ad hoc disaster assistance” programs meant to help farmers weather the pandemic-induced hardship, on top of the last tranche of the Market Facilitation Program payments that originated in 2018 to help farmers tackle trade-related difficulties. In terms of actual sales of farm products, cash receipts from crop sales were up 5.5% from 2019, while livestock and dairy products saw revenues dip 5.4% from 2019.²

NCREIF Farmland Index overview

The most recognized measure of farmland return performance in the United States is the NCREIF Farmland Property Index. The index is a quarterly measure of investment performance of farmland properties acquired in the private market for investment purposes. All properties in the NCREIF Farmland Property Index are held in a fiduciary environment. At 2020 year end, the NCREIF Farmland Property Index included 1,184 properties valued at $12.3 billion, up from 2019 when the index included 1,152 properties valued at $11.4 billion. The robust increase in the number and value of properties reflects growing institutional investment in the asset class and consolidation in farmland ownership. Annual cropland properties comprise 76% of total properties in the Index and 60% of the total value of the Index.

NCREIF provides detailed farmland returns by type of operation and by region. Annual cropland properties need to be planted each year, including crops such as oilseeds, cotton, vegetables, and certain fresh fruits, while permanent cropland properties are dedicated to perennial trees, shrubs, or vines bearing crops such as almonds, apples, cranberries, and wine grapes. The largest permanent crop types in the index are wine grapes, almonds, and pistachios, combining for 77% of the permanent cropland value as of December 31, 2020.

At 2020 year end, the NCREIF Farmland Property Index included 904 annual cropland properties valued at $7.4 billion and 280 permanent cropland properties valued at $4.9 billion. In 2020, the largest NCREIF farmland region by market value was the Pacific West (41.0% of the index), followed by the Delta States (19.0%), the Corn Belt (10.0%), and the Mountain (8.0%) regions. The remaining regions combined accounted for 21.3% of the index value.

Performance results by region and crop type

The total return for U.S. annual cropland properties in 2020 was 4.2%, down 19bps from 2019. The slight decrease in annual cropland performance in 2020 was slightly more moderate than the 152bps decline in annual cropland returns in 2019. In 2020, U.S. annual cropland’s operating income return was 3.4%, narrowly beating the income return in 2019. The negative impacts from corn demand reduction due to lower ethanol demand were partially offset by stronger demand for feed crops in the United States, from both exports and domestic markets. Total returns were dragged down by another year of weaker capital appreciation returns at 0.8% (down 27bps). 

U.S. permanent cropland generated a total return of 1.3% in 2020, delivering the second-weakest annual performance since 2001 and down 421bps from 2019. Operating income returns for permanent cropland were 3.0% (down 326bps from 2019), while capital appreciation returns were -0.2% (down 93bps from 2019). Most (79.0% by value) permanent cropland properties in the index are directly operated, contributing to more volatility in operating income compared with annual cropland, which are mainly leased properties. 

Almonds, accounting for 20.0% of the total permanent cropland value in the NCREIF Farmland Property Index, exerted a strong drag on permanent crop returns in 2020. Almonds’ annual returns turned negative in 2020, down 11.0% from 2019. The decline in almond returns was due to record-breaking production and dampened demand from export markets, resulting in lower prices and weighing down valuations. Wine grape returns continued to slide in 2020, with total returns down 490bps from 2019, reflecting negative income and appreciation returns. Pistachios were a bright spot for permanent crops in a chaotic 2020, generating 15.3% in total returns, supported by a 577bps increase in operating income, as prices remained robust even as crop yields rose.³

Regional farmland performance showed significant variations. While all eight of the largest regions in the NCREIF Farmland Property Index saw positive income returns in 2020, three regions—Pacific West, Mountain, and Pacific Northwest—experienced negative appreciation rates. The Pacific West region, accounting for 41.0% of the total index market value, had income returns slip 281bps from 2019, while the appreciation rate edged downward, generating a total of 2.6% in 2020 (291bps lower than 2019 total returns). The region’s main crops are wine grapes and tree nuts, both dragging on the region’s returns.

The Delta States and Corn Belt regions, accounting for nearly 30.0% of the overall index value, produced positive operating income and appreciation returns that were higher than 2019, benefiting from improving trade relationships and higher-than-expected crop demand. The Mountain and Pacific West regions are two other regions with negative appreciation returns. The three smaller regions—the Southeast, Lake States, and Southern Plains—fared relatively better in the index, all with operating income returns higher than 4.0% and positive appreciation returns; however, due to their smaller sizes, the positive returns in these three regions were outweighed by underperformance in the Pacific Northwest.

1 NCREIF Farmland Property Index, December 31, 2020. 2 Highlights from the farm income forecast, USDA Economic Research Service, February 5, 2021. 3 USDA Agricultural Marketing Service, custom average pricing system, February 2021.