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Farmland investing is becoming more popular these days. Stocks and REITs (real estate investment trusts) are perennial favorites, but any investor looking to diversify their portfolio should consider farmland ETFs (exchange-traded funds).
Because food insecurity is still a problem worldwide, investing in farmland ETFs or other opportunities is often a stable choice that will return steady profits. An ETF is an uncorrelated asset, meaning it typically does not rise and fall like the rest of the stock market. While farmland was once unavailable to the average investor, now investors can pony up to own shares of farmland and agricultural businesses.
Here’s an overview of the best farmland ETF investment opportunities.
What are farmland ETFs?
ETF stands for “exchange-traded fund.” This is a pooled investment fund, similar to a mutual fund. They track an index, sector, commodity and/or other assets. The main difference between ETFs and mutual funds is that ETFs are bought and sold on the stock exchange, just like regular stocks.
Like stocks, ETF prices fluctuate all day. Mutual funds only trade once per day, after the market closes. Furthermore, ETFs contain multiple types of investments, from stocks and bonds to commodities. Some are international, while others may only contain domestic holdings. Typically, ETFs have lower expense ratios and fewer commissions than if you were to buy each stock on its own.
Farmland ETFs are agricultural-based funds, which often follow specific commodities. It’s important to note that they’re based on futures contracts. That means they’re not meant for a long-term investment, and are not recommended for investment beginners. Instead of buying your own futures contracts, you can buy into a specific ETF to seek profit.
To get started investing in farmland ETFs, you’ll need to open a basic brokerage account on an investment platform. Depending on the platform, you might pay a commission for each sale, or pay other types of fees.
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The 8 best agriculture ETFs
When you’re ready to get started investing in agriculture ETFs, these are some of the top-performing choices.
1. Invesco DB Agriculture Fund (DBA)
This fund has over $1.6 billion assets under management, and tracks the Diversified Agricultural Index Excess Return, alongside interest from bond investments they make when they have additional capital. DBA should be considered a short-term investment, rather than a buy-and-hold. Because it relies on the commodities market, it carries a fair amount of risk—but it’s also a fast and easy way to get into commodity futures. It also has a higher expense ratio of 0.94%.
2-4. Teucrium Corn (CORN), Wheat (WEAT) and Soybean (SOYB) Funds
Teucrium has several different agricultural ETFs, based on various commodities. The Teucrium Corn Fund tracks the daily price of corn futures, and has a total of $200 million in assets. The Teucrium Wheat Fund tracks wheat futures, and holds $366 million in assets, and the Soybean Fund has $67 million in assets. There’s also a Total Agricultural Fund (TAGS), which encompasses the corn, soybean and wheat funds, as well as their sugar fund—a nice way to diversify.
Typically, the funds are entirely invested in futures contracts, cash and other similar investments. Again, this is a short-term investment to gain fast exposure to specific futures. Investors often use the corn fund to hedge against inflation, although this should be reserved for experienced investors. Expense ratios range from 0.21% to 2.19%, so do your research carefully.
This fund is actually an ETN (exchange-traded note), which offers a debt security issued by a bank. However, it still operates similarly to the rest of the funds on this list: the fund invests in 21 different futures, from corn, wheat and soybeans to cotton, feedstock and livestock.
This fund typically performs well, even when agricultural commodities prices are down: returns over the last five years averaged over 5.5%, far beyond competitive ETFs. With an expense ratio of 0.75%, this is a relatively safe investment for experienced investors.
The iPath ETN is another ETN fund, which tracks grain commodity futures. They have futures contracts for soybeans, soybean meal, soybean oil, corn and wheat. Investors are paid cash payments as their notes mature, usually between one to five months. It has an expense ratio of 0.45%, and has racked up over $21 million in assets over the past few years.
7. VanEck Agribusiness ETF (MOO)
This ETF exposes investors to animal health, fishing, agricultural and aquaculture equities. While they primarily invest in developed regions, the fund also has farmland in up-and-coming markets like Brazil, Singapore and Malaysia. It currently holds $2 billion in assets, with a 0.52% expense ratio. VanEck is a nice solution for investors who want international holdings in broader categories.
What is the best agricultural ETF?
The best farmland ETF depends on your specific goals, the current market and your experience level. Because agricultural ETFs are riskier than other farmland investments, you may want to wait until you’re more experienced. In fact, some ETFs limit investments to accredited investors. Depending on the platform and fund you choose, investment minimums may vary. Once you’ve signed up, you can buy and sell ETF shares through the platform or app, and monitor its performance.
Ultimately, the best farmland ETF is the one you feel comfortable investing in after considering the risk involved. The Teucrium Agricultural Fund and the VanEck Agribusiness ETF both diversify their commodities and holdings, which insulate investors from some risk. However, you’re less likely to hit it big when a specific future price goes way up, such as corn.
When considering investing in farmland ETFs, make sure you understand potential risks, rewards and historic market performance. You may wish to consult a financial advisor for assistance: they will be familiar with your investment goals, current funding and have extensive knowledge of investment opportunities.
Are agricultural and farmland ETFs right for you?
Thanks to ETFs and other farmland investment opportunities, investing in agricultural commodities, equipment and operations is easier than ever before. There’s no need to buy and manage a farm yourself. Farmland REITs, ETFs and other investments make it possible to break into the agricultural sector.
Because agricultural and farmland investments don’t correlate closely with the rest of the stock market, they can be a lower risk than other types of investments. However, ETFs typically trade on futures contracts, which are inherently risky. Remember that ETFs are not meant to be a long-term or beginner investment: you’ll want to carefully track your ETF’s progress and be ready to sell at the right time.
If you choose the right fund, you’ll likely see significant returns on your investment—especially because global food demand and insecurity are persistent, timeless challenges. When it’s time to diversify your investment portfolio, be sure to consider farmland and agricultural ETFs.