How To Profit From Farms, Without Buying Farmland

Farmlands are a stable asset that continues producing income even during economic turmoil. People still have to eat whether the economy's up, down, or sideways. Also, land values increase as crop prices rise; hence farmlands are seen as recession-proof. 

There are several ways to gain exposure to the sector without sinking money into a farm. First, here are a few reasons investors might want to consider allocating farmland over other asset classes, such as real estate or gold.

According to FarmTogether, farmland has returned an average of 10.74% since 1991, higher than equities or real estate in the same period. Inflation hit a 40-year high at 9.1% in 2022, whereas farmland is up 14% this year. Historically, farmland values haven’t dropped when the stock market suffers massive losses. 

The costs of operating or leasing a farm are often substantial. In 2021, the average price per acre for farmland in the U.S. was $4,420. Still, the good news is investors can gain exposure to the sector without sinking money into a farm.

An investor who wants to replicate the returns of owning farmland can purchase a farmland REIT. Those seeking wider exposure can invest equity in crop producers, supporting firms, or ETFs. Those looking to profit from price changes in agricultural commodities have futures contracts, agricultural ETFs, and ETNs.

There are also potential drawbacks, including lack of liquidity, which can make it difficult to exit if needed; environmental factors outside of your control, such as climate or pests and diseases that affect crop returns; and government factors, such as new regulations and the expiration of subsidies for agricultural real estate. Fortunately, investors can mitigate these risks with due diligence.

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