Overview of U.S. Agricultural and Timber Markets, Winter 2020OverviewofU.S.AgriculturalandTimberMarkets,Winter2020

Executive Summary

• The NCREIF Farmland Index (“NFI”) ended 2019 with a total market value of $11.4 billion, an increase of $1.3 billion from year-end 2018. The farm properties are comprised of 897 row crop properties with a market value of $7.2 billion and 255 permanent planting properties with a market value of $4.3 billion. There are a total of eight data contributors to the index with one new contributor added during the year, further supporting growing institutional investment in the asset class.
• 2019 total NFI returns were 4.81% comprised of 4.41% income and 0.39% appreciation returns. In the permanent cropland category, total returns were 5.48% comprised of 6.27% income and -0.77% appreciation. Wine grapes, which represent 38% of the permanent crops in the NCREIF index, were the main driver for the lower appreciation with -2.86% appreciation for the one-year time period. And in the row cropland category, total returns were 4.40% comprised of 3.31% income and 1.06% appreciation returns.
• The U.S.-China trade war continued to impact the agricultural markets in 2019 with traditional row crops, such as corn, soybeans and wheat, as well as certain tree nuts being negatively impacted. At the end of the year, there was a sense of relief when the phase-one trade agreement was announced where China committed to buying $80 billion worth of agricultural products over the next two years but no details were provided as to the allocation of those purchases by commodity or sector. The current outlook for exports to China is tempered by uncertainties surrounding the COVID-19 outbreak, which will likely affect the timing of China’s purchases.
• The global spread of the COVID-19 virus is expected to slow overall global economic growth. Agricultural export volumes are likely to be impacted due to supply chain disruptions. According to the USDA, agricultural exports to markets in Asia are being impacted by new quarantine measures, port closures, vessel delays, and suspended flights as U.S. agribusiness exporters struggle to find available space for cargo.
• U.S. agricultural exports in fiscal year 2020 are projected at $139.5 billion, up $4.0 billion from fiscal year 2019, primarily driven by expected higher exports of pork, beef, soybeans, and horticultural products, according to USDA’s latest projections.
• In the Midwest, farmers experienced record breaking rainfall in the spring that delayed or prevented many producers from planting mostly soybeans, corn, and wheat during the season. Soybean acreage decreased significantly from 89.2 million acres in 2018 to 76.1 million acres in 2019, due to planting struggles and anticipated reduced profitability compared to corn during the planting season.
• For the 2019/20 marketing year, the USDA estimates U.S. tree nut supplies (almonds, walnuts, hazelnuts) will be down from last year’s record, signaling higher grower prices for these crops.
• While Hurricane Irma made landfall in 2017, the effect of that storm is still impacting Florida citrus. Juice processors, having reduced domestic supply as a result of that storm, made import commitments to sustain their supply. As the Florida citrus industry is recovering, it is facing competition from those import contracts driving supply up and prices down. Processors will likely move away from imported fruit as those contracts expire, but a temporary supply glut exists and will impact prices in the short run.
• Innovation in the agriculture sector is driving efficiency and productivity in the field. High-density apples and pecans are helping reshape thoughts on yields per acre. The use of robotics and recognition technology is thought to replace traditional hand-harvested crops. Agriculture innovation has led to higher acreage productivity, lower costs per acre, and more conservation of resources, such as soil and water. This has been seen in the apple industry where higher-density plantings and new growing techniques are changing that industry’s landscape.