Could a Farmland ETF Grow Your Portfolio?
Looking for a Farmland ETF? Themed Exchange Traded Funds are wildly popular these days, so what are the options for a Farmland ETF investment?
I Never Met a Poor Farmer…
I did my science BSc degree at an English Agricultural college. The majority of students were from farming backgrounds. For the most part they were awash with cash, so it was apparent that Mom and Pop’s wheat farm was doing very well indeed.
That was in the early 1990′s. If a recent visit to my local supermarket is any indicator then farming is still a booming industry. Food prices have rocketed, so it’s pretty apparent that there’s never been a better time to be a farmer.
And if you’re not a farmer yourself but you have some money to invest, then farming could be an interesting investment.
Global X Farmland ETF
We wait with baited breath…
At the time of writing, the Global X Farmland ETF hadn’t been watched, so keep an eye open for when it’s released. But when the Global X Farmland ETF is released, it will be the first ETF that allows you to invest in farm land.
Details are sketchy, but it appears this fund will invest in farming and timber companies.
I’m not sure if the fund will invest in farmland itself. This is a little disappointing. I’ve seen the same thing with commercial property. I prefer funds that actually buy commercial buildings rather than just buy shares in REIT’s and other property companies. Often these funds are just an expensive way of holding stocks that would be much cheaper to hold if you just bought them directly through a broker.
So I’ll adopt a wait and see stance on the Global X Farmland ETF. But meanwhile, there are a lot of alternatives for adding an agriculture theme to your portfolio.
Alternatives to the Global X Farmland ETF
There are plenty of alternatives to owning a farmland ETF.
The most obvious choice is to buy farm land directly. Farmland regularly comes up for auction. Prices will depend on how good the land is and what it can be used for. Sometimes it is pretty tax efficient to buy land directly, although it will depend on which country in which you live. Once you buy the farmland then you can lease it to tenant farmers. This is complex stuff, so you’ll need a decent financial advisor who has a knowledge of land and agricultural investments.
Be aware that land investments are often unregulated and that a number of shady companies operate in this market. I know that a few years ago woodland and agricultural land were being touted as wonderous investments, with huge returns on investment being promised. But these investments were often for low grade agricultural land that had some potential for redevelopment for housing. Only the problem was that the land didn’t have planning permission, so it wouldn’t have been worth much. And being marginal quality land, its value for farmland was low as well.
For general investments in agriculture, there are a wide range of investments. In the UK there are funds such as the Allianz RCM Global Agricultural Trends, CF Eclectica Agriculture, and Sarasin AgriSar. Of these three agriculturally themed unit trusts, the Sarasin AgriSar is by far the best known. It’s even a constituent of the Hargreaves Lansdown Wealth 150. However, I’m not a great fan of this fund. At the time of writing it offered a 0.97% annual dividend, and has an eye watering 3.73% Total Expense Ratio. Clearly you’d be hoping for some significant capital growth to see any sort of return from this fund.
Plenty of companies are in the agriculture business. Monstanto is one major player, providing chemicals to the global farming industry. There is also Syngenta of Switzerland, Potash Corp of Saskatchewan (Canada) and Deere and Co – the well known maker of tractors and other farming vehicles. Holding these stocks directly is generally going to be cheaper than holding them in a mutual fund or unit trust.
The Agriculture Exchange Traded Funds
ETFS Securities has a wide range of agricultural ETF’s. These mainly invest in futures contracts, and they aim to mimic the price action of a range of agricultural commodities.
There are many of these ETF’s, covering cereals such as Wheat, to staples such as Corn and Soybeans, to livestock such as Lean Hogs and Live Cattle.
Prices of individual commodities can be quite volatile, so ETFS Securities also offer an Agricultural ETF that invests in a basket of agricultural commodities.
There are also a wide range of other agricultural themed ETF’s from other ETF providers. Check out the Market Vectors Agribusiness Moo ETF, which arguably has the greatest ticker symbol in the NYSE!
I traded wheat in my SIPP for a while. It was quite exciting as prices were dependent on many factors including the weather and demand for wheat from different countries. I stopped trading these agriculture ETF’s though, believing my time was better spent building up a portfolio of high yielding assets.
I also figured out that since modern farming is so dependent on oil, holding large, dividend paying oil stocks was probably a lot more lucrative than investing in the businesses that are so dependent on oil.
So there aren’t many options for investing in farmland though an Exchange Traded Fund. However, the ETF world has a number of agriculture themed funds that allow you to track the price of various agricultural commodities. And you can also buy stocks with a lot of exposure to the agriculture industry.
Is farming a good investment? Have you ever met a poor farmer? Leave your comments below…