US NCREIF Rowcrop CAP Rates Tighten in 2024

NCREIF US Row Crop 2024 CAP rates were 3.0%, down from a recent peak of 3.7% in 2022 and continuing a long-term compression trend (see chart below). The decrease from 2022 would seem cyclical within the long trend, following decreased commodity prices from 2022. However the historic longer-term compression of the NCREIF CAP rate is likely in part driven by competition to purchase “investment grade” farmland as awareness of farmland as a long-term store of money and a hedge against inflation has become more common by funds and high net worth individuals.

A look at regional CAP rates shows two more or less distinct groupings. The higher group CAP rate ranges from 3.5% - 3.8% in 2024 and consists of the predominantly irrigated regions of the Pacific Northwest, Mountain states, Pacific West (CA) and the perhaps somewhat less irrigation dependent Southeast.

The lower group is the Corn Belt and Delta states with a 2024 range of 2.2% - 2.7%, with the Corn Belt being the lower of the two. The blue dotted line between the two groups is the US rowcrop figure from the chart above, which is roughly a weighted average across all regions.

Notably the CAP rates of the upper group have been more volatile over time relative to the more consistent but downward trending Corn Belt and Delta regions. This volatility and very likely the perceived risk to long term irrigation water supply likely drives the CAP rate premium of the upper group vs the lower group.