investment

Investing in agriculture directly may look like a wise strategic move at first. Regardless of whether the economy is weak or strong, people still need to eat. This is why farming and agriculture are considered recession-proof investments, except when armed conflict or war arises. Furthermore, as the world’s population is constantly growing, we will need even more food to be able to feed everyone.

Buying agricultural land can be a good investment strategy but is certainly not for everyone. Farming not only requires a substantial capital investment but leasing and operating a farm can be a costly and time-consuming endeavor. Fortunately, there are plenty of good ways to invest in agriculture such as mutual funds, ag ETFs, stocks, and farm REITs.

Stocks

Agriculture or farm stocks give investors access to major publicly-traded companies, including those involved in growing crops and businesses supporting farms. Investing in businesses engaged in crop and food production is one opportunity to explore. Examples of such publicly-traded crop production companies include AppHarvest, Adecoagro SA, and Fresh Del Monte Produce Inc.

Another option is to buy shares in various sectors that provide supporting activities. There are hundreds of thousands of companies that specialize in packaging, processing, distribution, and other supporting activities. Such sectors include crop processors and distributors, equipment manufacturers, and seeds and fertilizer producers. Many businesses are engaged in the production of seeds and fertilizers, for example, including companies such as FMC Corp, Corteva Agriscience, and Scotts Miracle-Gro. The sector was in haywire last year due to severe weather, new export-licensing regulations, and the high cost of natural gas. However, the ongoing conflict in Ukraine has made carriers shun Russia, which is a major fertilizer exporter, causing stocks to rise to record levels.

There are also companies that specialize in supporting activities such as processing, transport, and distribution of crops. Some examples include Bunge Limited and Archer Daniels Midland.

Note that while stocks provide good equity returns, the stock markets can be volatile due to adverse conditions, including economic, market, regulatory, and political developments. Foreign securities, in particular, are subject to multiple risks such as political, economic, and currency exchange rate risks. The agriculture and farming industries can be affected by government regulations, global competition, export and import controls, world events, consumption, and commodity prices. For all the reasons above, stocks are considered one of the riskiest investment products.

Farm REITs

Farm real estate investment trusts invest in a portfolio of farmland and then provide farmer-friendly leases. This is the closest you can get to operating an actual farm with the added benefit of significant diversification. REITs provide investors with the opportunity to own stocks in more than one farm and across geographies. Also, stocks have a better liquidity and can be quickly traded on the major exchanges. Unfortunately, there are just a few farm REITs to invest in, including Gladstone Land Corporation and Farmland Partners Inc.

Agricultural Mutual Funds

Some mutual funds invest in agriculture and farming businesses as part of their portfolio. The goal is to achieve long-term capital growth by investing indirectly or directly in equity-related securities and equities. Similar to stocks, investing in mutual funds can be risky as the value of securities can fluctuate. Adverse events such as floods, droughts, and fires can affect the commodities and agricultural markets and negatively impact demand and supply relationships.

Soft Commodities

Soft commodities are actually futures contracts whereby the underlying commodities are grown and not mined or extracted otherwise. This category covers a wide range of agricultural products, including livestock, wheat, rice, sugar, cotton, coffee, cocoa, and soybeans. Some exchange traded funds and notes give exposure to a single commodity, whether grains or corn, while others include a basket of commodities. The Invesco DB Agriculture ETF, for instance, specializes in sugar, soybeans, wheat, and corn futures contracts. The fund is only suitable for investors with a high-risk profile as it trades in volatile markets. The iPath Bloomberg Agriculture Subindex ETN also invests in a basket of commodities, including cotton, coffee, sugar, soybeans, wheat, and corn. As the ETNs have no principal protection, they are riskier than other types of debt securities. As unsecured debt securities, ETNs are not guaranteed or an obligation, indirectly or directly of a third party. In general, due to risks associated with pathogens and adverse weather conditions, soft commodity features are riskier and more volatile than other debt securities. Harvesting, seeding, and weather forecasts, for instance, can cause fluctuations in oilseed or grain prices, which can affect contract values based on delivery dates.

Using Agricultural Commodities as an Inflation Hedge

Agricultural commodities can be a good investment when inflation rises quickly. The price of agricultural products, industrial and precious metals, gas, and oil rises with inflationary pressures. Due to the fact that these commodities could be volatile markets, it is important to carefully choose the products you would invest in. Also, solid investment firms can be a good choice in uncertain times but commodities only make for a small percentage of the final product they sell.

Corn, soybeans, and livestock are considered some of the best farm commodities to invest in. Corn, for example, is a staple as livestock feed and in ethanol production. Over 1.2 billion metric tons are produced globally per year.

Investors use a variety of futures contracts and ETFs to trade for profit. When predicting price fluctuations, there are different factors they take into account, including oil and gas prices. When prices increase, the ethanol market sees a surge in demand, which results in a higher demand for corn. Also, there are more price fluctuations during the summer months due to the fact that corn is a warm-season crop. If crop-damaging storms occur, this may impact supply and market prices.

With livestock trading, there are different factors that play a role. One is the cost of feed such as soybeans, wheat, and corn. When prices are high, farmers may choose to shorten the period during which livestock is fed, resulting in excess supply. Illnesses that affect livestock, including outbreaks caused by parasites, bacteria, and viruses, also affect demand and supply.

Finally, soybeans are used in margarine, cooking oils, lumber, and building materials. Due to the fact that they have uses in a variety of food products, any news about adverse health effects could result in a low demand.

A cryptocurrency is a form of virtual or digital currency that can be used to pay for services or products or to trade for profit. The fact that an unregulated currency is traded for profit, sometimes in significant volumes, drives prices up, which is why finance experts warn for a near-future collapse of a speculative bubble. At present, some 10,000 virtual currencies are publicly traded, the most common types being Bitcoin, Cardan, Ethereum, NEO, Steller, and Ripple.

Is Cryptocurrency a Speculative Investment?

Demand for alternative currencies has grown over the past couple of years, mainly because of the significant volume of money printed by central banks. Money printing drives interest rates down, and more people are willing to borrow and make large purchases. At the same time, a low-interest environment means less profit for speculators trading traditional investment instruments, making them look for profits elsewhere. On a macro level, companies such as MicroStrategy, Tesla, and Galaxy Digital Holdings have significant bitcoin portfolios. Analytics platform MicroStrategy uses bitcoin as its main reserve asset, currently holding over $3 billion. Individual investors are increasingly using fintech apps which have made it easier to trade cryptocurrencies.

There has been a lot of hype around bitcoin but investors and central bankers warn that cryptocurrency is a speculative investment. That is because it is an asset that is overvalued. In a recent article, Financial Times also highlighted the fact that bitcoin lacks a foundation to become an international currency. Another article called it a pyramid scheme much to the surprise of traders. Pyramid schemes are eventually bound to collapse if there are no new traders coming in.

Is Bitcoin Here to Stay?

This is a difficult question to answer and largely depends on whether crypto fits into the traditional roles of currencies. They act as both means of exchange and store of value. Currencies are also used as monetary policy instruments to regulate interest rates. Given the short history of bitcoin, it is difficult to tell whether the cryptocurrency can act as a store of currency. Its value is also volatile unlike standard, more reliable means of exchange. Third, cryptocurrencies are not issued by central banks, which makes it impossible to assess performance based on trade balance and inflation data. There is no way to tell whether bitcoin is expensive or cheap at any given moment.While many argue that crypto is not a viable currency option, others believe that bitcoin is here to stay. Notably, Anthony Hardy, research analyst for Franklin Equity Group points to the fact that technological advances and digital scarcity are the driving forces behind an alternative financial system that is to stay and experience growth.

What’s the Endgame of All the Speculation?

According to economist at Deutsche Bank Marion Laboure, less than 30 percent of the transactions in crypto are for the payment of goods and services. The remaining volume is investment, speculation, and trading. The problem is that bitcoin has a low liquidity as an investment instrument. Low liquidity means that it is difficult to sell, and investors may incur bigger losses as a result.

Jon Danielsson from the London School of Economics also explains that the current bitcoin hoarding and concentration of ownership can hypothetically result in a currency gap divide and give birth to the first multibillionaire. In this sense, the claim that the use of cryptocurrencies results in market democratization is ungrounded. In his view, virtual currencies cannot coexist with standard ones, and it is an all or nothing game. If bitcoin is to replace all the G20 currencies currently in use, then each bitcoin will be valued at $1.5 million. This would lead to a systemic crush. According to Danielsson, crypto is a bubble and while it makes sense to get the most out of it, it is wise to get out in time.

Why Bitcoin?

Bitcoin grew in popularity over the last ten years thanks to three communities of users – speculators, blockchain technology fans, and true believers. It was created with a philosophy behind it – it wouldn’t need a central bank to regulate activity. With prices skyrocketing, however, bitcoin became the next hype in investing and a vehicle of a financial system that it was designed to replace.

The main driver behind its success has been general distrust of financial institutions and the system as a whole. And this is precisely why bitcoin was launched – to take trust out of the system. The timing was also right. Bitcoin was created in 2009 when the global financial crisis cost millions of people their homes, savings, and jobs.

There is also the idea that the state and its systemic elements act as a force for violence. This would then mean that the currencies in circulation are a form of monopoly. Using a cryptocurrency is, in this sense, a form of opposition to state governments. Bitcoin mining is also part of this as traders look at it as a commodity and not as currency.

In 2019 bitcoin and other virtual currencies were already being traded by mainstream investors, hedge funds, venture capital firms, and bitcoin whales. And while crypto has become popular indeed, this came with a cost. For one thing, bitcoin mining consumes a lot of energy. According to estimates by the Cambridge’s Centre for Alternative Finance, electricity consumption accounts for around 0.65 percent of the annual global consumption. It also produces greenhouse gas emissions or about 22 – 23 million metric tons of carbon dioxide. This is the equivalent of the emissions generated by Sri Lanka and Jordan.

Conclusion

Bitcoin was created by a person known as Satoshi Nakamoto. No one has so far discovered who he is or was, and his identity has never been revealed or verified. The crisis in confidence in the financial system seems to have ended. Yet, the biggest winners appear to be the same people that a decentralized system attempted to disempower – banks and institutional investors.

Much is also to be learned about cryptocurrencies as an evolving technology. Additionally, some finance experts claim that there is a better approach to using a decentralized cryptocurrency. Consider Facebook’s own payment system Diem which is a blockchain-based type of a system. The idea behind it is to eliminate additional fees and transaction costs and to facilitate international payments. According to Professor Grundfest, former Securities and Exchange Commission commissioner, the adoption of a new currency would not reduce the cost of payment transactions. A better alternative would be to establish its own bank as the main financial institution for Facebook users. This would allow the company to create banking systems for different regions and states which will be better positioned to reduce costs and meet regulatory requirements. Once multiple banking systems have been created, they can be linked together to create a single global network.

Stable coins have also gained in popularity as means to back virtual currencies with a tangible asset. The problem with this approach is that it will make it easier for people to con the system because it is not as easy to control as traditional currencies. One possible use of cryptocurrencies is in states with weaker currencies where it may be better to invest in crypto than in local bonds and stocks.