Seeking Investors For Your Farm?

There are several ways to find people to invest in your farm. Firstly, you could consider buying a farm directly and renting it out to farmers, although this option requires a significant capital investment. Alternatively, you could invest in farm Real Estate Investment Trusts (REITs), which are companies that own or finance income-producing farmland. REITs offer higher liquidity and lower initial investment requirements. Another option is to invest in agricultural stocks, by buying shares in companies in the agriculture industry, such as crop production or agricultural equipment manufacturing. You could also consider investing in farmland mutual funds or exchange-traded funds (ETFs), which pool investor money into activities that support the agriculture industry. Lastly, you could explore crowdfunding platforms, which allow you to buy a small slice of a real farm by investing alongside other investors.

Buy and manage farmland

The most obvious way to invest in farmland is to buy and manage it yourself. This option comes with a lot of upfront costs and responsibilities. You'll need to purchase a large plot of land, which can be expensive, and then find a farmer or rancher to rent it out to. You'll also need to invest in equipment, which can be costly and may not appreciate over time. This option is not recommended for small-scale investors.

If you're considering buying and managing farmland, be prepared for long hours and high upfront costs. You'll also need to wear many hats to keep your operation running smoothly. It's important to have farming experience or seek advice from those who do to get the most out of your investment.

Another option is to purchase an existing farm through a sale-leaseback transaction. In this scenario, the current farmer continues to work the farm and pay rent to you as the new owner. This option may be less risky and more passive than finding a new tenant, but you might need to pay a higher price for the land and earn a lower cash yield.

You could also consider buying an existing farm or agricultural land and leasing it to a new tenant. This option could potentially generate a higher return, but it would likely require more work upfront to find the right tenant.

When investing in farmland, it's important to consider the type of crops you want to produce and the location of your farm. Different crops require different types of soil and water availability. It's also important to diversify your portfolio across crops and geographies to protect against risks such as drought, pest infestation, or weather conditions.

Additionally, remember that investing in farmland is a long-term commitment. Returns on investment can take anywhere from 12 months to 7 years, and it's important to consider short-term fluctuations in commodity prices.

Alternative Options

If buying and managing farmland directly doesn't appeal to you, there are other ways to invest in farmland:

• Private equity funds: These funds typically have a high minimum entry requirement, but they will purchase farmland and lease it out to farmers, providing you with appreciation and predetermined lease rates.
• REITs (Real Estate Investment Trusts): REITs offer higher liquidity than owning farmland directly and have lower initial investment requirements. However, they may limit returns and put you on the other side of a middleman, adding a layer of uncertainty to your investment.
• Crowdfunding: Agriculture crowdfunding allows investors to buy fractional equity in farmland with a minimal upfront investment. This option provides more control over your investment choices and can offer higher returns, but it may not have the same liquidity as REITs.

Invest in private equity funds

Investing in private equity funds is an option for those looking to diversify their portfolios and take on more risk with the potential for higher returns. Private equity funds are managed by private equity firms, which pool investors' money to invest in various private equity instruments, such as buyouts or venture capital. The minimum investment for private equity funds is typically high, ranging from $250,000 to $25 million, making this option more accessible to institutional investors or high-net-worth individuals.

Private equity firms often focus on long-term investment opportunities, with an investment time horizon of 10 or more years. One common strategy is to take a controlling interest in a company and actively manage it to increase its value. The private equity firm might identify a company that can be improved, make operational or management changes, and then sell the company for a profit.

When investing in a private equity fund, you become a limited partner. This means you supply the capital but are not responsible for managing the company or handling the eventual sale. As a limited partner, your maximum loss is limited to the amount you invested, and you will receive a return on your investment when the private equity firm sells the company.

There are a few ways to invest in private equity. You can work directly with a private equity firm, contributing to a private equity fund that will be used to invest in various companies. Alternatively, you can invest in private equity exchange-traded funds (ETFs), which offer exposure to publicly listed private equity companies. This option may be more suitable for those who are not accredited investors or cannot meet the high minimum investment requirements of private equity funds.

Before investing in private equity, it is important to be aware of the risks involved. Private equity investments are illiquid, and you may need to hold your investment for a long period, typically 10 years or more, before seeing a return. Additionally, private equity firms are not required to publicly disclose information about their funds, and there may be conflicts of interest between the firm and the funds they manage.

Invest in REITs

Real Estate Investment Trusts (REITs) are a great way to invest in a farm without actually owning one. REITs are companies that own or finance income-producing real estate across a range of property sectors. They are traded on major stock exchanges and operate like a stock, allowing investors to buy shares.

REITs are an attractive investment option for several reasons:

• High dividend yields: REITs typically offer investors high dividend yields, as they are required to pay out 90% of their annual taxable income in dividends.
• Liquidity: REITs are listed on national exchanges, providing investors with considerable liquidity.
• Diversification: REITs can provide diversification benefits as they tend to follow the real estate cycle, which is usually longer than the bond and stock market cycles.
• Inflation hedge: REITs can serve as a hedge against rising inflation, as they often have agreements that allow them to raise rents in line with inflation.
• Strong returns: Historically, REITs have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation.

There are two main types of REITs: Equity and Mortgage. Equity REITs operate like a landlord, owning the underlying real estate, collecting rent, and providing upkeep. Mortgage REITs, on the other hand, don't own the property but instead own debt securities backed by the property, such as mortgages.

When investing in REITs, individuals can purchase shares of publicly traded REIT stocks, mutual funds, or exchange-traded funds (ETFs). A broker, investment advisor, or financial planner can help analyse an investor's financial objectives and recommend appropriate REIT investments. Additionally, investors can consider public non-listed REITs and private REITs, though these may have higher account minimums and steeper fees.

Some examples of farming-focused REITs include Farmland Partners Inc. (FPI) and Gladstone Land Corporation (LAND). These REITs purchase farmland and then lease it to farmers, providing investors with exposure to the farming sector without the challenges of owning and operating a farm.

Invest in agricultural stocks

Investing in agricultural stocks can be a great way to diversify your portfolio and take advantage of the growing demand for food and crop production. Here are some things to keep in mind when considering investing in agricultural stocks:

Benefits of Investing in Agricultural Stocks:

• Stable Demand: People always need to eat, so there is usually stable demand in the industry, making it somewhat recession-proof.
• Passive Income: Farmland Real Estate Investment Trusts (REITs) and certain agricultural stocks provide passive income through regular dividend payouts.
• Hedge Against Inflation: Farmland investments and agricultural stocks may provide a hedge against rising inflation.
• Long-Term Returns: Historically, investing in farmland has yielded high returns, with average annual returns of around 11.5%.

Ways to Invest in Agriculture:

• Farm REITs: Investing in a farming-focused REIT is the closest you can get to owning a farm without actually doing so. REITs like Farmland Partners Inc. (FPI) and Gladstone Land Corporation (LAND) purchase farmland and lease it to farmers, offering diversification and liquidity.
• Agricultural ETFs: Exchange-traded funds (ETFs) like the VanEck Agribusiness ETF (MOO) offer diversified exposure to the agriculture sector by investing in companies that derive most of their revenue from agriculture.
• Commodities: For more speculative investors, directly investing in commodities like corn, soybeans, wheat, and sugar can be an option. ETFs and Exchange Traded Notes (ETNs) also provide diverse access to commodities.
• Crop Production Companies: You can invest in publicly-traded companies that directly grow and produce crops, such as Fresh Del Monte Produce Inc. (FDP) and Adecoagro S.A. (AGRO).
• Supporting Industries: Invest in companies that support farmers, such as those that sell fertilizer and seeds (e.g., Nutrien Limited (NTR), The Mosaic Co. (MOS)), farm equipment manufacturers (e.g., Deere & Co. (DE), AGCO Corp. (AGCO)), and crop distributors and processors (e.g., Archer Daniels Midland Co. (ADM), Bunge Limited (BG)).

Risks of Investing in Agricultural Stocks:

• Production Risk: Major weather events, crop diseases, and other factors can affect the quantity and quality of commodities produced, impacting the performance of agricultural stocks.
• Market Risk: Global commodity markets can be volatile, with prices swinging abruptly due to various factors, which can affect farming and agricultural businesses.
• Financial Risk: Rising interest rates and credit tightening can impact farms and related businesses that rely on debt to fund their operations.
• Regulatory Risk: Changes in government policies, taxes, regulations, and subsidies can have positive or negative impacts on agricultural investments.

Top Agricultural Stocks:

According to sources, some of the top-performing agricultural stocks as of 2023 include:

• CVR Partners LP (UAN): A producer of ammonia and urea ammonium nitrate solution fertilizer products.
• Cal-Maine Foods Inc (CALM): A producer and distributor of shell eggs.
• Deere & Co. (DE): A global leader in the production of farming equipment.
• Performance Food Group Co (PFGC): Involved in the marketing and distribution of groceries, frozen foods, beverages, and other consumer products.
• Fresh Del Monte Produce Inc. (FDP): A vertically integrated producer, marketer, and distributor of fresh fruits and vegetables.
• Archer-Daniels-Midland (ADM): A global agricultural giant known for processing and trading food ingredients, animal feeds, and biofuels.
• Scotts Miracle-Gro (SMG): A leader in lawn care products and fertilizers.
• Corteva, Inc (CTVA): Focused on crop protection products, seed products, and digital tools and services for farming.

Remember, before investing, it is important to conduct thorough research and understand the risks involved. Consult with a financial advisor or expert to make informed investment decisions.

Invest in farmland mutual funds and ETFs

Mutual funds and exchange-traded funds (ETFs) are a great way to gain exposure to the farming sector without directly investing in a farm. These investment vehicles provide access to a broad range of companies involved in farming and agriculture, allowing for diversification and reducing the risk associated with investing in a single farm or company.

Mutual Funds

When considering mutual funds with a focus on farming and agriculture, it is important to determine whether the fund invests in agriculture-related firms or commodities. Many of these funds also have exposure to other sectors, so if a pure farming or agriculture investment is desired, other types of asset classes may be more appropriate. Fees and past performance should also be taken into account when selecting a mutual fund, and these funds should be compared to ETFs to find the best option. An example of a mutual fund with exposure to agricultural firms or commodities is the Fidelity Global Commodity Stock Fund (FFGCX).

ETFs

ETFs are a good tool for investors seeking diversified exposure to the agriculture sector. The VanEck Agribusiness ETF (MOO), for instance, offers access to a range of businesses, investing in companies that derive at least 50% of their revenues from agriculture. When selecting an ETF, investors should carefully consider the management fees and the performance of the index the fund tracks.

There are also ETFs that focus on commodities, such as the Teucrium Soybean ETF (SOYB) and the Invesco DB Agriculture ETF (DBA). These ETFs invest in agricultural commodities like soybeans, corn, wheat, and sugar, rather than stocks of companies in the farming sector.

Benefits of Mutual Funds and ETFs

Mutual funds and ETFs offer several advantages for investors interested in the farming sector:

• Diversification: These investment vehicles provide exposure to a broad range of companies or commodities, reducing the risk associated with investing in a single farm or company.
• Lower minimum investment: Mutual funds and ETFs typically have lower minimum investment requirements compared to other options like buying a farm or investing in private equity funds.
• Professional management: Mutual funds and ETFs are managed by investment professionals, who make decisions about which stocks or commodities to include in the fund, taking some of the burden off individual investors.
• Liquidity: Shares of mutual funds and ETFs can typically be easily bought and sold on stock exchanges, providing investors with greater flexibility and access to their money.

Risks and Drawbacks

While mutual funds and ETFs offer several benefits, there are also some risks and drawbacks to consider:

• Fees: These investment vehicles often come with management fees, which can eat into an investor's returns.
• Lack of control: Investors in mutual funds and ETFs do not have control over the specific stocks or commodities included in the fund, which may not align with their values or investment goals.
• Potential for underperformance: While the farming sector has historically provided strong returns, there is no guarantee that this will continue. The performance of mutual funds and ETFs is dependent on the underlying stocks or commodities, which may underperform compared to other sectors or investment options.

In conclusion, mutual funds and ETFs offer a great opportunity for investors to gain exposure to the farming sector and benefit from the expected growth in food demand. However, as with any investment, it is important to carefully consider the risks and potential drawbacks before committing capital.

Frequently asked questions