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Diversification recommended in agriculture investing

On Behalf of | Jun 29, 2023 | Agriculture Law

Some Georgia investors turn to the agricultural sector to protect their portfolios from inflation. Agriculture investments may attract you because of the steady demand for farm products. People always need food and other plant-derived raw materials, like cotton, for their daily lives. Investors generally can expect a strong market for agricultural goods, but diversification and a clear understanding of the risks will benefit you before selecting where to place your money.

How diversification helps

You may see agriculture as a way to limit the impact of inflation and the possibility that consumers will have to cut back on buying non-essential items. You have many avenues for buying farmland or commodities. Putting your money in more than one type of investment spreads your money out among different regions and crop types.

Types of agriculture investments:

  • Real estate investment trusts
  • Exchange traded funds
  • Agricultural company stocks
  • Commodity futures
  • Mutual funds
  • Equity stakes in individual farms

Private investments in one or more individual farms require close scrutiny of the local region and the market for each farm’s produce. If planning on purchasing an equity stake in a single farm, you would want to understand how agriculture law could impact your investment.

Top risks for agricultural investors

When you invest in farming enterprises or commodities, you join the farmer in worrying about the weather. Droughts and floods devastate yields the most. A farm that produces profitably one year could have a bad year at any time due to harsh weather. Crop diseases, like bacterial and fungal infections, trouble growers around the world and reduce profits. If disease becomes too entrenched to eradicate, the owners of the farmland might have to switch to different crops to return the enterprise to profitability, which could take one or more years to achieve.