Agriculture is considered by many as a low-risk investment. It serves as a unique way to diversify one’s investment portfolio while contributing to social good. With time, investments in agriculture keep up with inflation as they increase in value in the long-term.
How To Invest In Agriculture
A growing number of people agree that investments in agriculture are more sustainable than the stock market. The world’s population is increasing at an alarming rate while food production continues to be a growing challenge for regions across the world. The price elasticity of demand for food cannot be rivalled by most goods and services.
Farming-focused real estate investment trusts (REITs) allow investors to gain some of the benefits of owning a farm. REITs allow investors to purchase different farmland which they lease out to farmers. They allow for diversification of risks due to the different options of farmland. Minimum investment required is relatively low. Investors who want to divest can easily do so in contrast to investors who directly purchase farmland.
Similarly, exchange-traded funds help to optimise risk for investors who do not want to be directly exposed to the risks of agriculture. ETFs allow for investments in diversified businesses who gain their revenue from agriculture. Potential disadvantages of ETFs include management fees which may not be incurred by investors using other mediums of investment in agriculture. Expenses can vary. For example, VanEck Vectors Agribusiness ETF cost 0.53 percent ($53) per $10,000 invested. Investors should consider the liquidity of ETFs when investing. ETFs with low liquidity may present significantly more risks than ETFs with higher liquidity. Luckily, some ETFs can be traded as Contracts for Difference which greatly increases the available liquidity by adding third-party liquidity providers.
Mutual funds also provide a great way to invest in agriculture. Unlike Farming-focused real estate investment trusts, mutual funds may also invest in other sectors apart from agriculture, allowing for diversification of risks. Like, Exchange-traded funds, mutual funds have fees and past performances which investors will need to take note of to ensure that they get the best returns on their investment.
Some funds allow investors to benefit from futures contracts in the agriculture sector. Such funds make gains from swings in prices. Unfortunately, expenses may be higher than other investment options at 0.93 percent. Also, futures contracts may be less tax-efficient than other investment options.
Investing directly in agriculture stocks presents several risks but also opportunities to profit from interesting companies trying to advance their sector. The nature of the industry is such that many companies in the agriculture sector reinvest their profits rather than pay dividends to shareholders. This spells bad news for investors who have a preference for dividends. Agriculture companies that do provide dividends include Monsanto and Terra Nitrogen Co. Monanto expected to double its earnings per share but it has a low yield. Terra Nitrogen is susceptible to significant levels of volatility but had a 6.99% dividend yield.
Several websites offer investors the opportunity to directly participate in commodities trading in return for 14% – 40% gains. Investors on such platforms are able to receive the return on their investments within 6 – 8 months.