--- GIT.IR e-Learning Platform ---
Welcome back in this lesson, we will have a quick discussion on farmland and timberland as alternative
investments.
Let's jump in.
While Timberland and farmland fall under the category of natural resources, one can see them as real
estate investments as well.
The primary component of income from such investments comes from the sales of timber and agricultural
products.
The income stream from Timberland has historically been not highly correlated with other asset classes.
This could be due to the characteristic that timber can be grown and easily stored by not harvesting.
This gives the owners the flexibility of delaying harvests when prices are low and harvesting more trees
when timber prices are high.
On the other hand, there is little flexibility for farm products as they must be harvested when ripe.
However, agricultural commodity prices have close correlation with inflation.
This makes farmland investments a viable hedge against inflation.
Capital appreciation wise, Timberland returns include price changes on the land itself, which depend
on expectations of lumber prices and how much timber is ready to be harvested.
Farmland returns are based on land price changes.
Changes in farm produce prices and the quality and quantity of the crops produced.
Due to increasing ESG focus on climate change, timberland and farmland with sustainable practices are
increasingly attractive to investors.
The risks of investing in farmland and timberland include low liquidity.
High fixed costs of production.
Variable cash flows that depend on weather and potential losses from natural disasters such as wildfires.
And that's our quick introduction to Timberland and farmland.
Next, we move on to real estate investments.
See you again!