Lesson 2 of 6 · 14 min
Investing in farmland and timberland
Farmland and timberland earn from selling their output, from output price changes and from land value changes, but timber can be stored on the stump while crops must be picked when ripe, and both carry weather and climate risk that can be partly hedged and partly managed.
In short
- Appeal: basic needs (food and shelter), recurring income, inflation protection from land, and relative insulation from financial-market swings.
- Size and owners: timberland trades in large tracts and is mostly institutional; farmland comes in smaller plots and is mostly family owned.
- Farmland grows row crops (planted and harvested, sometimes more than once a year) and permanent crops (trees, vines), or serves as pasture; crops must be harvested when ripe.
- Timberland is a factory and a warehouse: trees keep growing and can be left standing, so the owner can delay the harvest when prices are low.
- Vehicles: direct ownership, limited partnerships, LLCs, private and public REITs, often with a TIMO. Owner model = fixed rent; owner-operator model = variable cash flow and operating risk.
- Risks: weather and climate; a farm can sell futures to hedge its harvest. Extra value can come from carbon capture, water rights and conservation easements.
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