How to Invest in Agriculture

Agriculture is an important investment sector.
Agriculture is an important investment sector. (Image: Jupiterimages/ Images)

Investment in agriculture can take many forms. Today investors can invest in grain, farms, fertilizer and agricultural transport. Investment can be through mutual funds, exchange traded funds, direct stock participation or bonds of agricultural companies. Investment is not restricted to domestic companies. Multinational investment companies grow and create product lines throughout the world and have headquarters in Europe, Asia and North and South America. Investors seeking to invest in agricultural products should focus on the specific aspects of agricultural products in which they are interested and then find the right investment vehicle.

Research and buy agricultural stocks by investing in companies that increase yield per acre. Stocks that produce potash, hybrid disease-resistant seed and fertilizer and maintain water sources are important contributors to successful farming. Many of the products produced are exported throughout the world and are less vulnerable to fluctuations in any one economy.

Invest in large multinational companies that have established agricultural businesses around the world. These companies are well capitalized, pay dividends and are in a position to rise with the general improvement in agricultural demand. Among large-capitalization stocks are DuPont, Monsanto, Caterpillar and Archer Daniels. Avoid small companies that may have great products but little management expertise or financial stature to promote their product line. Agricultural stocks usually require large amounts of fixed expenses, making small companies and startups risky investments.

Trade exchange traded funds, also known as ETFs. Exchange-traded funds represent stocks from different market sectors. Agriculture is one segment available to investors. The stocks in the fund are passively managed, meaning there is no buying or selling of the component stocks except when it enters or leaves the index. ETF fees are reasonable, usually running about .3 percent per year. They are liquid and marketable investments. Many ETFs trade on the American Stock Exchange.

Trade agricultural futures. Study and understand why futures trading is a highly leveraged, fast-moving market. Investors considering futures trading should have extensive market knowledge of stocks, bonds and risk-taking strategies. Trade agricultural futures for most grains, meats, softs (cotton and plant byproducts), orange juice and vegetable oils. Trading with leverage of 10 times or more the initial required deposit requires a sound buy and sell strategy.

Buy agriculture stocks when economies are in a recession. Use technical indicators to buy and sell stocks when current price exceeds the stock's long-term moving averages -- the average of closing prices for the past 200 days or more. Exit stocks that fall below their lowest price of the past 20 days. Use agricultural stocks as key parts of a long-term portfolio. Use periods of weakness to add to positions rather than sell.

Tips & Warnings

  • Research demand for all food stocks, including grains, meat and the raw materials that go into producing food. While the world's population is rising, much of the world is now developing enough wealth to increase its caloric consumption. World population that is undernourished represents future demand for agricultural products.

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