Key takeaway
Investing in agriculture can be a lucrative venture with various opportunities such as farmland, agricultural stocks and commodity trading. Farmland investment, for instance, offers stable returns averaging 11% annually, according to the NCREIF Farmland Index.
Overview of agriculture investments
Agriculture investments span a wide range of sectors and forms. They include direct investments in farmland and agricultural commodities, which are speculative bets on the future prices of corn, wheat or cattle.
You can also buy stock of farm businesses or "agribusinesses," either through mutual funds, where you pool your money with other investors to buy assets, or through exchange-traded funds (ETFs), farmland investment funds traded on a stock exchange.
Alternatively, investing in agricultural commodities offers exposure to the sector without owning any physical assets. However, these prices are highly volatile and are not suitable for long-term investments.
Agribusiness provides access to various farming technologies, farming equipment, services and products and the potential for good returns. However, it carries higher risks than other types of investments.
Why invest in agriculture?
Investing in agriculture brings with it several potential advantages. For one, it exposes a sector immune primarily to stock market downturns. After all, people will always need food. The increasing global demand of the world population for food means that farm investments will likely be profitable in the long term. Another advantage is that you can choose from direct investments, such as agricultural commodities or indirect investments through agribusinesses and ETFs. Some investments may get government subsidies or other support.
5 ways to invest in agriculture
Agriculture investments span a diverse range of types. Here's the lowdown on them, so you can begin your research and determine if they are right for you and your portfolio.
Agriculture stocks
Stocks are shares in a company's ownership, which give you the right to vote on how the company runs and receive a portion of its profits. Agricultural stocks, then, offer exposure to companies in the agricultural sector. This can include fertilizer production, research, food processing and more. Investing in agricultural stocks, such as fertilizer stocks on MarketBeat, has the potential to provide good returns.
To look up an agricultural stock, you can use an online broker platform or simply search for "agricultural stocks" on MarketBeat. Some of the most popular agricultural stocks include Archer Daniels Midland NYSE: ADM, Deere & Company NYSE: DE and Syngenta AG NYSE: SYT.
For example, we'll take Deere & Co.
Once you find a stock you're interested in, such as John Deere & Company NYSE: DE, you'll be able to view its current price and market cap (the total value of all outstanding shares) at the top of the page.
Below that, you’ll find a link to the company’s financials and analyst reports. Always read these before deciding to invest in farms stock.
Deciding to invest in agriculture can be a great way to diversify your portfolio and gain exposure to an important sector.
Agriculture ETFs and mutual funds
Mutual funds are collections of investments managed by a professional investor responsible for selecting which ones to buy and sell. ETFs are funds holding a basket of securities, such as stocks, bonds or commodities, often focusing on specific industries or sectors. ETFs are bought and sold like stocks on an exchange but with lower fees than mutual funds.
An agricultural ETF would invest in farming companies and offer exposure to various agricultural-related low-priced stocks on sale without picking individual stocks. Some popular agricultural ETFs include the IQ Global Agribusiness Small Cap ETF NYSEARCA: CROP, the VanEck Vectors Agribusiness ETF NYSEARCA: MOO and the Invesco DB Agriculture Fund NYSEARCA: DBA.
To look up an ETF using the MarketBeat ETF screener, you will need to search for the ETF’s symbol or name. As an example, we'll look at CROP.
Once you find the ETF's listing, you can look at the various information it provides. The first section contains critical metrics such as price, market cap (total value of all outstanding shares) and 52-week range (the lowest/highest value of one share in a given year). The second section contains historical data, such as returns over different periods. The third section usually outlines investments the ETF holds.
Finally, check analyst ratings and other commentaries that might be available to help make your decision.
Agriculture REITs
Real estate investment trusts (REITs) own and manage real estate-related investments, including farmland. They offer exposure to the agricultural sector without having to buy or manage land directly. REITs typically offer a steady income stream and potential price appreciation from capital gains. REITs can be publicly or privately traded.
For example, we'll use a publicly-traded REIT, Gladstone Land NYSE: LAND, which you can trade like a stock. Look it up using its stock symbol. You'll be able to view its current price and market capitalization, among other information.
Also check its financial statements to see how well it’s performing and whether it’s able to cover its expenses with its earnings.
When evaluating an agriculture REIT on MarketBeat's high dividend REITS list, consider factors such as its portfolio composition, asset location and quality, rental income and management fees. Follow the link to its recent Securities and Exchange Commission (SEC) filings and peruse its annual reports.
Overall, agriculture REITs can be a great way to get exposure to the agricultural sector without buying or managing farmland.
Commodities
Commodities are physical goods, such as grains, beans, livestock and other products that can be traded on the commodities market. Investing in agricultural commodities is a form of speculation on the future price of these goods. It can be risky because commodity prices can be volatile and unpredictable. But if you research and understand the risks associated with this type of investing, it can pay off.
Accredited investors will need to open an account with a commodities broker to buy or sell commodity futures contracts or options. Futures contracts are agreements between two parties to buy or sell a particular commodity at an agreed-upon price on an agreed-upon date. Options give you the right but not the obligation to buy or sell a security at a set price within a certain period.
When evaluating a particular commodity, consider its historical performance and current supply/demand dynamics to help predict its future price movements. You can view live commodities prices for various crops and types of livestock on the appropriate page on MarketBeat. Keep an eye on the global economy and events that could affect live commodities prices, such as weather patterns, natural disasters, geopolitical tensions and economic indicators.
In crowdfunding, a large group of investors can pool their money to finance a venture or business, such as a farm. You can do this via online platforms such as WeFunder or Kickstarter.
The main benefit of crowdfunding is that you can diversify your investment portfolio by investing in multiple businesses at once. Crowdfunding investments also typically have lower minimums than traditional investments. Investing in startups is inherently high risk; while they may offer high returns if they succeed, they're also likely to fail and lose your money altogether.
Ensure you understand the fees each platform charges before investing by checking the frequently asked questions (FAQs).
Some platforms charge higher fees than others, and some may require a membership fee or subscription cost that could affect your return on investment (ROI).
Buy land
But what if you want a deeper, more personal connection to agriculture? You can always consider buying farmland directly. While it may require a larger capital outlay, owning farmland can provide a sense of control and autonomy. You have the opportunity to work the land yourself or lease it to farmers for cultivation, providing a direct link to the agricultural process.
When purchasing farmland, consider factors such as soil quality, location, water access and potential for growth. Conduct thorough research on the local agricultural market and always seek advice from experts in the field.
Owning farmland can be a long-term investment that offers potential financial rewards and offers the chance to contribute to producing the food we eat every day.
How to invest in agriculture
Investing in the agricultural sector can be a lucrative way to diversify and add value to your portfolio. Here's how to get started.
Step 1: Research your options.
Take some time to research the different investment options available for agricultural investments. Consider factors like the size of your investment, risk tolerance and where you want your money invested (domestically or internationally). For instance, you can use MarketBeat's stock comparison tool to compare agricultural stocks (in this case, DE, ADM and SYT). Compare each stock's current price, 52-week range and market cap.
Step 2: Understand risks and rewards.
Each type of agricultural investment carries unique risks and rewards, so be sure to understand them before committing any capital. Compare potential returns, associated costs and liquidity challenges and view analyst ratings before deciding.
Step 3: Choose your investment vehicle.
Once you've evaluated your options, choose the one that best suits your needs and financial goals. You might invest directly into stocks or ETFs focusing on agriculturally-related companies or open an account with a commodities broker to trade futures contracts or options on physical goods such as grains, beans and livestock. Or, if you're feeling adventurous, try crowdfunding an agricultural venture.
Keep an eye on global events that could impact prices of agricultural commodities, such as weather patterns, geopolitical tensions and economic indicators, by monitoring the news on MarketBeat. Regularly monitor the performance of your investment over time to gauge whether it's meeting your expectations and compare it to others like it. Be prepared to make adjustments as needed if market conditions change unexpectedly.
Pros and cons of investing in agriculture
Investing in agriculture, like any investment, contains risks and rewards, pros and cons. Here are a few of them:
Pros
Check out the benefits of investing in agriculture before you go that direction:
- Diversification: By investing in different agricultural products and companies, you can spread your risk across multiple areas.
- Long-term growth: Many agricultural commodities tend to increase in value over time, providing steady returns.
- Low fees: Many online platforms offer low fees or even free trading opportunities for agricultural investments.
- Accessible investing: If you go through a crowdfunding platform, you can start small, with as little as $100.
- New technology: You get exposure to new technologies and innovations in the industry.
Cons
The downsides include:
- Volatility: The prices of commodities fluctuate greatly due to market conditions, which can result in large losses if not managed properly.
- Illiquidity: Investments may be illiquid if held for longer periods.
- High fees: Involvement of third-party brokers or platforms could require additional fees, commissions or subscriptions.
Future of agriculture investing
With new technologies and innovations always emerging, agricultural investments are becoming more accessible and efficient. You can now choose from various investment vehicles, from stocks and ETFs focusing on agriculturally-related companies, commodities and futures contracts to crowdfunding ventures.
Agricultural investments should see a bumper crop as innovative technologies continue to drive the industry forward. If you're careful to stay informed and take necessary precautions when selecting an investment vehicle, you will likely enjoy healthy returns in this growing sector.
FAQs
You may still have questions about investing in agriculture. These could include "How can I invest in agriculture?" Or you might wonder whether it's a good investment and which kinds of investments are available. Here, we tackle some of the most frequently asked.
Is agriculture investing a good investment?
Agricultural investments can offer good returns if you're willing to do your homework, providing steady returns over time. But carefully weigh the pros and cons before making any decisions.
What are agriculture investments?
An agriculture investment is a financial instrument or asset related to producing, processing or distributing food or agricultural products. Common agricultural investments include farmland, agricultural stocks, agricultural futures contracts, and companies specializing in agricultural products or services.
Is investing in farms profitable?
Investing in farms can be a profitable venture as long as you do your research and select the correct type of farm for your needs. Consider location, soil fertility, climate, farming practices and market access. And factor in costs like initial investments and ongoing expenses like inputs, labor and marketing. With the right strategy, farms can be a lucrative investment option.
Before you consider Archer-Daniels-Midland, you'll want to hear this.
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