- Farming is a recession-proof, high-ROI, sustainable investment.
- Market demand, geographical location, regulations and infrastructure are factors to consider before investing in farming.
- Buying farmland, farm REITs, agricultural stocks, ETFs and mutual funds are popular types of farming investments.
- Weather conditions, operational risks and market volatility are the most serious threats to farming investments.
- Setting goals, creating a budget and seeking professional help are the key points of creating a farming investment plan.
The world of investments is evolving rapidly, and farming is one of the sectors affected by this evolution. New types of investments are constantly appearing on the market, and they’re more accessible than ever, depicting farming for what it is — an attractive investment opportunity.
Investment agriculture can be very profitable and produce an above-average return. Nonetheless, there are certain risks associated with it, so the investments have to be carefully thought through.
Learn more about the different types of farming investments, the factors that need to be considered before placing your money and how to invest in farming for optimal returns.
Why Invest in Farming?
Investing in farming comes with various perks, which are also the main reasons why one should consider this type of investment. Firstly, farming is considered a recession-proof investment, or at least more resistant to economic crises than other investments. After all, people have to eat even in times of crisis.
The next reason why investing in farmland is a good choice is the high return on investment (ROI). During the past 20 years, investments in US farmlands have maintained an average ROI of 12.24%, higher than the majority of other investment types.
Finally, farmland investments are sustainable and environmentally friendly. By investing in farming, people can raise awareness and help resolve certain ecological and societal issues. Plus, investing in agriculture is a long-term investment, meaning that investors have more time and opportunities to make an impact.
What Are the Potential Returns and Risks in Farming?
Just like any other investment, farming comes with various potential returns and a set of potential risks. Before you dive into learning how to invest in agriculture and farming, you need to be aware of both the benefits and drawbacks of this investment.
Potential returns include:
- Sales Profits: Farming investments can generate profits from the sales of crops and livestock. The exact return from the sales will depend on various factors such as yield, market demand and current pricing for specific products.
- Capital Appreciation: The value of farmland has a steady appreciation over time, due to population growth and the limited availability of land. Due to the value growth of farmland, investors can expect long-term capital appreciation.
- Incentives and subsidies: By investing in farmland, you may become eligible for tax incentives, subsidies, or another type of financial support.
Potential risks include:
- Weather Risks: The weather is the biggest risk to farming, seeing as it can influence livestock health and crop yields, and thus the profitability of the investment.
- Market Volatility: Just like other investments, farming is susceptible to the volatility of the market. The fluctuations in the market can affect the profit margins and the overall ROI.
- Regulation Risks: All agricultural investments must adhere to regulations that are subject to constant change. Any change in these policies can impact the financial outcome of the investment.
Types of Farming Opportunities to Consider
In this day and age, there are numerous farming opportunities available. Before you decide how to invest in farming, you should get familiar with the various options in the field:
- Organic Farming: In recent years, organic farms have been seeing a lot of success. However, cultivating crops or raising livestock without any chemicals or GMOs requires more time and incurs higher costs.
- Crop Farming: Crop farms specialize in cultivating and harvesting various crops for different purposes. The type of crop will depend on the climate, the soil and the profitability of the crop in question.
- Livestock Farming: Raising livestock for meat or other by-products can be very profitable, as these products sell at a higher price point than most crops. However, the profitability of the investment will depend on the livestock health, feed costs, as well as market demand.
- Niche Farming: Specializing in niche products that cater to specific markets can be very profitable. This type of farming includes raising medicinal plants or exotic fruits and producing specialty products like honey or cheese.
- Agroforestry: A less popular form of farming, agroforestry concerns itself with the cultivation of shrubs and trees, which can then be sold as crops or wood products.
Different Types of Farming Investments
Just as there are different types of farming, there are also different types of investments, and you get to choose the farming investment that’s right for you:
- Farmland — purchasing farmland
- Crops — investing in a farm that cultivates crops
- Cattle — livestock farms are another investment option
- Farming by-products — investing in farms that make products from their yields.
But how to invest in farming carefully and responsibly? Let’s check out some crucial steps below:
Evaluating the Profitability and Growth Potential
Before you make any type of farming investment, whether that’s investing in livestock or a farm REIT, you need to consider the growth potential and the expected profitability. To do so, you’ll need to analyze the performance of previous similar investments, stay informed on market demand and price points for certain products and read up on current and future industry trends.
Assessing the Risks and Challenges Involved
Farming investments are relatively secure, but each investment involves a certain level of risk. Like all other financial decisions, you’ll need to assess the risks of the investment and any possible challenges threatening the agricultural sector. When you’re confident that the risks don’t outweigh the potential benefits, you can proceed with the investment process.
Factors to Consider Before Investing in Farming
Once you’re familiar with the different types of farming and the various investment opportunities, you might feel ready to make your next investment. However, there are a few other factors you need to consider before you invest in farming:
Market Demand and Trends in the Agricultural Sector
Whether you invest in cattle or buy agricultural REITs, you need to ensure there’s market demand for the product you’ve invested in. Look into best-selling agricultural products from previous years and analyze current trends and predictions for the sector. Invest in something that is currently in high demand.
Geographic Location and Suitability for Farming
The success of farming largely depends on the location; some places are more suitable for farming than others due to the climate and the soil. When you invest in farmland, check whether there are successful farms in the area and whether farming has played a part in that location’s history.
Regulatory and Environmental Considerations
Farming is subject to regulations, imposed either by the national or state government. Before you invest, ensure that the farm is not in breach of any of the regulations, as this can lead to fines that prevent the farm from being profitable. Also, it’s always better to invest in environmentally friendly farms that adhere to sustainable practices.
Access to Resources and Infrastructure
Farms require a lot of resources to function properly; make sure that the farmland you’ve invested in has access to all the necessary resources such as power and water, but also the appropriate infrastructure that allows for uninterrupted operations.
Different Ways to Invest in Farming
Farming provides ample investment opportunities. Below, you can read more about the most common types of investments in the farming and agriculture sector:
Direct Investment in Agricultural Land or Farmland
The first and most straightforward investment is buying a farm. After purchasing the land, you can rent it to a farmer and receive rent or a portion of the profits. However, purchasing a farm is a substantial investment, and it could be a while before you see a return.
Farm REITs (real estate investment trusts) allow people to become farmland owners without actually owning any land. When you invest in a farmland REIT, you are essentially buying stocks in a farm.
Investing in Agricultural Commodities or Futures
If you want to know how to invest in agriculture commodities, the easiest way to do this is by purchasing futures contracts. However, there are other investments that provide access to commodities, namely, farmland ETF and ETN. Investing in ETFs is a good way to invest in several companies in the agricultural sector at once. However, ETFs incur management fees, which need to be taken into consideration when investing.
Farming Partnerships or Joint Ventures
In recent years, agricultural partnerships and joint ventures have become quite popular. Partnerships allow them to collaborate with an investor, and they can last infinitely, while joint ventures can consist of more than people and may be limited to a certain amount of time. This is a popular strategy among farmers who want to share the load and cost of running a farm and investors get a chance to receive a share of the profits.
Investing in Agricultural Technology or Equipment
Purchasing agricultural stocks essentially means that you’ve acquired stocks in agricultural companies. The value of the stocks can grow with the development of the company, and you can sell the stocks for profit. Also, there’s the option of investing in an agricultural mutual fund. Many mutual funds invest in the farming industry, but usually in combination with other sectors. Additionally, when investing in mutual funds, you’ll need to consider past performance and fees.
How to Manage the Risks in Farming Investments
Risks are a crucial part of any investment. However, even though you won’t be able to make a risk-free investment, there are ways to manage the risks when investing in farming:
Market Volatility and Price Fluctuations
Trade policies and currency fluctuations can influence the profitability of farming investments. To mitigate these risks farmers should consider forward contracting—securing prices for their crops and livestock in advance—and hedging or using futures contracts to protect the prices against fluctuations. It’s also always a good idea to diversify the product portfolio as a back-up plan.
Weather-Related Risks and Crop Failures
The weather is the biggest challenge in farming; extreme temperatures, storms, floods and droughts can cause significant damage to the crops and impact the quality of the products or reduce the yield. To protect against this risk, farmers should implement crop diversification—the process of making plant crops more resilient to weather fluctuations—and install irrigation systems for droughts and extreme heat.
Farm Management and Operational Risks
The most common operational risks include pest infestations and crop/cattle diseases, labor shortages, equipment malfunction, and poor management. To prevent these risks, farmers need to invest in pest management (sanitation, crop rotation), machinery maintenance, training skilled workers and implementing effective management practices such as financial planning.
Risk Diversification and Risk Management Techniques
Diversifying with different crops and various types of livestock can help farmers reduce their vulnerability and spread the risk across different markets. The process of diversification should also include establishing alternative revenue streams. As for risk management, farmers should get insurance to cover crop failure and unforeseen weather disasters and participate in government programs that offer various risk management resources.
How to Make a Farming Investment Plan
Once you’ve decided that farming investments are a good idea, the next step is to create an investment plan. To do so, you’ll need to go through a few stages described below:
Setting Investment Goals and Objectives
The first thing you need to do when investing is to outline your goals and objectives. Think about what you want to gain from your investment and how soon you want that to happen. When you have a clear goal, you can create a plan for achieving it.
Creating a Budget and Financial Projections
Set a budget for your investments and calculate the anticipated ROI for a specific time frame. Base your projections on market analysis, but leave some room for fluctuation, especially for long-term investments.
Seeking Professional Advice and Consultation
The best way to approach investing is by consulting a professional. They can provide the necessary data on past investment performances, give you a clear picture of the current situation and provide advice on the best course of action.
Where to Find Resources and Support for Farming Investors
When you become a farming investor, it’s good to know that you are not alone. Various resources and tools are available to those who have invested in the farming industry:
Government Programs and Subsidies
The government has programs dedicated to helping farming investors with different aspects of the process. Subsidies in the form of cash payments and tax breaks are also available to people investing in farmland.
Agricultural Research and Educational Institutions
Educational programs and training are available in many agricultural research institutions to help people learn about the best practices in farming and new industry trends. By timely educating investors, research institutions contribute to the growth and prosperity of the farming community.
Industry Associations and Networks
Agricultural associations and networks aim to connect farmers and invite them to share knowledge and collaborate on various incentives. Such associations also advocate for the interests of the farming community.
How Can I Invest in Agriculture Other Than Farming?
Agriculture encompasses a lot of things, and farming is just one of them. For those that want to find alternatives to farming investments, REIT agriculture investments are one of the top choices. People can also invest in an agriculture mutual fund or a farm land ETF, learn how to invest in agricultural commodities or enter the field of agricultural technology.
The opportunities for agriculture investments are many — you just need to find the right one for you!
Which farming is best for income?
Farming gourmet products can provide a steady flow of income. Mushrooms, lavender, cured meats and gourmet cheeses are some of the products that are in high demand and sell for a higher price point.
How to be rich through farming?
Cattle investment is a good strategy for making money from farming. Milk, eggs, meat and all of their by-products are quite profitable. But there are other avenues for making money when raising cattle, such as selling manure or sheep wool.
How to invest money in a farm?
It’s always possible to buy farmland, but there are other, less costly ways to invest in a farm. Farmland REITs are a popular investment, but there are also farm land ETFs, agricultural mutual funds, joint ventures and partnerships, as well as investments in agricultural technology.
Which farming is the best for future?
Organic farming is one of the most promising types of farming due to the rising popularity of both organic crops and animal products. Additionally, organic farms are sustainable and can be very cost-effective.
Which animal farming is most profitable?
Farming beef cattle is considered the most profitable type of animal farming. The animals produce dairy and meat, and farmers often sell or reuse the manure as well. Although it requires more acreage and care, beef cattle farming can be extremely profitable.