Many people think of investing in agriculture as owning farmland and operating a farm. Many investors overlook this business area when deciding where to put their money because they don’t see themselves toiling the land. But there are various options to invest in agriculture without being a farmer.
Farmland investing is just one way to invest in agriculture. Additionally, investors can invest in farming-related exchange-traded funds (ETFs) and real estate investment trusts (REITs) or trade commodities to take advantage of the agricultural markets.
What Are Agriculture Investments?
Investing in agriculture is more than just owning some farmland and working the land. Agriculture can be an alternative investment that diversifies an investor’s portfolio. Investors can get exposure to agriculture and farming by investing in businesses involved in the whole farming process, from the seeds in the ground to the distribution of products to grocery stores.
4 Ways to Invest in Agriculture
1. Agriculture Stocks
Investors can put money into various publicly-traded companies that provide services in the farming industry. These agribusiness firms range from those involved in actual crop production — though many crop producers are privately held — to companies in the farming support businesses. The farming support businesses include companies that make fertilizer and seeds, manufacture farming equipment, and process and distribute crops.
Companies in the agriculture industry include, but are not limited to:
• Archer Daniels Midland Company (ADM): A large food processing and commodities trading firm
• Deere & Company (DE): Known as John Deere, this company manufactures agricultural machinery and heavy equipment
• Corteva, Inc. (CTVA): An agricultural chemical, fertilizer, and seed company
• The Mosaic Company (MOS): A large company that produces fertilizer and seeds
• AppHarvest Inc (APPH): A small-cap company involved in indoor farms and crop production
2. Agriculture ETFs and Mutual Funds
Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to the agricultural industry. Agriculture-focused mutual funds and ETFs invest in a basket of farming stocks, commodities, and related assets, allowing investors to diversify farming exposure.
3. Farm REITs
Farm and agricultural real estate investment trusts (REITs) own farmland and lease it to tenants who do the actual farming. REITs that invest in farmland can be a good option for investors who want exposure to farmland without actually owning a farm.
This type of investment can provide investors with various benefits. For example, a REIT is a type of liquid asset, meaning an investor can quickly sell the investment on the stock market. In contrast, if an investor were actually to own farmland, trying to sell the land could be a drawn-out and complex process. Other benefits include regular dividend payments and geographical and crop diversification.
Recommended: Pros and Cons of Investing in REITs
Agricultural commodities are the products produced by farms, like corn, soybeans, and wheat.
Trading commodities can be a profitable, though risky, endeavor. Investors who trade commodities look to take advantage of the market’s volatility for short-term gains. Usually, this is done by trading futures contracts, though large investors may actually purchase and sell the physical commodities.
Commodity trading can be risky, especially for a novice investor. ETFs with exposure to commodities may be better for investors with lower risk tolerance.
Recommended: Why Is It Risky to Invest in Commodities?
Benefits and Risks of Investing in Agriculture
One of the significant benefits of agriculture investments is that people always need to eat, so there will usually be some demand support for businesses in the industry. Because of this, some investors view the sector as somewhat recession-proof and a good way to diversify a portfolio.
Another benefit is that farmland REITs and certain agriculture stocks can provide passive income through regular dividend payouts. Additionally, farmland investments can provide a hedge against rising inflation.
The agricultural and farming sector can be fickle, as it’s subject to various risk factors that can impact investments. Uncertainties stemming from weather to government policies to the global commodities markets can cause volatile swings in prices and income that affect investments in the sector.
Here are some risks facing agricultural investments:
• Production risk: Major weather events, crop diseases, and other factors can affect the quantity and quality of commodities produced.
• Market risk: The global markets for commodities can affect farming and agricultural business as prices can swing wildly, making crop production and agribusiness demand uncertain.
• Financial risk: Farms and related businesses often use debt to fund operations, so rising interest rates and credit tightening can hinder companies in the industry.
• Regulatory risk: Changes in taxes, regulations, subsidies, and other government actions can impact agricultural businesses and investments.
Are Agriculture Investments Right for You?
It might seem like agriculture investments are risky, but with that risk comes reward. If an investor’s risk tolerance allows for it, agricultural investments can provide diversification in a portfolio.
Fortunately for investors who want to put money into the agriculture sector, they don’t necessarily need to buy a farm. Several investment vehicles can fit their needs to get exposure to farming. Farmland REITs, agribusiness stocks, and farming and commodity ETFs can be options to build wealth in the farm business.
Investing in agriculture doesn’t have to be as hard as owning a farm and working the land. Investors can start investing in agriculture by trading stocks and ETFs for as little as $5 with SoFi Invest®.
Check out how to start investing with SoFi today.
Is agriculture worth investing in?
Agricultural investments can help diversify a portfolio. Depending on what areas of the agriculture business you invest in, the assets can produce steady income and long-term capital gains.
How much should I invest in agriculture?
Determining how much you should invest in any asset class depends on your financial goals and personal risk tolerance. It would be best if you didn’t put too much of your money into the agriculture sector; you want a diversified portfolio.
How do I invest in a farm?
Buying a farm can be difficult; you would need a lot of capital for a down payment, just like any other piece of real estate. If you want exposure to farmland, agriculture and farm-related REITs can be a good option, especially for retail investors.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Photo credit: iStock/PeopleImages