If you’re looking to invest in agriculture, what’s the best way to start? There are actually quite a few. Investing in agriculture is also known as investing in arable land. It includes arable land and woodland. Farmland includes grazing land, plants, and even hemp. Farmland used for raising livestock and growing crops sells its products as a source of food.
Some agricultural investments are more illiquid than others, but can offer higher potential returns. Some agricultural investments require you to be an accredited investor. There are many options to choose from when investing in agriculture.
Working with FarmTogether, we will break down the opportunities for investing in agriculture. If you want to invest directly in farmland, Check out FarmTogether here >>
Hopefully by the end of this article you can determine if agriculture investments are right for you.
Why invest in agriculture?
When you invest in agriculture, you are supporting farmers. Think of traditional farms with cattle or rows of corn or beans. For some people, this might be better than buying shares in a company that doesn’t pay dividends or that doesn’t add as much value to the world.
Agricultural investments are a type of real estate investment. The land itself is an integral part of the manufacture of the final product. There is no way to separate it. And depending on the type of investment agreement, you can benefit from an increase in the value of the land.
As with traditional real estate investments, agriculture tends to be stable and in demand. The land that exists now is all that will ever exist (at least in our lives). That can increase the land value. In the worst case scenario, when the farming business goes under, there is still value in the land.
Even if you have some real estate exposure in your portfolio and think that investing in agriculture is just a larger exposure to real estate, it is not. At least not exactly.
Investing in real estate helps diversify a portfolio. There are many types of real estate to invest in, which further diversifies the real estate portion of a portfolio. Investing in agriculture will further diversify a portfolio.
Opportunities for entry into agriculture
There are several ways to invest in agriculture. Below are four of your best options: REITs, ETFs, crowdfunding, and direct investments.
A REIT is a real estate investment fund. A public REIT acts like a share on a public stock exchange. A private REIT is more difficult to buy and sell. The cost is also higher.
Two public REITs you can invest in are Gladstone Land (LAND) and Farmland Partners (FPI). The American Farmland Company (AFCO) is no longer available.
Exchange Traded Funds (ETFs) are baskets of securities that investors can use to trade like individual stocks. There are several agriculture-related ETFs to choose from.
Invesco DB Agricultural Fund
First Trust Alternative Absolute Return Strategy Fund
iPath Series B Bloomberg Grains Subindex Total Return ETN
iPath Series B Bloomberg Agriculture Subindex Total Return ETN
Teucrium Agricultural Fund
Agriculture crowdfunding investment platforms work just like their real estate crowdfunding cousins. Multiple investors are investing in a deal that will lower the minimum investment and make more investors available.
FarmTogether is one of our favorite platforms for this. They are applying for an 8-12% return with a multi-year holding period.
Compared to other platforms, FarmTogether has a solid deal flow and tools to help you evaluate your investments. You can read our FarmTogether review here.
Check out FarmTogether here >>
Direct investment in agriculture is similar to direct investment in real estate. It’s as close as possible to owning real estate. If you buy farmland directly, you can own the deed. Of course, then you have to build a business to produce the product. This is similar to buying residential property in that you need to build an operational business (renting) that will generate income.
If you own farmland, you can also build up equity. When the land’s mortgage is repaid, you start building equity. As the land increases in value, you also build equity. The equity can then be borrowed to finance additional real estate deals.
There are also tenants in common (TIC). In a TIC, several investors buy and manage farmland. They each hold a share of the dead and have the same voting rights. These investors also need to secure financing. It is best to know the people involved in a TIC deal and describe everything in detail. Otherwise, it can be a frustrating experience as decisions can stall.
Who does agriculture invest for?
Investments in agriculture are aimed at people who are interested in agriculture / farmland and want to further diversify their portfolio. It may not be for everyone, but if you are looking for an investment that is not as highly correlated to the stock market, has consistent returns, and is a constantly in demand sector, agriculture could be for you.
If you invest in non-public REITs, you also have to agree to higher minimum amounts and a multi-year holding period. You may also need to be an accredited investor for some of these opportunities.
Check out FarmTogether here and get started today >>