This is a guest post by Liquid, the author of Freedom 35 Blog. He is an avid investor of alternative asset classes such as farmland.
Food is an important part of our culture. Since agriculture is so ingrained in our lives it’s only natural that it should also be a part of our investment strategy.
Why Invest in Farmland?
Inflation hedging is the main reason why many investors are looking at agriculture. It’s another way to fight the higher cost of living. And unlike gold, which is also a hedge against inflation, farms have the added benefit to actually be productive and generate income.
Farmland also tends to be more stable (less volatile) than the stock market in general, and unlike houses or apartments they aren’t making any more farms.
In fact the supply of farmland has declined over time because of changes in the global climate as well as urbanization, since there is less room to farm when cities expand.
Farmland values have soared across the U.S. over time. For example, the average price of farms in Iowa ten years ago was $3,000 per acre. Today, the average price there has grown to $8,000 per acre… That’s a compound annual growth rate of over 10% a year.
Many famous investors such as multi-billionaire George Soros are big fans of farmland and agriculture. American businessman, investor and author, Jim Rogers, is also very bullish on farmland. He believes agriculture will be the king of the commodity hill throughout the next couple of decades.
As developing countries continue to prosper and expand their appetite for a middle class diet, providing them with enough food will become an important world wide issue.
How To Invest in Farmland & Agriculture
There are many ways for investors to get a piece of the agriculture sector. The most convenient way is to invest indirectly via the stock market. There are a number of high quality stocks and ETFs that track the farming landscape.
One common strategy to take advantage of farmland is to invest in the general agricultural space such as buying shares of agricultural suppliers such as:
- Farm equipment manufacturer Deere & Company (DE)
- Large seed producer Monsanto (MON)
- Fertilizer producer Potash Corp. (POT)
On average, these types of suppliers to the farming industry have returned more than 100% profit to their shareholders over the past 10 years.
Note from Ben at Sure Dividend: In addition to the 3 agricultural businesses above, Dividend Aristocrat Archer-Daniels-Midland (ADM) is also a compelling choice for agricultural exposure. Both Deere & Company and Archer-Daniels-Midland rank very well using The 8 Rules of Dividend Investing.
There are many other companies we can invest in that are also very profitable like Agrium (AGU), Mosaic (MOS), and CF Industries (CF).Be sure to research and do your own due diligence on any stock before buying it.
A popular way to reduce risk in a portfolio is to diversify, so if you wanted to invest $5,000 for example, then you can perhaps choose 5 names in the agricultural space and invest $1,000 into each.
Another common way to invest in farmland with a diversified approach is through ETFs. The Market Vectors Global Agribusiness ETF (MOO) for example, is an agribusiness ETF. It aims to replicate as closely as possible the price and yield performance of the DAXglobal Agribusiness Index (DXAG), which is an index consisting of publicly traded companies that deal in the business of farming and agriculture.
To diversify outside of North America, Adecoagro S.A. (AGRO) may be a good option. It’s a holding company that engages in agricultural and agro-industrial activities such as farming rice, and developing sugar and ethanol from crops. Adecoagro also produces dairy products such as raw milk and it leases pasture land to cattle farmers in Argentina and leases its coffee plantation in Rio de Janeiro to a third party.
Farmland is quite the hot commodity these days. Compared to other types of investments the agriculture industry appears to be a very attractive long-term opportunity, and there is a good selection stocks and ETFs that could take advantage of that.