The Best Way to Invest in Grain Stock

Investing in agricultural products can help diversify your portfolio.
Investing in agricultural products can help diversify your portfolio. (Image: Orientaly/iStock/Getty Images)

You can invest in grain via three methods: by purchasing shares of agricultural manufacturers; purchasing an exchange-traded fund, or ETF, focused on grain; or by taking a long position in a grain futures contract. The last one is the best choice, because as it is the most direct investment in a specific grain of your choice. If you buy stocks, the stock price may not perfectly mimic the supply and demand dynamics of grains, and ETFs will limit your choices.

Understanding Futures

A futures contract is a legally binding agreement to buy or sell something at a particular price on a future date. If you are long, you agree to buy, whereas the party who is short is agreeing to sell. By agreeing to buy a grain, such as wheat or barley, at a particular price, you are essentially betting on a price increase. If, for example, you agree to purchase wheat at $5 per bushel, and the market price on the date of the purchase is $5.10, you can immediately sell your holdings at a profit of 10 cents per bushel.

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