Investing in farmland can take many forms, including buying related stocks, or even farmland REITs. That’s contrary to what many people might think: That investing in farmland or agriculture may involve owning farmland and operating a farm.
Many investors overlook this business sector when deciding where to put their money because they don’t see themselves toiling the land. But there are various options to invest in agriculture without being a farmer.
Why Invest in Farmland?
Investing in farmland or the agriculture sector is more than just owning some of that farmland and working the land. Agriculture can be an alternative investment that diversifies an investor’s portfolio. Investors can get exposure to agriculture and farming by investing in businesses involved in any part of the farming process, from the seeds in the ground to the distribution of products to grocery stores.
While there’s no guarantee that growth will occur in the space during the years ahead, it may be helpful for investors to get a feel for the soil, so to speak, before planting an investment.
4 Ways to Invest in Farmland
There are a handful of key ways to invest in farmland, including through stocks, exchange-traded funds (ETFs), and REITs.
1. Agriculture Stocks
Investors can put money into various publicly-traded companies that provide services in the farming industry. These agribusiness firms range from those involved in actual crop production — though many crop producers are privately held — to companies in the farming support businesses. The farming support businesses include companies that make fertilizer and seeds, manufacture farming equipment, and process and distribute crops.
Companies in the agriculture industry include, but are not limited to:
• Archer Daniels Midland Company (ADM) : A large food processing and commodities trading firm
• Deere & Company (DE) : Known as John Deere, this company manufactures agricultural machinery and heavy equipment
• Corteva, Inc. (CTVA) : An agricultural chemical, fertilizer, and seed company
• The Mosaic Company (MOS) : A large company that produces fertilizer and seeds
• AGCO Corporation (AGCO) : An industrial company that’s perhaps best known for selling tractors.
💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).
2. Agriculture ETFs and Mutual Funds
Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to the agricultural industry. Agriculture-focused mutual funds and ETFs invest in a basket of farming stocks, commodities, and related assets, allowing investors to diversify farming exposure.
3. Farm REITs
Farm and agricultural real estate investment trusts (REITs) own farmland and lease it to tenants who do the actual farming. REITs that invest in farmland can be a good option for investors who want exposure to farmland without actually owning a farm.
This type of investment can provide investors with various benefits. For example, a REIT is a type of liquid asset, meaning an investor can quickly sell the investment on the stock market. In contrast, if an investor were actually to own farmland outright, trying to sell the land could be a drawn-out and complex process. Other benefits include regular dividend payments and geographical and crop diversification.
4. Commodities
Agricultural commodities are the products produced by farms, like corn, soybeans, and wheat. Usually, this is done by trading futures contracts, though large investors may actually purchase and sell the physical commodities.
Trading commodities can be a profitable, though risky, endeavor. Investors who trade commodities look to take advantage of the market’s volatility for short-term gains. Commodity trading can be risky, especially for a novice investor. ETFs with exposure to commodities may be better for investors with lower risk tolerance.
Recommended: Why Is It Risky to Invest in Commodities?
Alternative investments,
now for the rest of us.
Start trading funds that include commodities, private credit, real estate, venture capital, and more.
Benefits and Risks of Investing in Agriculture
Investing in farmland and agriculture has its pros and cons. Here are some of the benefits and risks investors should consider.
Benefits
One of the significant benefits of agriculture investments is that people always need to eat, so there will usually be some demand support for businesses in the industry. Because of this, some investors view the sector as somewhat recession-proof (at least parts of it), and potentially, a good way to diversify a portfolio.
Another benefit is that farmland REITs and certain agriculture stocks can provide passive income through regular dividend payouts. Additionally, farmland investments can provide a hedge against rising inflation.
Risks
The agricultural and farming sector can be fickle, as it’s subject to various risk factors that can impact investments. Uncertainties stemming from weather to government policies to the global commodities markets can cause volatile swings in prices and income that affect investments in the sector.
Here are some risks facing agricultural investments:
• Production risk: Major weather events, crop diseases, and other factors can affect the quantity and quality of commodities produced.
• Market risk: The global markets for commodities can affect farming and agricultural business as prices can swing wildly, making crop production and agribusiness demand uncertain.
• Financial risk: Farms and related businesses often use debt to fund operations, so rising interest rates and credit tightening can hinder companies in the industry.
• Regulatory risk: Changes in taxes, regulations, subsidies, and other government actions can impact agricultural businesses and investments.
The Takeaway
Investors who want to invest in the agriculture sector don’t necessarily need to buy a farm. Several investment vehicles can fit their needs to get exposure to farming. Farmland REITs, agribusiness stocks, and farming and commodity ETFs can be options to build wealth in the farm business.
While investing in farmland may have some advantages, it has its risks, too – which investors should take note of before making any investments. If you’re interested in adding an alternative investment, like farmland, to your portfolio, it may be a good idea to speak with a financial professional for guidance.
Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.
FAQ
Is farmland a good investment?
Farmland might be a good investment, as agricultural investments can help diversify a portfolio. Depending on what areas of the agriculture business you invest in, the assets can produce steady income and long-term capital gains. These investments do have risks, too, however.
Is farmland a risky investment?
Farmland can be a risky investment, as it faces risks from all sorts of directions – weather, government regulation, global commodities markets, and more.
Is farmland recession-proof?
A farmland investment might be called recession-proof, and that may be true to a degree as there’s likely always going to be a base level of demand for the sector’s products (people need to eat!). But like any other sector, a recession would likely lead to a significant downturn in the agricultural space.
How profitable is farmland?
How profitable farmland investments ultimately are depends on the whims of the markets, and numerous other factors, including the weather, global demand, and even consumer tastes.
Photo credit: iStock/PeopleImages
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN-Q224-1838708-V1