Investing in farming is a wise strategic option. People still have to eat whether the broader economy is in a recession or a boom. Therefore, many investors consider agricultural and farming assets recession-proof. Furthermore, farming will become more crucial in supporting global communities as the world’s population grows.
However, owning a farm is not practical for the typical investor. Purchasing a farm might entail a significant financial investment, and the time and costs of maintaining or leasing a farm are also significant. Fortunately, investors may obtain exposure to the industry in various ways other than investing in a farm.
List of Contents
7 Different Ways to Invest in Farming without Owning a Farm
1. Farm REITs
Investing in a farming-focused real estate investment trust (REIT) is the closest an investor can come to farm ownership without actually owning a farm. Farmland Partners Inc. (FPI) and Gladstone Land Corporation are two examples (LAND).
Typically, these REITs acquire farmland and then lease it to farmers. Farmland REITs provide several advantages. Firstly, they offer far more diversity than purchasing a single farm, allowing investors to have interests in several farms throughout a large geographical region.
Farmland REITs also provide better liquidity than real farmland ownership, as most of these REITs’ shares may be traded swiftly on stock markets. In addition, agricultural REITs reduce the amount of cash required to invest in farmland since the minimum investment is the price of one REIT share.
2. Soft Commodities
More speculative investors may be drawn to directly investing in commodities to profit from price fluctuations in the market. While it is possible to obtain exposure to commodities simply by purchasing futures contracts, a variety of ETFs and exchange-traded notes (ETNs) offer more broad commodity exposure. Although some ETFs and ETNs expose investors to a single commodity, such as corn, cattle, coffee, grains, cocoa, and sugar, others provide investors with exposure to a basket of commodities. The Invesco DB Agriculture ETF (DBA) is an example since it invests in maize, wheat, soybeans, and sugar futures contracts.
In addition, the iPath Bloomberg Agriculture Subindex ETN invests in maize, wheat, soybeans, sugar, coffee, and cotton futures contracts, as does the Rogers International Commodity Agriculture ETN (RJA).
3. Ag Mutual Funds
Also, mutual funds invest in the agriculture and farming industries. If this appeals to you, you should establish if the fund invests in agriculture-related companies or commodities. Moreover, you should remember that many of these funds have exposure to industries other than agriculture. Therefore, if you are more interested in investing in pure farming or agriculture, you may be better suited to other asset classes. When investing in mutual funds, investors must examine costs and previous performance and compare them, for instance, to ETFs.
4. Ag ETFs
Exchange-traded funds (ETFs) provide investors diversified exposure to the agriculture industry. For instance, the VanEck Agribusiness ETF (MOO) provides access to various businesses by investing in firms that receive at least 50% of their income from agriculture. Similar to investing in any ETF, investors should carefully analyze the management costs and performance of each ETF’s underlying index.
5. Supporting Industries
Alternatively, investors can purchase shares in various sectors supporting agriculture. Fertilizer and seed retailers, farming equipment, and crop wholesalers and processors are the three main industries.
Seed Retailers
Several firms are involved in the manufacturing and selling of fertilizer and seeds. Investors will want to assess how much of each firm’s income is derived from agriculture, given that some firms also serve other industries. Nutrient Limited (NTR) and The Mosaic Company are two publicly-traded corporations that supply fertilizer or seeds (MOS).
Farming Equipment
Farming is an equipment-intensive endeavor. Therefore, investors may acquire sector exposure by investing in agriculturally-focused equipment manufacturers. Deere & Co. (DE) and AGCO Corp. are two corporations substantially involved in agricultural equipment (AGCO).
Crop Wholesalers and Processors
Numerous firms supply the infrastructure that transports produce from farms to grocery stores. Archer Daniels Midland Company (ADM) and Bunge Limited are firms that transport, process, and distribute crops (BG). Similar to farming equipment, a number of these distributors get just a fraction of their income from agriculture-related operations.
6. Crop Production
A possible investment opportunity exists in companies that plant, cultivate, and harvest crops. Numerous firms are also involved in distribution, processing, and packaging. There are just a few publicly traded crop production companies, including Fresh Del Monte Produce Inc. (FDP), Adecoagro S.A. (AGRO), and Cresud (CRESY).
7. Agriculture Stocks
Additionally, investors have access to a variety of publicly-traded agricultural enterprises. These businesses vary from directly cultivating and harvesting crops to serving farmers through various sectors.
Conclusion
In short, there are several alternatives to acquiring a farm for investors interested in investing in the agricultural business. A farmland REIT is available to investors who want to duplicate the rewards of owning farmland as precisely as possible. For investors seeking greater exposure to the agriculture industry, equity investments in crop growers, supporting enterprises, or exchange-traded funds (ETFs) may be their best option. Those seeking to profit from price fluctuations in agricultural commodities have access to various futures contracts, ETFs, and ETNs. With all of these choices, investors should be able to choose a suitable investment strategy.
FAQs
– All agricultural investments are assumed to be profitable.
– Thinking that agriculture investments are a quick way to get rich.
– Ignoring the risks inherent in agricultural investments, such as weather and market changes.
Agricultural investments can become subject to capital gains taxes on the sale of assets, depreciation deductions on equipment and structures, and specific tax classification as a farming business.
Absolutely, you can invest with limited funds in agriculture. There are a number of methods to do so, including investing in agricultural equities, agricultural exchange-traded funds (ETFs), or a small agricultural business. Before making financial selections, it is essential to conduct extensive study and fully comprehend the dangers involved.
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Source: Investopedia