Harvesting Wealth: Invest In Agriculture

If you are looking for new sectors to invest in, you may want to consider agriculture. Crop and livestock production is a fairly stable long-term investment, because people are always going to need food. Don’t worry, you will not have to become a farmer! There are lots of indirect ways to invest in agriculture.

According to the United Nations, the worldwide population is going to increase by almost 2 billion in the next 30 years. We currently have over 8 billion mouths to feed, and that may increase to 9.7 billion by the year 2050. This increased demand for food means agricultural industries have significant growth potential. 

Please keep in mind that all investments have risks, and the agricultural sector is particularly vulnerable to factors outside your control. Crop yields can be negatively impacted by weather events, pests/diseases, geopolitical instability, soil changes, and more. 

As usual, nothing in this article should be construed as investment advice, but it may pique your interest and encourage you to conduct your own research about different types of agricultural investments.

It is rare to find an individual farm listed on a stock exchange, but you can buy shares in companies that assist farmers.

For example, you may recognize the iconic green John Deere tractor and want to buy stock in Deere & Co. The world will continue to need agricultural machinery, and you could be part of the action. 

Seed producers are another option. Companies such as Sakata Seed Corp, Syngenta AG, DLF Seeds A/S, and Monsanto Group are working hard to produce genetically modified, high-performance seeds.

Another route is to invest in organizations that protect crops from disease and increase soil fertility. There are lots of firms that produce fertilizers and pesticides, including Corteva, Inc., BASF SE, AgroFresh Solutions, Inc., American Vanguard Corporation, and Nufarm Limited.

Exchange traded funds (ETFs) are passively managed funds that pool investors’ assets together to purchase a range of securities. ETFs have minimal management fees, because computers simply track a benchmark index and try to keep pace with market returns. In this instance, they would track the performance of the world’s largest farming and agricultural businesses. 

Agribusinesses are involved in the agriculture supply chain, i.e. crop production, processing, and distribution. A fund will likely invest in a combination of seed and fertilizer companies, food-processing specialists, and farm machinery manufacturers. 

ETFs may be a safer investment than option 1, because they encourage diversification. The value of your stock is not reliant on a single company’s performance, but the collective performance of several. 

Popular agribusiness ETFs include: VanEck Agribusiness ETF, iShares MSCI Agriculture Producers ETF, and First Trust Indxx Global Agriculture ETF.

Agricultural commodity ETFs offer investors exposure to physical commodities such as wheat, corn, coffee, soybeans, and livestock. By investing in commodity futures and options, the fund allows you to benefit from the price moves of commodities, without having to hold the physical goods.

Commodity-based agricultural ETFs are a good choice if you want to diversify your portfolio beyond traditional stocks, or if you are looking for a hedge against inflation. Typically, the performance of commodities is not correlated to stock markets, so they can be valuable assets during market downturns.

That being said, commodity prices are extremely volatile. Changes in supply and demand are greatly impacted by the weather and other uncontrollable factors discussed above. 

Well-known agricultural commodity ETFs include: Invesco DB Agriculture Fund, Teucrium Soybean Fund, and Global X AgTech & Food Innovation ETF.

Actively managed funds rely on a combination of computer technology and human expertise. Rather than merely tracking a benchmark index, these funds try to outperform it.

Instead of buying all the stocks and bonds in the agricultural sector like a passive ETF; the portfolio manager of an actively managed fund will research and handpick securities he or she believes will be lucrative. Understandably, managed funds often charge higher fees, because you are paying for the fund manager’s skill and experience. 

Some farming themed actively managed funds include: Sarasin Food & Agriculture Opportunities, Barings Global Agriculture Fund, The AAM Agri Access Fund, and Schroder Global Sustainable Food and Water Fund. 

Real estate investment trusts (REITs) are companies that own or operate income-producing properties. A REIT pools investors’ funds to acquire multiple pieces of real estate. It then leases the spaces, collects rents, and divides the income among the investors in the form of dividends.

REITs are publicly traded like stocks, which means they are a lot easier to buy/sell than an actual piece of real estate. Additionally, these liquid investments often cost a lot less than buying land directly. Finally, REITs are a “hands-off” investment. You will never need to manage a property yourself. 

Gladstone Land (LAND) and Farmland Partners (FPI) are two notable REITs focused on acquiring and leasing farmland. 

Surely you know the old saying: “if you want something done right – do it yourself.” If you are serious about investing in agriculture (and have sufficient funds), you could purchase land outright and then rent it to a farmer. 

You may have the opportunity to buy an established farm and lease it to the existing, or a new, tenant farmer. In some cases you may need to convert a plot into usable cropland or pastureland. 

Owning a farm is attractive, because you own a physical asset (real estate) that will likely appreciate in value. Additionally, it produces valuable commodities (corn, wheat, etc.), and brings in income (rent from the tenant farmer). 

The main drawback is you will need significant capital to buy a farm. According to the USDA, cropland cost (on average) $5,460 per acre in 2023. So, you may need to spend over a million to start a decently sized farming venture.

In the past, if you wanted to invest in agriculture, you had to buy an entire farm and have the farming knowledge to run it. While buying farmland personally is still an option, it may make more sense for you to invest in REITs, agricultural stocks, or ETFs. We hope our discussion has introduced you to the realm of agricultural investments. However, if you are interested in investing in the farming sector, be sure to do your due diligence. 

If you are open to other types of investments, please consider reading our articles Gold Investing 101 and Buying Real Estate Abroad.