How to Invest in Agriculture Using a Stock Brokerage Account?

Many investors (including famed commodity investor Jim Rogers) think that they are in the midst of a long-term bull market for agricultural commodities. Commodities are increasingly being accepted as an important asset class. Commodities often have a low correlation to traditional investments like stocks. Therefore they are thought about by some people as a nice investment for diversification, & as a hedge against inflation. In relation to agriculture, lots of think that the basics support higher food prices in the long-term. In case you agree, you ought to think about investing in agriculture. But most of cannot go out & buy a farm (& probably would not require to anyway). Our main way to invest is with our stock brokerage account. So here's how to invest in agriculture using only your basic stock brokerage account.

In the event you choose that you need to own an agricultural commodity ETF, the next step is to choose whether to buy an index ETF or to buy an ETF that tracks an individual commodity. An index ETF buys a basket of different commodities. So this is a bet more on the performance of agriculture usually than on the performance of any particular nice. There's a couple of different index ETFs obtainable. For example, the Powershares DB Agriculture ETF (ticker "DBA") invests in corn, sugar, wheat, & soybeans. The iPath Dow Jones AIG-Agriculture ETN (ticker JJA) is a little broader, & owns soybeans, corn, sugar, wheat, coffee, soybean oil, & cotton #2. The ELEMENTS Rogers Agriculture Index ETN (ticker RJA) is the presently broadest agriculture index ETN to my knowledge, & tracks twenty different agricultural commodities.

Consider very exactly where you need to place your bet. The first option is to invest in the agricultural commodities themselves (through ETFs or ETNs). Purchasing an agriculture commodity ETF is fundamentally a bet that the *price* of the commodity held by the ETF will go up. This investment will reward you in the event you are correct about the cost movement of a commodity (say, wheat). The performance of any individual company involved in agriculture is mostly irrelevant, because a commodity ETF does not own companies. The ETF owns instruments that are tied to the trading cost of the commodity. The second option is to invest in companies that you think will benefit from higher food prices & greater investment in agriculture. You can do this by purchasing individual stock in those companies, or you can buy an ETF that tracks agricultural companies (see links at the finish of this article). For example, you might think about purchasing a company that sells fertilizer or agricultural equipment.


When you find the ticker symbol for the ETF that you like, log in to your brokerage account & buy the ETF as you would buy a stock.


In the event you are interested in over ETF that invest in the same or similar commodities, compare the expense ratios. The expense ratio is the amount (expressed as a % of the holding) per year that the ETF issuer charges. Sometimes there can be comparatively large differences in expense ratios, so keep an eye on this.

When you find the ticker symbol for the ETF that you like, log in to your brokerage account & buy the ETF as you would buy a stock.


Tips & Warnings
Commodity ETFs have their own unique risks. For example, commodity ETFs may not exactly track the underlying index or agricultural item that they try to replicate. This may be because the ETF invests in futures contracts, and the system of "rolling" futures contracts can generate tracking error. Tracking error means that your investment may not perform exactly as the index or particular commodity performs.

Commodity ETFs and ETNs often have different tax consequences than stocks or stock ETFs. Check with a financial planner or your tax adviser to understand these differences and to make sure that you pick the right product in light of your tax situation. This is beyond the scope of this particular editorial.

Commodity ETNs (and even some commodity ETFs) may have what is often called "issuer risk". That is, the ETF or ETN may wholly or partially be composed of debt instruments underwritten by a financial company. The underwriting financial institution may default on its obligation (or fail altogether). So you may lose some or all of your investment, even if the underlying commodities perform as you expect. In other words, unlike a stock, which represents possession in a company, a commodity ETF or ETN consists of other financial instruments which have their own risks. Read the prospectus to understand the ETF better.