Agricultural Investment

Understanding Agricultural Investment

Long, long ago, some ancient human decided that planting seeds and reaping the produce was a safer approach to food production than chasing larger, stronger and toothier animals. Since that time, the agriculture sector has flourished, withered, rebounded, crashed and bounced back again. With each passing year, the world is seeking to feed more people with less land, so the interest in agriculture production as an investment has grown right along with the world population. In this article, we'll look at the agriculture sector and the different ways investors can approach it.

What is Agriculture?

Like all sectors, agriculture is really a spectrum of activities that overlap with each other and even with other sectors. The simplified version is that producers grow crops and raise livestock to sell to processors, who prepare and package the product before it ends up on the grocery store shelves. Producers and processors are in the agriculture sector, while the retailers are part of the retail sector - nice and clean.

However, the reality is that the agriculture sector also holds agribusiness companies. There is no hard-and-fast rule on what constitutes an agribusiness, but if a company is pulling half of its revenue directly or indirectly from agriculture, then it is generally considered an agribusiness. To see how this can get confusing, consider a company like PotashCorp, which officially merged with Agrium to form Nutrien in early 2018. Potash was basically a mining company, pulling stuff out of the ground and selling it. The stuff it pulled out, however, was fertilizer, so the big buyers were farmers. Therefore, Potash was an agribusiness despite the fact that it looked suspiciously like a mining company.

The same is true for manufacturers like Deere & Company (tractors). At first glance, they don't have anything to do with growing corn or slaughtering pigs. On the plus side, the range of companies with interests in the ag sector can open up interesting plays on the "people gotta eat" theme that sometimes drives ag investment.

Agriculture is one of the oldest industries in the world, so it is not a big surprise that there are a number of different ways to approach investing in it.

Futures

The futures market was originally created to reduce some of the risks facing producers in the agriculture sector. Commodity investors have been trading contracts for corn, cotton, hogs, cattle, soybeans, sugar and many other agriculture products for centuries. Futures offer investors an easy way to play price changes for agricultural products, without actually buying a farm and putting in all the hard work. That said, futures may be a bit intimidating for a beginner.

It is best to learn about the market and study historical price movements before you venture in. You don't want to wake up one day and find someone dropping off your 50,000 pounds of cotton.
Ice Patron Asset Management has team of experts that manages investment and trading on Agricultural futures while ensuring that profitable futures are traded.

The agriculture sector is more investor-friendly than most people expect and has been an investment destination for hundreds of years. The futures market grew up within agriculture, and many ag stocks can trace their history back to a time when shooting at each other with pistols was an acceptable way to settle an argument. The maturity of the ag sector and the diverse means of investing in it, combined with new concerns over worldwide food consumption, make it a compelling option for many investors.