The idea of making a strategic investment in agriculture may seem appealing. People still need to eat, regardless of whether the broader economy is doing well or not. As a result, many investors believe that agriculture and farming are recession-proof assets. The importance of agriculture in supporting the world’s population is expected to grow as the population grows.
However, for the typical investor, purchasing a farm is out of the question. Purchasing a farm might need a sizable down payment, and maintaining a farm can take a lot of time and money. As it turns out, there are numerous more ways to become involved in the industry other than investing in a farm.
Important points to keep in mind
- Investing in agriculture include supporting the production, processing, and distribution of food and agricultural products.
- Agriculture production as an investment has gained in popularity as a result of the increasing need for food due to dwindling land resources.
- Farm REITs, agricultural ETFs, and commodities markets are all methods to invest in agriculture without personally owning a farm.
Farm Real Estate Investment Trusts (REITs)
Investment in a farm-focused REIT is the closest an investor can go to really owning a farm without actually doing so (REIT). Farmland Partners Inc. (FPI) and Gladstone Land Corporation (GLC) are two examples (LAND).
These real estate investment trusts (REITs) often buy farmland and then rent it out to farmers. There are several advantages to investing in a farmland real estate investment trust (REIT). Because they let an investor to own a stake in several farms spread over a large region, they provide more diversity than purchasing a single farm.
Because most of these REITs are traded on stock markets, they provide better liquidity than owning real farms. It’s also less expensive to invest in farmland via agricultural REITs since the minimum investment is simply one REIT share.
Stocks of agricultural products
Investors can also access a wide range of publicly listed agricultural firms. Some of these businesses are involved in the actual growing and production of crops, while others are involved in a wide range of sectors that provide assistance to farmers.
Cultivation of Farmland
Crop-planting, -growing, and -harvesting companies provide one possible investment opportunity. Distribution, processing, and packaging are just a few of the supporting tasks that many of these companies participate in. Some publicly listed crop producing companies, such Fresh Del Monte (FDP), Agropur (AGRO), and Cresud, are among the few that are now available for purchase by investors (CRESY).
Other sectors that provide assistance for farming can be purchased by investors as well. Fertilizer and seed firms, agricultural equipment makers, and crop wholesalers and processors make up three of the main industries.
- Fertilizer and seeds: It’s important for investors to know how percent of a company’s income comes from agriculture, since some companies also provide services to a variety of other industries. Nutrien Limited (NTR) and The Mosaic Company (MOS) are two publicly listed firms that offer fertilizer and seeds (MOS).
- Equipment: By investing in agricultural-focused equipment makers, investors can get a taste of the sector’s growth potential. Deere & Co. (DE) and AGCO Corp. are two major players in the agricultural equipment industry (AGCO).
- Processing and distributing goods: In order to get goods from the farm to the local grocery shop, a variety of businesses supply the necessary infrastructure. There are a number of firms involved in the transportation, processing, and distribution of agricultural products (BG). Some distributors, like equipment makers, only make a percentage of their income from farming.
ETFs are a smart way for investors to diversify their exposure to the agricultural industry. VanEck Agribusiness ETF (MOO), for example, provides access to a diverse collection of businesses by investing in firms that generate at least half of their income from agriculture. The Teucrium Soybean ETF is the best-performing agricultural commodities ETF based on 2020 performance (SOYB).
In the same way as with any other kind of ETF, investors should carefully examine the ETF’s management costs and performance of the index it monitors.
Ag Mutual Funds
The agricultural and agriculture sectors are very well represented in mutual funds that specialize in investing. Consider if the fund invests in agricultural companies or in commodities if you’re interested. Keep in mind that many of these funds offer exposure to a variety of other industries, too. As a result, if you’re looking to invest just in farming or agricultural, you’re probably better off focusing your attention on something else.
Investors should compare mutual fund fees and previous performance to ETFs, for example, while deciding whether to invest in mutual funds or ETFs. The Fidelity Global Commodity Stock Fund is an example of a mutual fund that invests in agricultural companies and commodities (FFGCX).
Direct investment in commodities may attract the interest of more speculative investors looking to profit from market price fluctuations. There are several ETFs and ETNs that allow you to diversify your exposure to commodities, but you can also obtain exposure to commodities by buying futures contracts.
ETFs and ETNs that focus on a single commodity (such as CORN, GRU, NIB, and SGG) are available, as are ETFs and ETNs that represent a basket of commodities. DBA, for example, invests in maize, wheat, soybean, and sugar futures contracts via the Invesco DB Agriculture ETF (DBA).
Aside from these two ETNs, there is also the iPath Bloomberg Agriculture Subindex ETN (JJA) and the Rogers International Commodity Agriculture ETN (RJA), which invest in maize, wheat, soybeans, sugar, coffee, and cotton future contracts.
Buying a farm isn’t the only option available to investors interested in the agriculture industry. A farmland REIT can be purchased by investors who want to most closely mimic the rewards of owning farmland. Those who want to get a broader view of the agricultural industry might consider considering stock investments in crop growers, supporting companies, or ETFs. Futures contracts, exchange-traded funds, and exchange-traded notes (ETNs) are all options available to investors hoping to benefit from fluctuations in agricultural commodity prices. Using so many possibilities, investors should be able to choose an investment vehicle and strategy that best suits their requirements with these options.