Investors can diversify their exposure to the agriculture industry by using exchange-traded funds (ETFs). For example, the Market Vectors Agribusiness ETF (MOO) provides exposure to a diverse collection of industries by investing in companies that generate at least 50% of their revenue from agriculture. The Teucrium Soybean ETF is the best-performing agricultural commodity ETF, based on performance through 2020. (SOYB).
Investors should carefully analyze each ETF’s management fees as well as the performance of the index that the fund tracks, just as they should with any other type of ETF.
Are farmland REITs available?
Farmland REITs are a newer concept, with only three funds currently available: Gladstone Land (NASDAQ: LAND), Farmland Partners (NYSE: FPI), and American Farmland Company (NYSE ticker symbol AFCO).
What motivates Bill Gates to invest in farmland?
The reasons for Gates’ farming investments could be numerous. Farmland may play a substantial part in any portfolio, thanks to its critical position in the global food supply and its historically high financial performance. It’s now easier than ever to invest, even if you’re not one of the world’s wealthiest men.
Is it a good time to buy farmland right now?
Financial analysts are watching with bated breath to see if significant inflation, as many fear, materializes as the economy begins to free up post-Covid. While the Fed tries to reassure investors that inflation will peak at 2.4 percent and then decline, many investors are wondering how they should prepare their portfolios for the worst-case scenario.
In the midst of this uncertainty, it’s important to realize that traditional stocks and bonds aren’t the only options. Farmland in the United States is an alternate investment worth investigating. Continue reading to learn five reasons why now is the best moment to invest in agriculture.
Farmland is a natural hedge against inflation
Farmland, like gold, is seen as a natural inflation hedge by many investors. Historically, the value of US farmland has been roughly 70% associated with the Consumer Price Index (CPI). This is due in large part to the fact that rises in crop prices promote inflation because food accounts for such a large portion of a typical household’s income.
Investors in farmland earn two types of returns: passive income through periodic rental and crop payments, and price gain when the property is sold. Investing in farmland is a natural inflation hedge because rising crop prices equal bigger payments to investors. Higher crop prices improve the value of the underlying land, which leads to more strong values when the asset is sold, which is a bonus for investors.
Commodity prices have surged in recent weeks, including corn, soybeans, and wheat. Strong export demand from China and dry weather have pushed these basics to their highest price in more than six years. Many investors are seeing this as a hint that it’s time to start preparing their investments for an inflationary climate. It’s also a good time for farmers and farmland investors in the United States.
Farmland provides attractive returns paired with low volatility
Farmland is a smart investment not just in an inflationary economy, but it also produces strong average yearly returns. Farmland delivered an average annual return of approximately 11% between 1992 and 2020, including income and price appreciation. In comparison, over the same time span, the stock market returned only 7.8% on average, while gold (another alternative investment widely used to hedge against inflation) returned 6.0 percent.
On a risk-adjusted basis, farmland appears even better. The stock market’s volatility was 16.7% throughout this time period, while gold was not far behind at 14.8 percent. Farmland has a volatility of 6.8%, making it the most comparable asset to high-quality US bonds (volatility of 4.5 percent ). The Sharpe Ratio is a popular risk-adjusted return metric, with lower Sharpe Ratios indicating lower risk-adjusted returns (and vice versa). Farmland had a Sharpe Ratio of 1.19, whilst bonds had a Sharpe Ratio of 0.64, US stocks had a Sharpe Ratio of 0.31, and gold had a Sharpe Ratio of 0.22.
Because of its high yields and low volatility, US farmland is a superb long-term investment. If you put $100 into US farmland on December 31, 1991, it would be worth $1,981 by December 31, 2020 (using the NCREIF Farmland Index as a proxy). A $100 investment in the stock market, on the other hand, would only be worth $901 during the same time period.
Farmland is a good source of passive income
The fact that farmland provides a fantastic source of passive income is a third reason to seriously consider investing in it. Farmland returns include rental and crop payments from the farmers who operate the land, as mentioned previously. Because the investor does not have to put in any time or effort to earn this income stream, it is considered passive.
For a variety of reasons, passive income streams are beneficial. Passive income allows an investor to grow their money without having to work additional hours. Passive income streams also help to diversify your income and make your cash flow more resilient to shocks such as job loss. Passive income investments are also appealing to persons on a fixed income, such as pensioners, because they reduce the amount of money that must be withdrawn from investment accounts.
Farmland is uncorrelated with other asset classes
Investing in farms not only diversifies an investor’s income sources, but it also diversifies their total portfolio in a good way. Farmland is uncorrelated with key asset classes such as stocks, bonds, real estate, and gold, as shown in the chart below. This means that shocks that affect the performance of widely held, publicly traded assets do not affect farmland investments in the same way.
Diversification investing in many uncorrelated asset classes is a core concept of current portfolio theory for surviving shocks and developing long-term prosperity. While many investors have traditionally depended on a “60/40” portfolio to decrease volatility while obtaining good returns (with 60% of investments in stocks and 40% in high-quality bonds), many analysts say it’s time to reconsider that strategy. Bond yields are at all-time lows, and many investors are concerned that the stock market is overheating. Adding alternative investments to the mix, such as farms, can help to reduce volatility while keeping profits.
Technology-enabled platforms make farmland investing easy
The sixth reason to consider including farmland in your portfolio is that technology-enabled investment platforms are making it easier than ever before. Due to significant hurdles to entry, such as opaque markets and hefty minimum investments, farmland investing was restricted to a tiny universe of institutional investors and ultra-high net worth individuals for a long time. Platforms like FarmTogether, on the other hand, are changing that.
FarmTogether’s site offers investors a complete end-to-end solution for browsing and selecting assets, reviewing due diligence papers, signing legal documents, and continuously monitoring their investments. FarmTogether’s staff of seasoned investment specialists ensures that investors on the site have access to high-quality, carefully curated assets. Finally, significant investment thresholds are obsolete, with investors able to get started with as low as $15,000.
What are the finest farmland investment options?
Gladstone Land Partners is a REIT (real estate investment trust) that is publicly traded.
Farmland and farm-related properties are owned by this trust all throughout the United States. They lease their land to farmers with whom they have no connections.
They currently possess 127 farms spread throughout 13 states, totaling over 94,000 acres of land.
This corporation has a variety of farm-related structures, including cooling facilities, processing buildings, packing facilities, and distribution centers, in addition to land.
Bill Gates owns how much farmland?
Bill Gates may be a computer billionaire, but he and his divorcing wife Melinda French Gates are also two of the country’s largest private farmland owners.
Some environmentalists and farmers have criticized recent publications showing the size of Gates’ land ownership, claiming that there appears to be a conflict between his public environmental support and his personal investing plan.
Others have argued that the billionaire’s farmland purchases are part of his larger climate efforts. Bill Gates has stated that there is no link in either direction. However, the new information about the purchases and the debate surrounding them serve as a stark reminder that billionaires can stash their vast fortunes in a variety of unexpected places, and that there is frequently a conflict between their personal investments and their more widely publicized philanthropic work.
According to NBC News, the Gateses have purchased more than 269,000 acres of farmland in the United States in the last ten years. Farmland in nearly 20 states has been purchased with the help of the Washington-based firm Cascade Investment and a variety of shell firms, including carrots, soybeans, and potatoes (some of which wind up in McDonald’s French fries). These revelations come after the Land Report, an agribusiness publication, claimed in January that the tech billionaire and his wife were the country’s top private farmland owners. According to NBC News, Gates owns the most acreage in the United States.
Although nearly 300,000 acres is a large amount of property for a single family or private individual to hold, it is still a small portion of the United States’ estimated 911 million acres of farmland. While Gates looks to be one of the country’s largest private farmland owners, he is far from alone in his desire to include farms in his investment portfolio.
Other huge financial organizations have also attempted to purchase agricultural land, according to Mother Jones, even if they have no participation in day-to-day farming operations. According to Land Report, which named Gates the top private farm owner, numerous other families control well over 100,000 acres. According to the US Department of Agriculture, around 30% of US farmland is rented out by landlords who aren’t involved in farming, such as Gates.
As a result, it’s not unexpected that Bill Gates, one of the world’s wealthiest people, makes investments to benefit his personal financial interests.
“It’s a good investment,” says Johnathan Hladik, policy director for the Center on Rural Affairs and a farmer. “It’s smart, it’s steady, and it appears to be increasing over the last few decades.”
Nonetheless, Gates’ landholdings have gotten a lot of attention since the billionaire has tried to establish a reputation for himself as a climate activist. Gates is presently marketing a book on the issue and has established himself and the Gates Foundation as thought leaders on how agriculture should evolve in the future, particularly in terms of technology.
After buying farmland nearby, Georgia farmer and environmentalist John Quarterman told NBC that while he expected Gates to support more sustainable methods, his acquisition of that area didn’t change much. According to the National Farmers Union, the growing number of non-farmer owners like Gates buying up farmland and renting it out could lead to environmentally harmful practices: According to the organization, short-term farmers who rent land are less likely to pursue long-term conservation measures, while non-farmer owners lack the experience to “understand the necessity of safeguarding natural resources.”
Others have proposed the reverse hypothesis: that Gates’ enormous farming investment is linked to his other climate initiatives. For example, Newsweek recently speculated that his property ownership “may be linked to his investments in climate change agricultural innovations and Impossible Foods,” though it didn’t provide much evidence to back up that claim.
While Bill Gates has previously attempted to segregate his climate-related Gates Foundation work from his private investments, Cascade Investment has defended its sustainability track record.
In response to the criticism, a Cascade Investment spokeswoman stated that the company had enrolled all of its acreage in a program run by Leading Harvest, a charity that publishes sustainability criteria focused on biodiversity, conservation, and soil. The spokeswoman told Recode, “Cascade wants to continue to review and adopt new measures that will improve the overall sustainability of its farming portfolio.”
Gates and other affluent farmland buyers have been chastised for contributing to the concentration of land ownership in general. Fewer people end up owning their own acreage since they can usually make larger bids than what local farmers can afford. This results in “a larger drive for monocultures and more intense industrial farming techniques to create greater returns,” as University of New Mexico professor Nick Estes wrote for the Guardian in April, while Indigenous people and small farmers “are more cautious with the use of land.”
The concerns at hand go beyond what Bill Gates has purchased in terms of land. “People tend to go for either the rescue tale he’s doing this to save the globe or the opposite it’s just another selfish landowner,” Bruce Sherrick, an agriculture professor at the University of Illinois Urbana Champaign, told Recode. Gates-owned farms, according to Sherrick, who serves on the board of Leading Harvest, are taking a positive step by adhering to Leading Harvest’s criteria.
Gates has made a point of separating his climate activism from his investments. When asked about his land fortune at a Reddit AMA in March, the billionaire appeared to try to divorce his climate activism from his personal assets. “This is what my investing group decided to undertake.” It has nothing to do with the weather. “Agriculture is vital,” he wrote in the post, before going on to say something more generic about deforestation and biofuels.
But, no matter what Gates wishes, many onlookers can’t seem to separate the two. They see Bill Gates as both an environmentalist and a commercial agricultural owner, and they believe the two positions are intertwined, even if Gates does not see them as such.
With no money, how can I acquire a farm?
You may be surprised to learn that you can purchase a farm with no money down. The FSA Direct Farm Ownership Loan makes it possible. You don’t need any agricultural experience or money to get started. They provide you everything you need to get started as a farmer.
What is an agriculture exchange-traded fund (ETF)?
Agricultural commodities exchange-traded funds (ETFs) are funds that invest in firms that produce agricultural products like grains, dairy, and animals. These funds might invest in a variety of commodities or concentrate on a single one.