Can I Buy Equity in Farms or Invest in Them?

Investing in farmland has become increasingly popular due to its strong performance and long-term viability. In 2011, the farmland market generated a significant 15.16 percent total return according to the National Council of Real Estate Investment Fiduciaries (NCREIF) in Chicago, far outpacing the flat performance of the SP 500 index that year. For many investors, especially Americans, the key challenge lies in finding accessible ways to invest in this lucrative market. This article explores the options available for buying equity in farms or investing in them.

The Easiest Way to Invest in Farming: Farmland Corporations

One of the most straightforward methods for individuals to invest in farmland is through a corporation that operates farms. These corporations pool the resources and capital of multiple investors, allowing individuals to benefit from the agricultural industry's growth without owning land outright. By purchasing shares in such a corporation, investors can gain exposure to the farming sector, sharing in both its profits and risks.

Diversification in Agriculture

Investing in farm corporations offers a form of diversification that can be particularly beneficial for those who do not have the resources or expertise to manage farmland directly. While traditional farming can be risky, investing in farmland through a corporation can mitigate these risks. The corporation manages the land and the crops, handling all the necessary logistics and bureaucracy. This leaves investors free to focus on other investments or manage their resources more efficiently.

Types of Farmland Corporations

There are several types of farmland corporations to consider when exploring investment opportunities in agriculture. These include:

Agricultural REITs (Real Estate Investment Trusts): These are publicly traded companies that own and manage agricultural land. They distribute dividends to shareholders based on the profits from the land, making them an accessible option for investors who want a steady stream of income.

Private Investment Companies: These are not publicly traded and require a minimum investment amount, making them suitable for more affluent investors. They offer a direct path to owning a piece of land or a managed farm, offering potential for higher returns compared to public REITs.

Farm Cooperatives: These are owned and managed by the farmers or individuals involved in the farming operations, sharing the risks and benefits among all members. Cooperatives can be a good option for investors who want a hands-on approach to farming.

Risks and Considerations

While investing in farm corporations offers many benefits, it is important to consider the risks involved. The agricultural sector is subject to various factors that can impact its performance, such as weather conditions, market demand, and government policies. It is essential to conduct thorough research and consult with financial advisors before making any investment decisions. Additionally, the performance of a farm corporation can be tied to the specific properties and management practices it employs, which may vary from one entity to another.

Conclusion

Investing in farmland can be a rewarding endeavor, offering potential for significant returns and diversification in a challenging economic landscape. By considering the options available for buying equity in farms or investing in them, individuals can take advantage of the agricultural market's growth and stability. Whether through publicly traded REITs, private investment companies, or farm cooperatives, there are several avenues for investors to explore.