Farmland Financialization

By Matthew Gutierrez and Shawn O'Malley · January 09, 2024

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There’s something special about supporting local businesses. Ditto for family businesses, which include everything from mom-and-pop bakeries to the thousands of midsize companies that support most economies. ??

Once in a while, a family business becomes a household name: Walmart, Chick-fil-A, Carnival, Comcast, Ford, and Aldi are all family businesses that have made it big.

?? In fact, something like one-third of all S&P 500 companies are defined as family businesses.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• China becomes the world’s biggest auto exporter
• The stabilizing global advertising market
• Why billionaires are soaking up rural properties

All this, and more, in just 5 minutes to read.

POP QUIZ

Family-owned businesses play a huge part in the global economy — what percentage of global GDP and employment do they underpin? (The answer is at the bottom of this newsletter)

CHART OF THE DAY

IN THE NEWS

?? China Becomes the World’s Biggest Auto Exporter

China has officially dethroned Japan as the world’s top car exporter — with an assist from Russia.?

Heightened demand for gas-powered vehicles pushed sales of made-in-China cars to a record high last year, a “tectonic shift for the global industry,” The Wall Street Journal reports.?

Global footprint: Thanks to its leadership in the electric vehicle market, China sits at the center of the world’s automaking industry. But it’s really the gas-powered autos that pushed it past Japan. Surging demand in Russia helped.?

• Western carmakers left a void in Russia after the country invaded Ukraine, and China stepped in to capitalize, selling at least five times as many vehicles there in 2023 than the 160,000 it sold in 2022.
• About 5.26 million made-in-China cars were sold last year, about one million more than Japanese-made cars.
• EVs are unquestionably on the rise, but China found enormous success exporting gas-powered cars to markets such as Russia and Mexico.

Even still, China’s next wave of exports will include more EVs and hybrids. Leading the way: BYD, which beat out Tesla as the world’s best-selling EV maker. Overseas sales have skyrocketed about five times to 242,000 in 2023, and it’s expanding showrooms rapidly in Europe.?

Why it matters:

Cars are big business: Passenger car sales at home and abroad reached a record 25.5 million in 2023.?

China’s rise also marks a victory for Beijing’s industrial policies after similar successes in solar panels and batteries, rapidly growing industries.?

• China has embraced EVs and hybrids by bankrolling local manufacturers and subsidizing sales, all of which helped it beat out Japan, Germany, and South Korea.
• In the U.S., American, German, and Japanese cars dominate the roads. But worldwide, it’s China’s industry.?

Read more

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?? The Global Advertising Market Appears to be Stabilizing

To the relief of media and entertainment companies everywhere, the advertising market’s pandemic-era volatility is stabilizing and is expected to continue normalizing over the next five years.

From Hollywood actors’ and writers’ strikes to Apple’s privacy changes that spurred cutbacks in ad spending on platforms like Facebook and Instagram, the media biz has had a rocky few years.

Tough business: The industry is particularly cyclical — brands happily splurge on promotions when times are good. But even a whiff of economic slowdown (and, more specifically, lower discretionary consumer spending) can be enough to spook companies to slash their marketing budgets.

• Marketing budgets are far easier to scale back and turn on again than cutbacks elsewhere, especially compared to layoffs.
• Given the vast data at their fingertips, Big Tech firms like Alphabet and Meta, which run major ad businesses on Google Search and social media, respectively, recovered much faster from advertising downturns than traditional media forms (TV, newspapers, radio, etc.)

According to GroupM, a leading international advertising agency, the global ad market will grow another 5.3% this year after jumping 5.8% in 2023.

One big driver? Political advertising, at least in the U.S., ahead of November’s Presidential election.

• Excluding political ads, the North American ad market is forecasted to grow by 4.2%. Including political ads, that figure jumps to 7.8%.
• The Olympics in Paris this summer are also supporting more ad spending.

Why it matters:

Historically, advertising spending is slow-growing, and any inflation-adjusted growth correlates closely with global GDP increases.

That’s because advertising was primarily driven by car manufacturers, packaged goods companies, and mass market retailers, writes Sara Fischer of Axios. But “the rise of new ad formats online and new digital businesses pushed the ad market to grow faster than GDP during the late 2010s.”

• That surge was unsustainable, and the pandemic flipped everything upside down. Three years later, the ad market is growing strong, but the growth rate is slowing and trending back to historical norms.

Looking forward: While ad spend on traditional media will likely decline again this year, digital advertising (think social media, streaming, e-commerce, search) has now captured 70% of worldwide ad revenue.

• Says Fischer, “The current trends are expected to continue to favor large, global tech platforms, thanks to their global reach and investments in AI-driven marketing tools.”
• 56% of all ad spending outside of China went to Google, Meta, and Amazon.

Read more

MORE HEADLINES

?? Tiger Woods and Nike split up after 27 years.

?? The iPhone that survived and works after a 16,000-foot drop from the Alaska Airlines flight.

??? Zillow projects that Buffalo, NY, will be 2024’s hottest housing market.

?? Bill Ackman escalates his fight against prestigious American universities.

??? Why JetBlue is backing a startup that removes carbon from the air.

??? Billionaires Soak Up Rural U.S. Properties

Chen Tianqiao owns 198,000 acres of timberland in Oregon. That makes him America’s 82nd-largest property owner.

But he’s not American; he’s Chinese. Only Canada’s prominent Irving family owns more U.S. land as a foreigner than Tianqiao.

Gaming tycoon to farmer? Tianqiao made his money through Shanda Interactive over twenty years ago, quickly becoming one of China’s largest online gaming companies, even briefly trading on the Nasdaq exchange.

Like many billionaires, he’s sought inflation hedges and uncorrelated assets to protect his wealth. Farmland and other rural properties, particularly in the U.S., have proven to be an increasingly popular safe haven for the ultra-wealthy.

• U.S. cropland values are, on average, up by more than a third since 2020 and rose 8.1% last year.

• Some 40 million acres of American agricultural land were owned by foreign investors in 2021, amounting to roughly 3% of all U.S. agricultural land.

Why it matters:

As Bloomberg’s David Pendleton reports, “Foreign ownership of U.S. land — particularly land used for farming — has become a sensitive political issue in recent years.”

• Some have warned that adversarial nations may buy sensitive land with hostile purposes. Yet, Canadians own the most American farmland from abroad.

• A brewing fight over foreign farmland ownership in Congress came to a head in July, but resolutions restricting investment from China, Russia, Iran, and North Korea failed to pass.

Billionaires love farms: It’s not just foreign billionaires buying up farmland, either.

• Bill Gates has famously acquired thousands of acres worth of land, saying, “We invest in the farms to raise productivity” and “some are near cities and might end up having other uses.”
• Pandemic-era commodity inflation, particularly for food, has illustrated why agricultural lands are so valuable.
• In 2014, Warren Buffett wrote that farmland investments often come with “no downside and potentially substantial upside.”

Pension funds and endowments have been investing in farmland for decades, too, with the U.S. Senate conducting hearings in the 1980s on whether farmland financialization was boosting land prices, making it harder for new farmers to enter the business.

Read more

QUICK POLL

Does growing foreign ownership of U.S. farmland concern you?

Yes

No

Undecided

Yesterday, we asked:?Roughly how much do you spend yearly on food, grooming, boarding, and vet care for your pet(s)?

— A reader who responded $2,000-4,000 added, “Food, supplies, boarding, grooming, and vet care for one medium-sized senior dog.”

— This reader spends more than $4,000 yearly: “With 3 dogs, 6 goats, and 4 llamas, it’s expensive but "priceless" to my wife.”

— And we can certainly relate to this comment: “Dog boarding is so expensive it can impact travel plans. Any trip to the vet can also be a budget buster.”

TRIVIA ANSWER

McKinsey finds that family-owned businesses drive about 70% of global GDP, worth between $60 and $70 trillion annually, while also being responsible for about 60% of global employment.

SEE YOU NEXT TIME!

That's it for today on We Study Markets!

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