How to Invest in Farmland Without Farming

Investing in farmland entails buying land and businesses that produce crops, livestock and other commercial products. Farmland investing has been a popular strategy for centuries, but the asset class has commanded extra attention as billionaires like Bill Gates and Jeff Bezos buy hundreds of thousands of acres. Luckily, you don't have to farm or grow crops in order to invest in farmland and make money from this opportunity. This guide will explore how farmland investing works and pathways for beginners.

How Does Investing in Farmland Work?

The U.S. Department of Agriculture (USDA) estimates that 30% of all farmland in the U.S. is owned by landlords who don't farm themselves. One of the most straightforward ways to invest in farmland is to actually buy and own the land. But many investors don't take this route.

There are numerous other ways to benefit from agriculture investments. For example, you could purchase farmland real estate investment trusts (REITs), farmland stocks or farmland exchange-traded funds (ETFs). Because there are so many ways to invest in the industry, remember that you don't need to own a farm. However, some segments of the farming industry generate higher returns than others. Knowing the different investment opportunities can help investors realize higher profits.

Is Investing in Farmland Profitable?

Farmland is an attractive investment opportunity that offers various ways to make money. For starters, farmland is a limited resource. There's only so much land available, and an even smaller portion of the area is fit for growing crops or nurturing livestock. This limited supply improves farmland value and allows these assets to act as inflation hedges.

Second, farmland actively yields crops that can be sold for a profit. And finally, just like any type of real estate investment, farmland can be leased to collect rental payments. Its value also tends to increase over time. In fact, farmland is often regarded as a sought-after investment during high-inflationary environments.

Farmland is less volatile than the stock market and tends to retain value well. Plus, food prices easily adjust for inflation, which gives farmland investors extra protection.

According to the USDA, farmland has generated a positive return every year since 1991, culminating in an average annual return of 11.5%.

7 Ways to Invest in Farmland

Farmland investing can be a great way to diversify your portfolio and protect its value against inflation. But you don't need to buy a farm and start cultivating the land yourself to reap the rewards. There are many ways to invest in farmland without getting your hands dirty.

Agriculture Stocks

Agricultural stocks are shares of publicly traded companies operating in the farming industry. They give investors exposure to these companies as well as their respective profits or losses. ETFs are index funds that track a variety of different stocks in the same sector. They're a great way to diversify if you don't know which company you want to invest in directly.

Agriculture stocks and ETFs can represent companies that are actively growing crops, but some may be operating in other sectors that support farmers indirectly.

Take a look at some of the different types of agriculture stocks and farmland ETFs.

Crop Production

Investing in an agriculture stock means you're essentially investing in shares of a firm that actively plants, grows and harvests crops for sale.

Supporting Industries

Farming involves a lot of work and resources. Farmers have to put money into their properties to realize great harvests. Knowing where farmers put their money can help investors spot new opportunities. These are some of the supporting industries that allow farmers to grow crops.

• Fertilizer and seeds: Some companies only engage in the production and sale of raw materials for farmers.
• Equipment: Farming equipment is an entire industry devoted to supporting farmers as they cultivate crops.
• Distribution and processing: These can include different food distributors or processors that either sell directly to consumers or larger food companies.

Agriculture Mutual Funds

Agriculture mutual funds pool capital from shareholders to invest in a variety of securities, typically stocks and bonds. Like general mutual funds, these vehicles are operated by professional money managers, who decide how to allocate the assets within the fund. In return for their services, mutual funds charge a fee that can eat into your investment returns.

Farm-Focused REITs

Farm-focused real estate investment trusts work like traditional REITs. These are companies that pool investor funds together to buy, manage and sell real estate. When you invest in a farmland REIT, you're essentially buying a share in a company that owns farmland.

REITs typically own a portfolio of multiple properties, which means you'll gain a more diversified approach to farmland investing. The company may take a variety of different approaches to generating a profit on the farmland, but the most common is to collect and distribute rental payments to you, the shareholder.

Soft Commodities

Soft commodities are essentially agricultural commodities, such as coffee, grain, corn or wheat. These agriculture investments can be volatile, and their prices may be subject to frequent changes.

However, these swings can also make them incredibly profitable — so long as you're willing to put up with the risks. You can invest in soft commodities via stocks or ETFs for agriculture products. Plus, you could enter the commodities market and trade heavily, depending on your risk tolerance or appetite.

Crowdfunding

Crowdfunding is an investment practice that's gathered a ton of attention in recent years. It entails pooling small deposits from a wide range of investments to finance a big project. Many real estate crowdfunding platforms have popped up in the last few decades — including farmland enterprises.

The downside of farmland crowdfunding is that it's not as tightly regulated as farmland stocks or farmland REITs. It's important to do your research and find a campaign you really trust before committing funds.

Invest in Farmland Today

Farmland investing offers a variety of benefits. It can be a great way to diversify your portfolio, retain value over time and protect against inflation.

There are many different ways to invest in farmland without actually having to own or manage a property. Many of them, including farmland stocks, farmland ETFs and farmland REITs, can be a great way to take on agriculture investments without having to make a large time or financial commitment.

Frequently Asked Questions