Agriculture commodities are on the rise, and if you don’t want to miss this “gold rush,” then you need to know how to invest in agriculture. Why invest in agriculture? The answer is very simple, increasing demand. Agriculture demands have been increasing largely due to increasing populations, while other factors such as inflation, consumerism, and natural disasters can also played major roles in the rising prices of agriculture. Investing in agriculture is as simple as following these steps.
- Pick the best method for you in investing in agriculture. There are many ways you can invest in agriculture. You can buy futures of agriculture commodities, exchanged-traded funds, and stocks of agriculture companies.
- Invest in agriculture directly. You can buy futures of some or all agriculture commodities on the open market, such as wheat, corn, soybeans, etc. Future market is volatile, therefore it is usually associated with great risks. If you are a seasoned trader and comfortable with the risk level of future markets, then this method is the best for you.
- Invest in ETFs that get exposure to agriculture futures. PowerShares DB Agriculture ETF (DBA) is a great example of this type of ETFs. It is made up of the futures of four agriculture commodities, corn, soybeans, sugar, and wheat. While it does give you a great exposure to agriculture futures, its concentration on 4 commodities would put risk level above average.
- Invest in agriculture ETFs that tracks agriculture stocks. There are ETFs, like Market Vectors Agribusiness ETF, invest in businesses that primarily engaged in agriculture. It is designed to mimic the performance of the DAXglobal Agribusiness index.
- Buy agriculture company stocks directly. You can buy stocks of businesses that are strongly associated with agriculture businesses, such as Monsanto (MON). However, you need to figure out the specific stock and weight the various risk level each company brings. Keep in mind, more diversified company in the agriculture sector tend to be less volatile.
Warning: Investing in a specific sector, like agriculture, have above average risks than diversified cross sector investments.
Tip: Try to diversify your investments in the agriculture sector may help you reduce your risks.