US Row Crop Farmland Returns Continue to Cool

by Matt Harrod

US Row Crop Farmland value gains continue to cool in the third quarter of this year according to the latest NCREIF data. As can be seen above, the quarter over quarter appreciation rate of 0.25% is down from 1.0% the previous quarter, while the latest year-on-year increase (sum of current and previous three quarterly figures) is 7.03%, down slightly from 8.7% the previous quarter. It’s important to note that while US cropland appreciation has slowed it has not (yet) turned negative, meaning values per acre are holding steady but have not on average began to decrease.

While the Q3 results doesn’t by itself confirm the run of high farmland appreciation of the previous two years, it certainly confirms a continuation of a downward trend. Also note the red line representing the year-on-year increase in the top circle on the chart is about to cross under the green line representing the three-year moving average. As you can see in the chart, these red-green crossovers only tend to occur every 6 – 10 quarters, meaning the year-on-year quarterly figure could stay below the three-year average for some time.

It is hard to see reasons for a reversal of the trend in the next few quarters, with agricultural market headwinds from high interest rates, a strong dollar making US exports less attractive, generally good 2024 crop yields, and China favoring purchases from South America.

A speculative low for the remainder of the year might be another quarter of or 0.1% which would give Q4 2023 yearly average of 2.4+1.0+0.25+0.1 = 3.75% for the year, while a high value might be finishing the year with the last quarter of 2023 going back up to 1.0%, so 2.4+1.0+0.25+1.0% = 4.65%, which seems unlikely certainly is possible.

Although we are seeing less properties coming to market and reduced farmer/local interest in purchases under the current financial conditions which helps to drive some of the downturn in appreciation, we continue to see strong purchasing interest from high-net-worth investors, institutional funds and other funds. Thus, we expect investment grade property value and interest to remain steady.

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