Of all the advice investment property agents can give farmers or agricultural property investors, the most crucial is to invest in assets or ventures not directly related to farming to mitigate the risks associated with the inherent volatility of the agricultural sector.
Among the most notable of these risks is the volatility of commodity markets, which can significantly impact farming operations and profitability.
How Commodity Markets are Affected
The agricultural sector is concerned primarily with the trading of commodities, such as livestock, grains, dairy products, other fruits and vegetables, or natural resources such as cotton, hemp, or timber.
However, outside forces such as unfavourable weather, supply and demand, worldwide market trends, and socio-political situations can easily impact commodities on a national and international level.
Sometimes a drop in commodity prices is beneficial if a farmer is the buyer. But when the farmer is the seller, these price drops can spell financial hardship.
As such, putting all your eggs in one basket, so to speak, is not a great strategy. Diversifying your investment portfolio by investing off-farm can go a long way towards ensuring a smoother ride during tumultuous market conditions.
Investing Off-Farm
An agricultural enterprise can become more financially stable by investing in off-farm ventures that generate income streams immune to commodity fluctuations. Investing “off-farm” doesn’t necessarily mean that the investments must literally be off the property, but rather that they should be unrelated to the business of farming.
For example, a farmer with excess land can lease some of it to a solar developer to create a space for the construction of a solar farm. Another possibility might be to lease that land to other farmers so that they might use it for their own agricultural purposes.
Aside from creatively using one’s own land to generate alternative income, farmers can invest in totally off-farm endeavours, such as residential or commercial rental properties for long term rental income or vacation properties that can generate short-term rental income.
Consulting with a business advisory service can provide further insights into how to effectively diversify your agricultural portfolio, helping to identify off-farm investments that align with your financial goals and risk tolerance.
If you’re looking to diversify your agricultural portfolio and want to find out more about off-farm investments, our investment property agents can provide expert guidance. Contact WPG Advisory now to get started today!