Farmers are the backbone of America, but it's no secret that farmers face more challenges today than ever before.
That's why many people are looking for ways to invest in American farmers, both to support some of the nation's most valuable citizens and to grow their own wealth. In fact, farming is a popular hedge against inflation. No matter what state the economy is in - prosperity, recession, or depression - people still have to eat.
And investors still have to profit.
Here are five of the best ways to invest in American farmers right now - plus one "bonus" investment set to soar on the back of the emerging modern agriculture movement...
How to Invest in American Farmers No. 1: Commodities
Investors looking to take advantage of price changes in the marketplace would be wise to allocate a portion of their portfolio to farming commodities.
Investing in commodity-based ETFs (exchange-traded funds) or ETNs (exchange-traded notes) is a great way to gain exposure to a specific commodity, like corn (NYSE Arca: CORN), livestock (NYSE Arca: COW), or grains (NYSE Arca: GRU).
There are even ETFs specifically made for investors looking to bundle multiple commodities together. For example, the PowerShares DB Agrifod ETF (NYSE Arca: DBA) presents investors with the opportunity to invest in a basket of commodities. This ETF, which currently trades at just $20.01 per share, invests in corn, wheat, soybeans, and sugar futures contracts.
It's important to note that these types of investments are not good candidates for buy-and-hold investors because commodities are known for being particularly volatile - meaning the ETFs based off of commodities can be equally volatile.
How to Invest in American Farmers No. 2: Mutual Funds
Mutual funds that invest in the farming and agricultural industries allow you to spread out your risk across many different holdings. However, it's important to determine whether a particular fund invests in agriculture-related firms or invests solely in commodities. Many mutual funds also have exposure to other sectors, so if you're only looking to invest in farming or agriculture, mutual funds may not be for you.
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Take the Fidelity Global Commodity Stock Fund (MUTF: FFGCX) as an example. This fund invests primarily in common stocks. While at least 80% of this fund is invested in companies in the agriculture field, the other 20% may be in non-farming industries.
The primary benefit of using mutual funds to diversify your investments isn't always to maximize returns. In fact, many investors use mutual funds to limit the impact of volatility on a portfolio. This is a trade-off many investors feel is worthwhile, especially when they get closer to retirement and become more risk-adverse.
How to Invest in American Farmers No. 3: ETFs
If you're looking to gain a wide range of exposure to the agriculture sector, look no further than agricultural ETFs. Exchange-traded funds take the benefits of mutual fund investing one step further. In fact, ETFs offer lower operating costs than traditional open-end funds and have greater flexibility.
The Market Vectors Agribusiness ETF (NYSE Arca: MOO) is a prime example of a fund that allows you to support the farming industry while diversifying your investments. This exchange- traded fund offers access to a varied set of businesses that derive at least 50% of their revenue from agriculture. This includes companies involved in agri-chemicals, animal health, equipment and farm machinery, fishing, seeds, and more.
How to Invest in American Farmers No. 4: Equities
Investing in publicly traded companies that operate in the farming sector is a great way to support (and profit from) specific industries within the sector.
For example, if you wanted to support crop production, you could invest in firms that plant, grow, and harvest crops. As a bonus, many of these types of firms also distribute, process, and package - giving you the opportunity to invest in supporting activities, as well.
And if you wanted to invest in the industries surrounding agriculture, you could do that, too.
Many companies provide the infrastructure needed for farmers to move crops from the farm to the grocery store. Among those are Bunge Ltd. (NYSE: BG), an agribusiness and food company that specializes in the purchase, storage, processing, and transport of agricultural goods. BG is up over 8% year to date and has grown over 1.5% in the past 30 days.
Since farming is such an equipment-intense activity, investors can profit by making investments in the agricultural equipment manufacturers, like Deere & Co. (NYSE: DE), the company behind the iconic John Deere brand.
And Deere has been on a roll so far in 2017...
Indeed, DE stock is up over 16% over the past three months - from $107 in April to over $125 today (July 18).
And within the past year, DE stock has grown a hearty 50.2%.
How to Invest in American Farmers No: 5: Farm REITs
Farming-focused real estate investment trusts (REITs) are about the closest you can get to investing in farmers without actually buying a farm.
You see, REITs purchase farmland and then lease it to farmers. For investors, REITs come with many unequivocal benefits. REITs provide much more diversification than buying a single stock, because they allow you to have financial stakes in multiple farms across the country. Farmland REITs can also be sold quickly on stock exchanges, offering greater liquidity to investors.
Moreover, all you need to invest in farmland with farmland REITs is the price of one REIT share. For example, Farmland Partners Inc. (NYSE: FPI) is currently trading for just $8.62 per share.
Bonus Investment Method: Support Farmers by Investing in Marijuana
The next wave in agriculture has to do with a $7 billion market that is yielding massive profits for distributers, manufacturers, agricultural companies, and most importantly farmers.
We're talking about marijuana.
Indeed, myriad agricultural companies have rushed to invest in the marijuana industry as more states legalize. In fact, one American agricultural icon, Scotts Miracle-Gro Co. (NYSE: SMG) was one of the first to make the decision - and it's paid off heavily for the firm.
After the financial crisis of 2008, many big-box retailers shuttered their doors, leaving Scotts' revenue stagnant.
In order to boost sales, CEO Jim Hagedorm purchased two companies that specialize in soil and fertilizer for cannabis growers. And just recently, in 2016, Hagedorm bought a 75% stake in a cannabis-related hydroponics (the process of growing plants without soil) equipment company, Gavita International.
As of December 2016, Scotts' hydroponics business generated roughly $250 million annually, according to Bloomberg. And that number is expected to climb...
Indeed, according to Money Morning Director of Tech & Venture Capital Research Michael A. Robinson, the value of the hydroponically grown plants market is skyrocketing.
Analysts expect the global crop value to grow from $17 billion in 2013 to $24 billion by 2018.
That's a 41% increase in just five years.
SMG currently trades at $93.11 per share, a 25% increase from July 2016 - when the company announced the stake in Gavita.
SMG also pays shareholders a dividend of $0.50 per share for a yield of 2.37% - making it a great investment for investors looking to support both farming and the burgeoning marijuana industry.
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