Agriculture is a widespread industry that includes some of the largest corporations in the world as well as small family farms and independent cottage industries. The raw materials produced by agriculture may be used to create products that feed us, clothe us and fuel our vehicles. The ways that you can invest in agriculture are as wide and diverse as the industry itself.
One of the most basic ways you can invest in agriculture is by purchasing farmland and raising crops or livestock. Approximately 96 percent of all farms and ranches in the United States were family owned and operated as of 2007, according to the U.S. Department of Agriculture. Farmland has the advantage of being a finite, tangible investment with an increasing demand and a shrinking supply, according to the CNBC website. One major disadvantage to an investment in farmland is its lack of liquidity. There may not be a ready buyer when you are ready to sell.
If you don't want to get your hands dirty by farming your own land, you can always pay someone else to do it for you. By investing in the stock of companies whose primary business is agriculture, you can participate in their business without being directly involved with it. You can buy and sell agricultural stocks in the same way you buy and sell any other stock, and you stand to make or lose money in the same fashion. If the company does well and earns a profit, the board of directors may declare a dividend. The value of the stock may increase, giving you the opportunity for a capital gain. There is no guarantee that the company will perform to expectations. The company may not earn a profit, and may even go out of business, resulting in a loss on your investment.
Agricultural commodities are the products of agriculture that are traded on major exchanges throughout the world. Agricultural commodities include such items as corn, soybeans, wheat, cattle, hogs, cheese, coffee, sugar, lumber and cotton. You can trade futures contracts on agricultural commodities on regulated exchanges. A futures contract involves an agreement between a buyer and a seller for the delivery of a specified quantity of a particular commodity on a set date for a set price. The value of the futures contract may increase or decrease between the time the contract is made and the delivery date. You can avoid taking delivery of the underlying commodity by closing out your position prior to the delivery date. This may involve either a profit or a loss on your trade. Commodities trading can be a high-risk, high-reward investment. It is not generally recommended for novice investors.
Agriculture Mutual Funds
There are mutual funds that specialize in investing in agricultural companies. You can obtain a diversified portfolio of stocks and other assets by investing in such a mutual fund. In addition to diversification, you also benefit from professional management of your funds. While diversification and professional management can help to lower the risks associated with investments in the stock market, they do not eliminate them. Your investment in an agriculture mutual fund may increase in value, but you may also lose some or all of your investment.
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