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September 17, 2021

Here is How You Can Invest in Farmland Without Operating a Farm

For some investors, adding farmland to a portfolio can seem like a great move. Whether the economy is booming or in a recession, everyone needs food on the table. Many investors see farming and agriculture investments as recession-proof. As the population increases worldwide, farmland assets play a vital role on the global stage. There are some drawbacks to farmland investments. They are illiquid and can be expensive to purchase, management is costly, but they tend to be a better investment than other assets


Looking for a way to add farmland assets to your portfolio? Let the investment team at land income can help you diversify your investments!

Soft Commodities

Many investors are intrigued by investing in soft commodities, i.e, agriculture products. When there is a price change in the market, some savvy investors look to snap up these investments. One way to gain exposure to a soft commodity is by purchasing a futures contract. These commodities can be traded throughout exchange-traded notes and ETFs, providing diverse access for the average investor. Soft commodities can include everything from corn, grains, coffee, sugar, almonds, citrus, etc.  



Agriculture Stocks

Another type of farmland asset is agriculture stock. These stocks are a low-risk and safe choice that often provide reliable returns for portfolios. With these stocks, investors will have access to several publicly traded companies in the farming industry. Many of those companies grow and produce crops directly—however, some work with industries that support farmers and their related industries. For many industries, crop production is another way to invest in farmland assets. Those firms plant, grow, and harvest crops. They may also assist in the distribution, processing, and packaging. Unfortunately, there are not many of these publicly traded crop production stocks available to investors. 

closeup of an ear of corn

Private Equity

Private equity is another way to invest in farm assets. With these opportunities, the funds allow investors to participate in large farm auctions, especially those that might not be utilized to their potential or are mispriced. A portfolio of these flexible investments will allow the individual to compete for bigger farming deals when larger farms are up for bid. While private equity sounds like a great deal, they require a high investment of over $1 million. Some of the funds might also be locked up for a period of 10 or more years. 

Agriculture Mutual Funds 

In the agriculture and farming industries, mutual funds are available. These funds allow investors to get diversified exposure to multiple types of agriculture. Plus, these funds give the investors access to other industries. Investors should consider the high fees and past performances of the funds. In some cases, those factors can be restrictive for many investors. However, there is an easy way to gain access to these investments. Mutual funds are often available as ETFs. An individual portfolio can be exposed to a wide range of agricultural commodities and firms with these investments. 


Agriculture ETFs

An agricultural ETF is the ideal way for investors to get an advantage. In their portfolio, an ETF can give investors some diversified exposure. For example, Market Vectors Agribusiness ETF (MOO) provides investment opportunities to a wide range of diversified businesses with about 50% of these revenues based in the agricultural industry. One of the best-performing agricultural commodity ETFs is called the Teucrium Soybean (SOYB), and it is a great option for any portfolio. As with any ETF, the investor should carefully examine its particular management fees and track the performance of the index. 

REITs

Investors who want to get close to owning a farm without actually doing the hard work should look at investing in a farm-based real estate investment trust (REIT). REITS purchase existing farmland and then lease the land to working farmers. With a farmland REIT, there are many benefits. For example, investors can add more diversification to their portfolio than if they were to buy a single farm. In addition to that, an investor can gain capital in multiple farms in a large geographic area. REITs also offer greater liquidity than owning a physical farm. 


Investing in Farm Debt

Along with purchasing farm equity, investors can invest in farm debt. Farmers borrow money on a frequent basis because they require capital and need short-term loans to finance everyday activities. Plus, farmers seek long-term loans to finance equipment and other tools for challenging farm work. Most farmers have mortgages on their land. When an investor purchases debt, it is achieved through bonds. The investor receives payments regularly. However, there is always a risk with these investments that the borrower could default on the loan

Crowdfunding

In the investment world, agricultural crowdfunding is a new concept. This opportunity allows investors to buy equity in farmland. While crowdfunding is similar to a REIT, it does not have the same liquidity as a REIT. There is minimal upfront investment. For example, $10,000 might be an investment to own a real working farm. Crowdfunding gives investors a chance to invest in farms that meet their financial goals. Some crowdfunding investments allow individuals to receive a portion of the crop’s process.

You Don’t Have to Buy the Farm to Invest in Farmland

For those investors who want to invest in the agricultural and farming industries, there are several ways to add these investments to a portfolio. In some cases, the investor needs to examine their financial needs and find a way to incorporate farming assets into their investment plans. From soft commodities to crowdfunding, there is no shortage of ways to gain access to these investment opportunities. Farmland is an industry that is expected to grow, and the return is profitable for years. Investors waiting for a diverse investment portfolio should look at these opportunities. 


These farmland assets could be great investment opportunities? If you want to add them to your portfolio, contact the investment team at land income!

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