Investing in agriculture may appear to be a wise strategic option. And it is. After all, people must eat regardless of whether the broader economy is at a slump or booming. As a result, many investors consider agriculture and farming recession-proof businesses. Furthermore, you need to focus on the business that pays you as the world’s population grows. This is where agriculture comes in. Because as time goes by, this industry will become even more crucial in supporting global societies.
But on the contrary, buying a farm isn’t a practical approach for the average investor. Purchasing a farm can be a huge financial investment, and operating or leasing a farm can take a long time and cost a lot of money. Fortunately, investors can obtain exposure to this sector in various ways other than investing in a farm. Some of these ways include funding the production, processing, and distribution of food and crops.
As the world’s population grows and the land becomes scarcer, interest in agriculture production as an investment has grown in lockstep with the world’s population. From farm REITs, agricultural ETFs to commodities markets, there are various ways to invest indirectly in agriculture.
Why do you need to invest in this kind of business?
Farmers have challenges, but it doesn’t imply they can’t make a profit. Farmland increases in value over time and keeps pace with inflation, even though returns in the sector are sometimes lagging. It provides diversification by adding an actual physical asset to your portfolio, which may otherwise be made up entirely of financial assets. Although farm returns from current income can be lacking, capital gains can be substantial. In the long run, however, income returns are pretty steady. On the other hand, capital gains income may be more volatile, making agricultural investing something long-term.
Everyone can purchase farmland in various methods, including the ones listed below:
Mutual Funds (MFs)
ETFs that invest in baskets of agricultural company equities or agricultural commodities are available. But if you’re trying to invest just in agriculture, these may not be the best options. This is due to the fact that some of them have more than 50% of their asset invested in industries other than agriculture. Some companies are popular agricultural exchange-traded funds with conservative long-term returns.
The same is mutual funds. Many people have investments in things other than farming, so you might want to think about something else if you’re thinking about farming. Fidelity Global Commodity Stock Fund, for example, invests in agricultural commodities. Farm Bureau also has a line of agricultural mutual funds.
Stocks in Agriculture
Investors can also invest in various publicly traded companies in the agricultural sector. These businesses range from those that grow and produce crops directly to those that serve farmers through various industries. There are companies that are directly involved in crop production and others that are stocks of companies that provide agricultural support services.
Many of the businesses involved in crop production, such as Fresh Del Monte Produce, INC., and Cresud, produce agricultural commodities and other products. You can invest in the stock of any of a number of publicly-traded companies. If you’re interested in the agricultural support industry, there are stocks available with certain companies. Fertilizer and seed firms are also present with this one.
You can also invest in agricultural items like soybeans, corn, and cattle, to name a few. Commodities are risky investments because their value is determined by unpredictable events that affect supply and demand. Alternatively, commodities funds, which are ETFs, can help you lessen the risk of investing in the volatile commodities market while increasing your exposure.
An ETF that invests mostly in agricultural commodities is Invesco DB Agricultural Fund. It’s worth noting that trading in commodities can make your income taxes more complicated at the end of the year. More speculative investors may be drawn to the idea of investing directly in commodities in order to profit from market price fluctuations. While you can get exposure to commodities by buying future contacts, several exchange traders offer a broader range of commodities exposure.
Farmers have struggled to raise money for their farming business for decades. They must rely on bank loans, which might be difficult to obtain. Some back loans now involve skill appraisals as well as character assessments. Sometimes, farmers then rely on relatives and friends if the bank loan scheme fails.
In exchange for the money they promise, an investor receives shares of a company through equity crowdfunding. From selling land shares to seed companies, farmland companies can use all types. Equity crowdfunding platforms such as Farmfundr and Harvest Returns are two examples. These and other crowdfunding platforms’ goals can differ.
Companies that sow, grow and harvest crops are one possible investment option. Many of these businesses also provide support services like distribution, processing, and packaging. Traded crop production companies are few.
Seeding and weeding are two processes that influence a crop’s performance. Proper seeding rates, spacing, and placement for the plant’s development are critical. Soil conditions and the agricultural system have an impact on this.
A wide range of instruments and equipment can improve seed operations in farmers’ particular socio-economic and environmental context, from manual broadcast seeding to precise pneumatic seeding. When Conservation Agriculture techniques are used, reduced tillage and direct sowing helps to preserve soil conditions and improve seed placement.
Purchasing farmland necessitates the selection of one of the numerous investment instruments. Some are only available to accredited investors, while most are open to the general public. Farmland hasn’t been a particularly profitable investment throughout the years. In some situations, diversification can help an investment offset the general market’s returns. Increased demand for nutritious and sustainable food could benefit farmland and supporting companies. As a result, farmers must be creative to handle these problems.