Why Now Might Be the Right Time to Invest in Agriculture

As we’ve seen recently, and will likely continue in the days and weeks ahead, much has been written about “food security” due to disruptions impacting almost one-third of the world’s grain supply that normally comes from Russia and Ukraine. Simple “food stories” have become significant “business stories” - and that’s prompting a lot of interest and attention towards investing in agriculture, what many consider to be the most lucrative asset class.

There are many different ways to invest and gain exposure to the agriculture industry.

1. Agriculture investors often buy individual stocks for publicly traded companies, like Archer Daniels Midland.
2. They can buy mutual funds or ETFs (Exchange Traded Funds) that track multiple agricultural companies and can serve as agriculture investments.
3. Investors can also buy farmland REITs (Real Estate Investment Trusts).

Each type of agricultural investment offers shareholders a return based on the bottom line of the company – but these asset classes are not the same as owning agricultural land. 

With farming sector equities, a wide range of factors can water down a company’s profits before investors see a return from their decision to invest in agriculture. A company like Archer Daniels Midland has almost 40,000 employees (with many layers of management, administrative staff, and overhead).

Investment decisions at these companies follow long-term strategic plans, which include M&A (merger and acquisition) activities or divestitures that can create losses for investors. Geopolitical issues can affect commodity prices and depress stock prices for entire sectors, regardless of an individual company’s performance.

The bottom line is this – there are a lot of items beyond an investor’s control that can impact the overall profits of agricultural investments in specific companies in the agriculture sector. Ultimately the investor's exposure ends up being much different and a less controllable investment experience from owning a real farm.  

Why farmland is one of the world’s most rewarding assets

About 10,000 years ago, people transitioned from the nomadic hunter-gatherer lifestyle. The ability to domesticate plants and animals enabled families and larger groups to build stable communities. Since that time, agriculture has remained a cornerstone of human life. Investors who add agriculture to their portfolio gain access to a demographic trend that is inevitable – which is the continued population growth of the world.

Here are three reasons why farmland belongs in every investment portfolio:

• Farmland beats other investments like equities and even gold
• Farmland offers a hedge against inflation
• And farmland does this with lower volatility than almost any other asset class

Agricultural investments bring valuable diversification to any portfolio. They resist inflation. They give exposure to the global economy and food production.  They’re less volatile than traditional growth stocks - yet they offer considerable upside and stable growth, even during periods of stagnating or negative economic growth. They're even recession-proof.

During a recession, people travel less often. They usually reduce spending on discretionary items and luxury goods – but people still need to buy food, with a growing world population and subsequent increased demand, and that unavoidable fact will never change.

How can investors capitalize on this predictable trend and invest in agriculture? There are a few ways of investing, and one way is to buy “an entire farm.” Like most asset classes, the value of farmland goes up as its scarcity increases. Farmland tends to become more productive over time, thanks to technology and infrastructure.

But buying an entire farm is expensive. It requires a lot of equipment and know-how (which is often built up over generations) to succeed. There’s also the matter of location – which every real estate investor knows is the key to success.

An easy way to invest in agricultural land

There is an easier way to earn financial returns by owning farmland assets – and that is the value proposition offered by Farmfolio. Farmfolio owns land in some of the most productive agricultural areas on the planet. This land is subdivided into parcels called LOTs (Land Ownership Titles) which are then sold to individual investors.

After Farmfolio has identified and sold the prime farmland to investors, an independent Farm Owners Association (FOA) hires a third-party team that takes care of the entire seed-to-shelf process, including land development, farm management, planting, harvesting, and selling.

The FOA is a cooperative that includes all landowners. It acts much like a Homeowners Association (HOA). The FOA continuously audits the onsite farmers and the third-party management team that works the farm on their performance such as crop production. The FOA also brokers and manages sale and distribution agreements with local packhouses to buy crops at price points that deliver consistent passive income to LOT owners.

Investors that purchase land from Farmfolio get the land title in their name and land titles can also be put in Individual Retirement Accounts (IRAs). Each landowner becomes a member of their farm’s FOA. At any time, landowners can sell their title or transfer ownership to an heir or beneficiary.

A dedicated FOA administrator keeps each investor informed of their farm’s production through regular harvest income reports. Landowners continue to receive harvest income until they realize land appreciation capital gains by selling their LOT through Farmfolio’s brokerage platform. 

Ongoing passive income + peace of mind

It is this unique combination that farmland offers of ongoing income streams from the sale of crops (which you can consider your harvest returns) – plus significant long-term capital appreciation from owning land on a productive farm that is the key to successful farmland investing. But the ultimate value proposition comes from working with trusted business partners that can manage all of the important details in a seamless and productive manner and their past performance proves it. Farmfolio and its highly experienced FOAs are those trusted partners. 

Start investing in agricultural land today

Now you know why today might be the right time to invest in agriculture and why it might be a good investment. To learn more about what agricultural products Farmfolio offers, where Farmfolio operates, and how to get started earning harvest returns, please visit our farmland opportunity page.