Investing in US farmland may be something that you have never heard of. It can be very difficult to find a piece of land or a farm with the amount of farmland available shrinking all the time. However, for those who do find land to invest in, it can be a very lucrative investment opportunity. The need to grow some kinds of crops will always be there, so investing in farmland could be considered to be one of the more strategic options one might have in their investment portfolio.
Despite the need for farmland, the amount of farmland that is still available is being reduced thanks to the expansion of cities and other urban areas. Couple this with the increasing global population and there is a real need to be able to grow more crops and rear more animals on much less land. This increase in demand and squeeze on the production space will push food prices up over the next few decades, although it is already having an effect.
It’s no secret that investing in farmland is hard. It can be difficult to find, and it is in high demand. 96% of farms are held by farming families although this figure may reduce in the future due to reducing interest in farming by those in the family and the rising cost, pricing them out of being able to buy into the family business.
However, investing in farmland is not as simple as just buying a whole farm. This takes a lot of capital and simply isn’t an option for many investors. Large farms can be priced in the millions of dollars, putting it out of reach to many, including the current owners. Plus, if you buy a whole farm, you need to run it as a business, employing people to farm it and deal with the business side of things. Buying a whole farm is not an invest and forget opportunity.
Different Types of Farmland Investment
There are a number of different ways in which you can invest in farmland. They range from buying the land directly with private funds through to investing in firms that plant, grow, and sell their crops such as almond investments. According to CPF Agribusiness Investments, each different investment type has its own advantages and disadvantages and risk, so understanding each is important. Take the time to look at the opportunities you have with investing in agriculture and sustainability to ensure that you are doing everything you can to keep this industry striving.
The most common way to invest in farmland is to buy the land directly. Although it is the most common, it can be the most difficult to get right as there are a number of considerations that need to be made. One of the main downsides is that it requires a substantial investment to be made upfront. After finding the right piece of land, investors will need to hire a manager or a farmer to work on the land. They will then need to set up relevant bank accounts and pay taxes and insurance. Running a farm is essentially very similar to starting a whole new business, and it can be quite involved.
Another very common way to invest in farmland is to buy shares in a pre-existing business that already makes use of the land, and that grows and sells their own produce. This is a much simpler way to invest in farmland that will not require getting involved with the business side of things. The only downside to this is that there are a very limited number of crop-trading companies that are publicly-traded.
The other alternative if you are interested in investing in an already established business, is investing in a business that supplies the farming industry. This may include businesses that sell seeds, fertilizer, and farm equipment for which there is a good market. There are many more firms that will be available to invest in that run this type of business.
As well as businesses that operate on the supply side, you may want to consider businesses that operate on the production and distribution side. Processing plants and specialist logistics companies are all a vital link in the agriculture chain and will always be in demand.
Sustainable Farmland Investment
When thinking about investing in farmland, it’s important to consider how it may be done with sustainability in mind. There are a number of different ways in which farmland is being made to align with a more sustainable and environmentally friendly future.
Solar Energy – Farms are typically very energy-intensive by their nature. They require a lot of energy to operate, which can lead to high costs and low margins. However, farms do have a lot of land available that make them suitable for the installation of solar panels. Solar panels can be installed in fields where there is grazing livestock so that piece of land can be put to work twice. Not only will the addition of solar panels help to reduce the farm’s reliance on energy supplied by utility companies, in some cases they can produce more energy than is required so it can be sold back to the grid making solar a smart investment choice.
Fertilizer – There is an increasing demand for organic crops that have not used any pest control during the growing and production process. Investments in farmland that use very little or no fertilizer or chemical applications should be high on the list of considerations. One reason for this is that new regulations may come in that ban or put limits on the use of these in agriculture. Being ahead of the game on this will likely put you are your investment in a good position and future proof it.
Water Usage – The amount of water that is used to help grow a crop is another area that can be scrutinized when looking at investing in farmland both from a return point of view and a sustainability point of view. Farmland with the right irrigation systems that are up to date and work efficiently will use much less water than those who are using old and outdated systems. Technology can also be used to help ensure this process is done as efficiently as possible. Smart sprinkler systems can detect which parts of a farm require water and will distribute water accordingly.
Making a Sound Investment in American Farmland
There are clearly many different factors that influence every investment opportunity. Investing in farmland is no different and should be considered very carefully. In fact, in some cases, it can be an even more tricky investment when people choose to buy land directly and employ people to manage and farm it as they would with a typical business investment. Another consideration is that more US farmland is being bought by foreign investors.
For those looking at a more traditional investment opportunity, the opportunity to invest in the agriculture sector may take the form of investing in a supplier, producer, or delivery company. Buying shares in these types of business is a much more readily available opportunity and requires less involvement in terms of making business decisions on the investors part.
Whatever you choose to do, you should always try and seek the advice of a professional company that specializes in the purchase, management, and investment of farmland. That way, you can be sure that you are making a sound investment decision and that you have covered all bases in terms of ownership, sustainability, and likely return on investment.