Explain what sets timberland and farmland apart from other real asset investments
The idea
Timberland earns returns from biological growth, from timber prices and from the value of the land. Trees keep growing whatever prices do, so an owner can delay harvesting and store value on the stump when prices are weak. Its risks include fire, pests and weather, and carbon credits can add income. Farmland earns crop income, either by leasing to farmers or by operating directly, plus land appreciation. Row crops are replanted each year, while permanent crops such as orchards take years to mature. Returns depend on crop prices, yields, water rights and food demand. Both offer inflation protection, low correlation with equities, illiquidity and ESG scrutiny. The trap: farmland lacks timber's harvest-timing option, because crops must be harvested when ready.
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