Millennials and Agriculture Investing: Securing the Future of Food

For someone who is new to wealth building, the sheer variety of investment opportunities can be intimidating. Should you go with what nearly half of Americans do and invest in the stock market? Should you just throw money from your paycheck into a retirement fund operated by robo-advisors? Of course, real estate rehabbing or wholesaling is a popular choice for many readers here, but these strategies can take a lot of work. For those seeking passive returns, one investing opportunity many millennials may not know about is production agriculture.

Understanding Agriculture

Agriculture may not be at the top of your mind when choosing an investment, even though it is the world's most essential industry, sustaining all human life on earth. Everything you eat and drink, what you wear, and even the house you live in, all connect to agriculture products. Agriculture production today is hugely diverse, not just in specific crop type, but in types of growing systems. Hydroponics, aquaponics, aquaculture, and vertical farming are just a few of the new ways people are growing food in the U.S. All of these methods are capital intensive, and many growers are looking for outside investors to develop or expand their operations.

Grow Your Wealth

Farmland and timberland are not short term investments, so they make sense for someone trying to build long term wealth. The younger one begins investing in something like agriculture, the more potential cash flow they can generate in retirement. Like other forms of real estate, farmland appreciates in value while the crops produce a yield each year. Other products, such as tree crops, simply take a long time to grow. Nut trees such as almonds, for example, don't produce their first crop until they are 5 years old and then continue to increase their rate of production for up to 50 years.

Real assets, like income-producing agriculture, provide a hedge against inflation, and are an attractive investment for a diversified portfolio. Agriculture as an alternative investment has little to no correlation with the stock market, and produces solid returns compared to other asset classes

For an example of the long term wealth building power of agriculture, it's worthwhile to compare returns of various asset classes. From 1970-2016, the basket of stocks in the S&P 500 returned 6.8%. The same amount invested in a certificate of deposit where your money is locked in for 5 years is currently yielding about 2.5%. During the same time, U.S. farmland returned 10.25%. Timberland returned on average at over 13% over the past 25 years. 

I'm often asked, "isn't farming a risky investment? My uncle/cousin/guy-I know bought a farm and lost it all when corn prices crashed." All investments contain risk, but investing in agriculture isn’t more risky than other asset classes. There are some specific risks associated with agriculture investments: fire, drought, pests, or disease can damage crops. However, geographic and commodity diversification will usually protect against these risks. Additionally, hedging and crop insurance are available for some commodity crops. Plus, investments in relatively small farms can be backed by title to the land or by guaranteed off-take contracts from major food wholesalers or distributers.

Experience the Food System

As food production becomes more efficient, the number of farmers in the U.S. continues to shrink. If you live in an urban area, you probably don't know anyone involved in agriculture. Most people take their food for granted and don't think too much about where it originates. That said, there is increasing interest in understanding how our food grows and getting to know who produces it. At the same time, people want farmers to practice sustainable agriculture, meaning crops that are grown in a socially, environmentally, and economically maintainable manner. Sustainable agriculture meets the world's current food needs without making the future generations compromise to meet those needs.

Investing in agriculture allows you to have a closer connection with those producers, and learn more about our food system. A 2017 study by Eventbrite found that more than 75% of millennials would prefer to spend money on an experience, rather than a material good. Investing in a farming operation allows you to do both. Most farmers are happy for you to come visit the operation you have helped fund.