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March 11, 2020

What Are The Pros And Cons Of Agriculture Stocks?

Interest in investing in agriculture is a growing trend, which is illustrated in part by an increasing number of articles on the advantages of investing in stocks of publicly-traded companies in the farm and food sectors. It is commonplace for these articles to tout the benefits of investing in agriculture by quoting popular aphorisms such as “buy land; they aren’t making any more of it” and by highlighting the need to boost food production globally to feed a growing population. It is important to consider how one chooses to invest in agriculture.

While investing in stocks of agricultural companies can provide investors exposure to the macroeconomic benefits of the U.S. equities market, it can also subject them to non-agricultural risks contained within the broader market. More importantly, these stocks may only provide tangential exposure to agriculture and land values without accessing the ground level benefits of direct investments in land and individual farming operations.

Pros of Agriculture Stocks

Agricultural stocks give an investor access to some of the largest companies in the agricultural industry and provide high-level exposure to the industry. These investment vehicles allow an individual to capture high-level trends like the potential benefits of farm technology improvements with a stock like John Deere (DE) or Dow Chemical Company (DD).

Another potential benefit could be a large aggregation of assets in a company like Gladstone Land (LAND) with its broad exposure to farmland. An investment in Tyson (TSN) can provide an investor exposure to an operating business that produces food, while one in Archer Daniels Midland (ADM) can provide exposure to multinational grain trading and logistics. All of these companies provide the ability to take part in food production, but they lack certain qualities as well.

Cons of Agriculture Stocks

Individual agriculture stocks have some but not all of the protections offered by direct investments in farmland or farming. One of the benefits frequently mentioned about investing in farmland is the lack of correlation to other asset types. This means that if the stock market is performing poorly, the land market will feel little effect, while another assets like the housing market might feel a large effect.

Some articles say that agriculture stocks are, themselves, not as correlated to the broader market as other stocks. However, simply by investing in the stock market itself, one is exposed to the broader market trends. Generally, if the broader market suffers, so should individual stocks within it.

Owning the stocks of large companies also limits investors from choosing individual assets. For instance, if one believes that almonds will perform well over the next 5-10 years, the choices are extremely limited to invest in almond production. Further, an investment in a grain company will also expose an investor to the movement and processing costs of that grain instead of just the rent from the production of the grain and the appreciation of the land that produces it. Most agriculture stocks are like this - there is only a tangential link to the actual growing of the crops.

A New Option For Investing In Farmland

AcreTrader provides a new way for individuals to invest directly in farms and farmland and to take advantage of the missing pieces in other agriculture investments. By having direct ownership of the land, AcreTrader investors can capture diversification benefits that one might lose by investing in agriculture stocks.

These benefits can include: non-correlation to several major asset classes, lower volatility of returns, and the ability to diversify your own farmland holdings by location, crop type, and yield style. Individual properties can give investors exposure to the production of almonds, cotton, rice, and many other crops. Further, farmland investments can generate passive income and are not part of the larger stock market.

Previously, purchasing farmland as an investment was difficult due to the amount of knowledge required to identity the value of farmland, the large amount of capital required to purchase a whole farm, continuous management of the farming operation, and more. Now, investors have a vast number of professionally vetted options for gaining exposure to this alternative asset in minutes, online.

To learn more about how investing in farmland can be an advantage to you, contact us here.

Note: The information above is not intended as investment advice. Past performance is no guarantee of future results. For additional risk disclosures regarding farmland investing and the risks of investing on AcreTrader, please see individual farm offering pages as well as our terms and conditions.