If you want to invest in agriculture, what are the best ways to get started? There are actually quite a few. Agriculture investing is also called farmland investing. It includes farmland and timberland. Farmland includes land for livestock grazing, plants, and even hemp. Farmland that is used to raise livestock and cultivate plants sell their products as a food source.
Some agriculture investments are more illiquid than others but can have higher potential returns. Some agriculture investments require that you be an accredited investor. There are quite a few options to choose from when it comes to investing in agriculture.
In partnership with FarmTogether, we’re going to break down the ways to invest in agriculture. If you’re looking to invest directly into farmland, check out FarmTogether here >>
Hopefully, by the end of this article, you”ll be able to determine if agriculture investing is right for you.
Why Invest In Agriculture?
When you invest in agriculture, you’re 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 add as much value to the world.
Agriculture investing is a type of real estate investing. The land itself is an integral part of producing the final product. There’s no way to separate it out. And, depending on the type of investment arrangement, you may benefit from any appreciation in the land.
Like traditional real estate investing, agriculture tends to be stable and in demand. The land that exists now is all that will ever exist (at least in our lifetimes). That can add a premium to land value. In the worst case, if the farming business goes under, there is still value in the land.
Even if you have some exposure to real estate in your portfolio and think that agriculture investing is just more real estate exposure, it isn’t. 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 diversify a portfolio even more.
Ways To Get Started With Agriculture Investing
There are several ways to invest in agriculture. Below, we break down four of your best options: REITs, ETFs, crowdfunding, and direct investing.
REITs
A REIT is a real estate investment trust. A public REIT trades like a stock on a public exchange. A private REIT is more difficult to buy into and sell out of. Costs are also higher.
Two public REITs that you can invest in are Gladstone Land (LAND) and Farmland Partners (FPI). American Farmland Company (AFCO) is no longer available.
ETFs
Exchange traded funds (ETFs) are baskets of securities that investors are able to trade just like individual stocks. There are several agriculture-related ETFs to choose from.
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Invesco DB Agriculture Fund |
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First Trust Alternative Absolute Return Strategy Fund |
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iPath Series B Bloomberg Grains Subindex Total Return ETN |
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iPath Series B Bloomberg Agriculture Subindex Total Return ETN |
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Teucrium Agricultural Fund |
Crowdfunding
Crowdfunding agriculture investment platforms work the same as their real estate crowdfunding cousins. Multiple investors invest in a deal, which lowers the minimum investment, making it available to more investors.
FarmTogether is one of our favorite platforms for it. They advertise 8-12% returns with a multi-year holding period.
Compared to other platforms, FarmTogether has a solid deal flow, and tools to help you assess your investments. You can read our FarmTogether review here.
Direct Investing
Direct investing in agriculture is similar to direct investing in real estate. It’s as close to owning real estate as you can get. Purchasing farmland outright allows you to own the deed. Of course, you’ll then need to build a business around it to produce a product. This is similar to buying residential since you need to create an operational business around it (renting) that can produce revenue.
Owning farmland allows you to build equity as well. As the land’s mortgage is paid down, you build equity. As the land appreciates, you also build equity. The equity can then be borrowed against to finance additional real estate deals.
There are also tenants in common (TIC). In a TIC, several investors buy farmland and manage it. They each hold a share of the dead and have equal voting rights. These investors must also secure any financing. It’s best to know the people involved in a TIC deal and have everything spelled out. Otherwise, it can be a frustrating experience as decisions can become deadlocked.
Who Is Agriculture Investing For?
Agriculture investing is for those interested in agriculture/farmland and want to further diversify their portfolio. It may not be for everyone, but if you’re looking for an investment that isn’t as correlated to the stock market, provides steady returns, and is a perpetually in-demand sector, agriculture could be for you.
If you invest in non-public REITs, you’ll also need to be ok with higher minimums and a multi-year holding period. You may also need to be an accredited investor for some of these opportunities.
