What is an 'Investment Farm'

An investment farm is an agricultural business operation that is purchased and operated with the intention of making a profit, or with the goal of creating a tax deduction for the owner. Agribusiness is the business sector encompassing farming and farming-related commercial activities.

Investment farms are owned by investors who typically do not live on the farm or take part in any day-to-day operations. The investor will generally hire farm hands and other employees to do the actual farming.

BREAKING DOWN 'Investment Farm'

Many investment farms exist as commercial farming businesses that grow cash crops which sell in the commodities markets. Commodity or cash crops include soybeans, corn, wheat, cotton, and livestock such as cattle and hogs. Cash crops find uses in many industries.

As an example, soybeans may be processed for oil, serve as an animal feed, is processed into food products, and used in the plastics, rubber, and paper industries as a filler. Some cash crops are grown for biofuel purposes. Biofuel is a type of energy derived from renewable plant and animal materials. Examples of biofuels include ethanol, often made from corn in the United States and from sugarcane in Brazil.

Investing in Investment Farming

Because food is a universal need, some investors consider agricultural investments to be a recession-proof investment. When it comes to investing in farmland the increasing scale of farming operations merely means buying a farm and attempting to rent it to a farming operation can be a capital-intensive commitment. Considerations include the cost of the property, operational expenses, and equipment costs.

Some investment farm, agricultural investors, look to the alternative ownership patterns of forming a partnership rather than outright owning the farmland. Another alternative is to invest in a real estate investment trust (REIT). Farmland REITs, such as Farmland Partners and Gladstone Land Corporation, purchase agricultural land and handle the process of leasing it to farmers.

Because REITs typically deal in portfolios of properties, investors purchasing shares gain several advantages over buying farmland themselves.

  • Capital required to invest in a REIT can be as low as the price of a single share. This low-cost spreads the money at risk in any given farming operation across multiple investors, reducing the risk to any individual shareholder.
  • The presence of multiple farms in a portfolio offers diversification, giving investors broader exposure to the production of different commodities. This diversification serves to offset some of the riskier elements involved in owning a single farm.
  • Shares in a REIT usually trade on stock exchanges, making them significantly more accessible to buy and sell than agricultural real estate.

The Make-Up of Investment Farms

Since the mid-1930s, farms in the United States have grown increasingly large while at the same time, the total number of family farms fell. Statistics compiled by the U.S. Department of Agriculture (USDA) show that 99-percent of the farms in the country were family-run in 2015. These large, family-run operations account for 89 percent of the country’s agricultural production.

In the same year, non-family farms only produced 11-percent of the nation’s total agricultural output. These numbers suggest that, despite the decline in the abundance of family farms, large-scale investment farms still must compete with large-scale family farming operations for both land and labor.

  1. Farm Income

    Farm income refers to profits and losses incurred through the ...
  2. Production Credit Association - ...

    The PCA is a federal entity created by the Farm Credit Act of ...
  3. Agricultural Credit

    Agricultural Credit is any of credit vehicle used to finance ...
  4. Farm Credit System - FCS

    The Farm Credit System is a nationwide system of financial institutions ...
  5. Farm Team

    Farm team is a baseball reference applied to businesses that ...
  6. Commercial Grain Stock

    Commercial grain stock is the amount of harvested grain crops ...
Related Articles
  1. Insights

    How To Invest In Farming Without Owning a Farm

    Investors have a number of ways to get exposure to the agriculture and farming sector besides actually having to buy a farm.
  2. Tech

    Technology: Increasing Indoor Farming's Efficiency

    Indoor farming has gone high-tech. An increasing number of investors are now sitting up and taking notice.
  3. Investing

    There Are More Ways to Invest in Land Than You Think

    You don't have to have a huge amount of capital to invest in land. You have many other options, including land-related ETFs and ETNs.
  4. Investing

    A Primer for Investing in Agriculture

    In this article, we'll look at the agriculture sector and the different ways investors can approach it.
  5. Tech

    Three Agriculture Startups Disrupting Monsanto

    Even as technology startups have disrupted other industries, agriculture has remained immune to its effect. But that is about to change.
  6. Investing

    The Industry Handbook: The Agriculture Industry (COW, LSTK)

    Learn about the major lines of businesses involved in the agriculture industry and why this industry as a whole may be the most important in the world.
  7. Investing

    3 ETFs to Hedge Against the Food Shortage Risk

    Learn about a possible global food shortage. Discover three exchange-traded funds that can be used to gain exposure to this investment niche.
  8. Trading

    Traders Remain Bearish on Agriculture (DBA, WEAT)

    Weakening global demand means agriculture looks poised for a continued move lower.
  9. Investing

    The Investment Case For Cresud

    Cresud is hard to value, but a great play on land values in Argentina.
  10. Investing

    Debunking Biofuels: Do They Really Raise Food Prices?

    Learn about the two sides of the argument on the effect biofuels have on food prices and about other factors that affect food prices.
  1. When do I need to file an IRS Schedule F form?

    If you are a farmer, your farming business may require you to file a Schedule F with the IRS. Read Answer >>
  2. What caused the American Industrial Revolution?

    Read about the causes of the American Industrial Revolution, from the first textile mill and through the rise of the corporation. Read Answer >>
  3. What Are the Pros and Cons of Owning an Equity REIT vs. a Mortgage REIT?

    Learn about investing in equity, mortgage, and hybrid REITs. Explore the different strategies REITs employ to generate income ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  3. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  4. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
Trading Center