How to Invest In Farming Without Owning a Farm

Investing in farming can be a good strategic move. No matter what is happening in the overall economy, people still have to eat. Because of this, many investors regard agriculture and farming investments as being relatively recession-proof. Further, as the world’s population increases, farming will play an increasingly important role in sustaining global societies.

That said, literally buying a farm isn’t a feasible strategy for the average investor. It requires a large commitment of time and capital and the ongoing costs are substantial. Fortunately, investors have many other means to gain exposure to the sector.

Key Takeaways

• Investing in agriculture means putting your money behind food and crop production, processing, and distribution.
• As the world needs to feed a growing population with less land, interest in agriculture production as an investment has grown.
• There are several ways to invest indirectly in agriculture, from farm REITs to agricultural ETFs to the commodities markets.

Farm REITs

The closest that an investor can get to owning a farm without actually buying one is by investing in a farming-focused real estate investment trust (REIT). Some examples include Farmland Partners Inc. (FPI) and Gladstone Land Corporation (LAND).

These REITs typically purchase farmland and then lease it to farmers. Farmland REITs offer many benefits. For one thing, they provide more diversification than investing in a single farm, as they give investors an interest in a number of farms across a wide geographic area.

Farmland REITs offer greater liquidity than owning physical farmland, as shares in most of these REITs can be quickly sold on stock exchanges.

Farmland REITs also decrease the amount of capital needed to invest in farmland, as a minimum investment is just the price of one REIT share.

Agriculture Stocks

Investors have access to an assortment of publicly traded companies that operate in the farming sector. These companies include some that directly grow and produce crops and others working in industries that support farmers.

Crop Production

One potential investment opportunity is in companies that plant, grow, and harvest crops. Many of these firms also engage in support activities like distribution, processing, and packaging.

There are a limited number of publicly traded crop production firms. They include Fresh Del Monte Produce Inc. (FDP), Adecoagro S.A. (AGRO), and Cresud (CRESY).

Supporting Industries

Investors can buy shares in a variety of industries that support farming. Some of the largest industries are companies that sell fertilizer and seeds, farm equipment manufacturers, and crop distributors and processors.

1. Fertilizer and seeds. A potential investor will want to determine how much of each firm’s revenue is derived from agriculture, as some also provide services to other sectors. Among the publicly traded companies selling fertilizer or seeds are Nutrien Limited (NTR) and The Mosaic Co. (MOS).
2. Equipment. Modern farming is an equipment-intensive activity, so investors can gain exposure to the sector by making investments in equipment manufacturers with an agricultural focus. Two firms heavily involved in farming equipment are Deere & Co. (DE) and AGCO Corp. (AGCO).
3. Distribution and processing. Some companies provide the infrastructure that moves crops from the farm to the local grocery store. Among those that transport, process, and distribute crops are Archer Daniels Midland Co. (ADM) and Bunge Limited (BG). As with equipment manufacturers, some of these distributors only derive a portion of their revenues from agriculture-related activities.

Ag ETFs

Exchange-traded funds (ETFs) are a good tool for investors to gain diversified exposure to the agriculture sector. The VanEck Agribusiness ETF (MOO), for example, offers access to a diversified set of businesses, investing in companies that derive at least 50% of their revenues from agriculture.

The best-performing agricultural commodity ETF lately is Teucrium Soybean ETF (SOYB), up more than 46% in the five-year period that ended in March 2024.

Like investing in any type of ETF, investors should carefully consider each ETF’s management fees and the performance of the index that the fund tracks.

Ag Mutual Funds

There are mutual funds that invest in the farming and agriculture industries. If this sounds appealing, you should first determine whether the fund invests in agriculture-related firms or invests in commodities.

Also, keep in mind that many of these funds have exposure to other sectors in addition to agriculture. So if you’re more interested in making a pure farming or agriculture investment, you’re likely better off going with other types of asset classes.

An example of a mutual fund with exposure to agricultural firms or commodities is the Fidelity Global Commodity Stock Fund (FFGCX).

When investing in mutual funds, investors need to consider fees and past performance and compare these to those of ETFs, for example.

Soft Commodities

Risk-taking investors may be intrigued by the idea of directly investing in commodities, hoping to take advantage of price changes in the marketplace. While you can gain exposure to commodities just by purchasing futures contracts, there are also ETFs and exchange-traded notes (ETNs) that provide diverse access to commodities.

Some ETFs and ETNs give investors exposure to a specific commodity. Examples include:

• Teucrium Corn Fund (CORN)
• iPath Livestock Subindex (COW)
• IPath Coffee Subindex ETN (JO)
• MLCX Grains Index (GRU)
• IPath Cocoa Subindex ETN (NIB)
• iPath Sugar Subindex (SGG)

Other investments offer a basket of commodities. As an example of the latter, the Invesco DB Agriculture ETF (DBA) invests in corn, wheat, soybeans, and sugar futures contracts.

There’s also the iPath Bloomberg Agriculture Subindex ETN (JJA), which invests in corn, wheat, soybeans, sugar, coffee, and cotton futures contracts, and the Rogers International Commodity Agriculture ETN (RJA), which invests in a basket of 20 agricultural commodity futures contracts.

Is Investing In Farming Risky?

Food is a universal necessity. Many see investing in food as the ultimate safe haven.

Nevertheless, farming is and always has been a risky business. Food prices and production levels are volatile and rise and fall with many factors from local weather conditions to international political events. The most recent example is the great increase in food prices overall due to the combined effects of the COVID-19 pandemic, the Russia-Ukraine war, and the Red Sea attacks.

Is the Number of Farms in the U.S. Declining?

The number of farms in the U.S. has been declining since 1935 but the rate of decline has been slowing since the 1980s. According to the U.S. Department of Agriculture, there were 1.89 million farms in the U.S. in 2023, down 7% since 2017.

Where Is the World’s Biggest Farm?

The world’s biggest farm in terms of acreage is located in Heilongjiang, China. This mega-farm is said to be 22,500,000 acres in size. It specializes in dairy products and has 100,000 cows.

The Bottom Line

Investors looking to invest in the farming sector have plenty of alternatives to actually purchasing a farm. Investors who hope to most closely replicate the returns of owning farmland can purchase a farmland REIT. For those looking for wider exposure to the agriculture sector, making equity investments in crop producers, supporting firms or ETFs could be their best option. And those looking to profit from price changes in agricultural commodities have a range of futures contracts, ETFs, and ETNs at their disposal. With all of these options, investors should be able to find an investment vehicle and strategy that fits their needs.

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