Natural Resources include commodities (hard and soft), agricultural land, and timberland. Hard commodities are either mined or extracted (e.g. copper, oil). Soft commodities are grown over a period of time (e.g. livestock, grains, coffee).

Raw Land

Raw land's investment returns occur strictly from price changes. There's no income stream.

Timberland and Farmland

Timberland offers an income stream based on the sale of trees, wood and other products. It can be thought of as both a factory and a warehouse. The harvest time can be chosen. Plus, it is a sustainable investment that migrates climate-related risks.

Farmland has an income stream component related to harvest quantities and agricultural commodity prices. However, farmland does not have the production facility of timberland, because farm products must be harvested when ripe.

Commodities

Commodity returns are based on changes in price and do not include an income stream such as dividends, interests, or rent.

Commodity derivatives are financial instruments that derive their value from the value of the underlying commodities. They include commodity futures, forwards, options and swaps.

Commodity spot prices are determined by market supply and demand.

The price of a commodity futures contract is determined by the spot price, risk-free rate, storage costs and convenience yield.

Futures Price ≈ Spot Price (1 + r) + Storage Costs - Convenience Yield

Convenience yield is the additional value gained by holding the commodity rather than having a long forward or futures contract on it, such as the ability to take advantage of shortages.

Under normal market conditions, the spot price would be lower than the futures price due to the cost to carry. This is referred as normal carry charge market or contango.

Under abnormal circumstances such as shortage of supply of a commodity in the short term, the contango can be reduced or even reversed. In this case the spot price can become higher than the futures price. This process is known as backwardation.