1
00:00:02,520 --> 00:00:07,000
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:09,400 --> 00:00:12,320
Speaker 2: Welcome, this is a farmhouse.

3
00:00:12,720 --> 00:00:18,280
Speaker 1: We have cluster fizz in this time of the.

4
00:00:19,960 --> 00:00:25,000
Speaker 2: Bad. Investors today can gain exposure to any asset class

5
00:00:25,079 --> 00:00:30,880
Speaker 2: via ETFs, stock spawns, real estate, metals, energy, even crypto.

6
00:00:31,680 --> 00:00:39,840
Speaker 2: One of the most overlooked sectors are agricultural commodities wheat, soybeans, corn, sugar, coffee,

7
00:00:39,920 --> 00:00:45,680
Speaker 2: all sorts of diversified commodities, and the ETF structure means

8
00:00:45,720 --> 00:00:49,919
Speaker 2: a very different kind of k one. I'm Barry Redolts,

9
00:00:49,920 --> 00:00:52,279
Speaker 2: and on today's edition of At the Money, we're going

10
00:00:52,320 --> 00:00:57,040
Speaker 2: to explore the question of whether agricultural products deserve a

11
00:00:57,120 --> 00:01:01,400
Speaker 2: place in your investment accounts. To help us unpack all

12
00:01:01,400 --> 00:01:04,360
Speaker 2: of this and what it means for your portfolio, let's

13
00:01:04,360 --> 00:01:07,920
Speaker 2: bring in Sal Gilberti. He's the founder, CEO, and chief

14
00:01:07,920 --> 00:01:13,680
Speaker 2: investment officer of Techrium Trading, best known for creating exchange

15
00:01:13,760 --> 00:01:19,400
Speaker 2: traded products that give investors direct exposure to ag futures.

16
00:01:19,400 --> 00:01:22,920
Speaker 2: He's also an old school commodities trader since nineteen eighty two,

17
00:01:23,480 --> 00:01:29,840
Speaker 2: trading various agricultural and energy commodities. So Sal, let's start

18
00:01:29,880 --> 00:01:35,920
Speaker 2: really basic. What makes agricultural commodities so fundamentally different from

19
00:01:36,120 --> 00:01:40,840
Speaker 2: other commodities like energy, metals or equities or bonds as

20
00:01:40,840 --> 00:01:41,800
Speaker 2: an asset class.

21
00:01:42,520 --> 00:01:44,680
Speaker 1: Sure, and thanks for having me, Barry. It's always fun

22
00:01:44,720 --> 00:01:47,640
Speaker 1: to be with you and talk with you. Let's face it,

23
00:01:47,680 --> 00:01:51,320
Speaker 1: everyone eats and their animals eat, and that's what aggs

24
00:01:51,320 --> 00:01:54,800
Speaker 1: are primarily used for. Although you know fuel now has

25
00:01:54,800 --> 00:01:59,920
Speaker 1: come into the mix, but aggs are very stable command

26
00:02:00,080 --> 00:02:03,760
Speaker 1: of these in terms of the downside historically, and you know,

27
00:02:03,800 --> 00:02:06,640
Speaker 1: we all know past performance is indicative future results and

28
00:02:06,680 --> 00:02:10,000
Speaker 1: all that, But the downside on eggs is very limited

29
00:02:10,000 --> 00:02:12,400
Speaker 1: because farmers will just stop planting if they're losing money.

30
00:02:12,840 --> 00:02:17,720
Speaker 1: And the secret with eggs is that demand continues to rise.

31
00:02:17,760 --> 00:02:22,280
Speaker 1: So the combined global demand of corn, soybeans, and wheat

32
00:02:22,280 --> 00:02:27,160
Speaker 1: since nineteen sixty, okay, rises every single year. It's a

33
00:02:27,240 --> 00:02:30,560
Speaker 1: record or it's almost a record. So it's either the

34
00:02:30,560 --> 00:02:33,120
Speaker 1: second highest ever or it's the highest ever, every single

35
00:02:33,160 --> 00:02:34,360
Speaker 1: year since nineteen sixty.

36
00:02:34,720 --> 00:02:37,559
Speaker 2: So is is that styla. Is that driven by population

37
00:02:37,800 --> 00:02:41,400
Speaker 2: growth or is it driven by I'm thinking about beef,

38
00:02:42,680 --> 00:02:45,840
Speaker 2: which seems to not only be benefiting from the whole

39
00:02:45,960 --> 00:02:49,680
Speaker 2: keto trend, but rising wealth in the rest of the

40
00:02:49,680 --> 00:02:53,280
Speaker 2: world means people are eating more protein and less of

41
00:02:53,400 --> 00:02:57,639
Speaker 2: other things. What's the underlying driver of increased demand for commodities?

42
00:02:57,720 --> 00:03:00,600
Speaker 1: You just hit it, Okay. Basically, the under line driver

43
00:03:00,800 --> 00:03:04,920
Speaker 1: is a rising population and more importantly than that, a

44
00:03:05,200 --> 00:03:08,639
Speaker 1: rising middle class, the people that rise from the bottom

45
00:03:09,080 --> 00:03:12,200
Speaker 1: to the next level. Okay, So if you look up

46
00:03:12,320 --> 00:03:14,600
Speaker 1: people who are in sustenance living, which they used to

47
00:03:14,600 --> 00:03:17,359
Speaker 1: be defined as I think less than ten dollars a day,

48
00:03:18,120 --> 00:03:21,959
Speaker 1: ten dollars equivalents a day of the moment they rise

49
00:03:21,960 --> 00:03:24,399
Speaker 1: from that. There are hundreds of studies on this. They

50
00:03:24,440 --> 00:03:27,480
Speaker 1: increase the protein in their diet, they increase eating meat,

51
00:03:27,600 --> 00:03:30,600
Speaker 1: that's what they do, and that is a huge demand.

52
00:03:30,800 --> 00:03:35,720
Speaker 1: The number one demand around the world for corn is

53
00:03:35,800 --> 00:03:40,320
Speaker 1: feeding cattle, is feeding animals in general, feeding animals. The

54
00:03:40,360 --> 00:03:43,520
Speaker 1: second highest demand is for fuel. So corn goes into ethanol,

55
00:03:43,720 --> 00:03:47,000
Speaker 1: and corn goes into sorry, soybeans go into biofuels. And

56
00:03:47,040 --> 00:03:51,280
Speaker 1: so what happens is the rising global population, the rising

57
00:03:51,400 --> 00:03:53,960
Speaker 1: middle class, the growing middle class, which has become huge,

58
00:03:54,000 --> 00:03:55,840
Speaker 1: by the way, I think, is a percentage of the population.

59
00:03:56,160 --> 00:03:59,240
Speaker 1: We're in our lowest ever percent of people in the

60
00:03:59,240 --> 00:04:00,280
Speaker 1: bottom bottom.

61
00:04:00,320 --> 00:04:03,040
Speaker 2: Wrong is that that's amazing. Does this mean we're going

62
00:04:03,080 --> 00:04:06,560
Speaker 2: to see beef b e f f b e e

63
00:04:06,720 --> 00:04:08,480
Speaker 2: f e t f from you sometimes?

64
00:04:08,480 --> 00:04:11,120
Speaker 1: SOO, No, it's really hard to get people to think

65
00:04:11,120 --> 00:04:15,200
Speaker 1: about eggs is really hard. It's amazing to me. You know,

66
00:04:15,320 --> 00:04:18,159
Speaker 1: we always say corn is in everything, right, so number

67
00:04:18,160 --> 00:04:21,520
Speaker 1: one use is feeding animals. Number two uses ethymol production.

68
00:04:22,320 --> 00:04:23,600
Speaker 1: It's in so it makes starch.

69
00:04:23,760 --> 00:04:23,920
Speaker 2: Right.

70
00:04:23,960 --> 00:04:26,640
Speaker 1: If you use paper, you're using corn. People don't realize that.

71
00:04:26,920 --> 00:04:32,080
Speaker 1: So it's literally impossible for anyone anywhere on planet Earth

72
00:04:32,120 --> 00:04:34,560
Speaker 1: to not be using corn every single day. They're directly

73
00:04:34,640 --> 00:04:37,359
Speaker 1: or indirectly. It's not possible. And people don't understand that

74
00:04:37,400 --> 00:04:40,520
Speaker 1: it's a vital commodity. And so going back to the

75
00:04:40,520 --> 00:04:44,880
Speaker 1: original question, I believe you know it's a commodity, so

76
00:04:44,960 --> 00:04:48,640
Speaker 1: it's volatile, but it has this floor because governments around

77
00:04:48,640 --> 00:04:51,680
Speaker 1: the world subsidize food production. They subsidize their farmers because

78
00:04:51,720 --> 00:04:55,280
Speaker 1: you don't want your your your populous to destabilize because

79
00:04:55,279 --> 00:04:58,919
Speaker 1: they're hungry and you lose power. So everybody subsidizes their farmers,

80
00:04:58,920 --> 00:05:01,640
Speaker 1: so farmers get used to op it break even. And

81
00:05:01,760 --> 00:05:04,520
Speaker 1: that actually is I think you've mentioned it, the golden

82
00:05:04,560 --> 00:05:07,080
Speaker 1: grain cycle. We can get into it, but grains kind

83
00:05:07,120 --> 00:05:09,719
Speaker 1: of flatline to get used to trading there. And because

84
00:05:09,800 --> 00:05:15,960
Speaker 1: that demand is very basically static, it's not a dynamic demand.

85
00:05:15,960 --> 00:05:20,320
Speaker 1: It's just always growing. It doesn't really fall significantly when

86
00:05:20,360 --> 00:05:22,719
Speaker 1: there's a disruption, which ninety nine times out of one

87
00:05:22,800 --> 00:05:25,640
Speaker 1: hundred means it doesn't rain somewhere critical and one time

88
00:05:25,640 --> 00:05:27,400
Speaker 1: out of one hundred means there's a war, there's a

89
00:05:27,400 --> 00:05:30,400
Speaker 1: political upheaval, and you might the transport of grains, the

90
00:05:30,440 --> 00:05:33,520
Speaker 1: access to grains might be limited. They explode higher, they

91
00:05:33,520 --> 00:05:35,839
Speaker 1: go higher really quickly because people are afraid.

92
00:05:36,640 --> 00:05:41,040
Speaker 2: Huh, that's really interesting. So you mentioned the golden grain cycle.

93
00:05:41,920 --> 00:05:45,400
Speaker 2: Walk us through what that means. Where is corn, wheat,

94
00:05:45,440 --> 00:05:48,120
Speaker 2: soybeans in that cycle today?

95
00:05:48,360 --> 00:05:52,440
Speaker 1: Sure? So golden grain cycle was developed by Jake Hanley.

96
00:05:52,800 --> 00:05:56,760
Speaker 1: I think you know him very well. And we looked

97
00:05:56,760 --> 00:05:59,440
Speaker 1: at it and said look, because we just looked at

98
00:05:59,480 --> 00:06:03,080
Speaker 1: the spot continuation, So the continuation price of the front

99
00:06:03,160 --> 00:06:06,680
Speaker 1: month of futures over time and the bottom line is

100
00:06:06,720 --> 00:06:09,359
Speaker 1: on corn as a prime example, between three dollars and

101
00:06:09,400 --> 00:06:13,080
Speaker 1: fifty cents and four dollars over the last seventeen years, okay,

102
00:06:13,360 --> 00:06:16,280
Speaker 1: actually approaching nineteen years since the renewable feels at two

103
00:06:16,320 --> 00:06:19,839
Speaker 1: thousand and seven, two thousand and eight, corn doesn't go

104
00:06:19,880 --> 00:06:22,039
Speaker 1: below that. It's I think it's traded, you know, a

105
00:06:22,080 --> 00:06:24,840
Speaker 1: few weeks under three dollars and fifty cents. In the

106
00:06:24,920 --> 00:06:27,960
Speaker 1: last nineteen years, I can tell you that corn has

107
00:06:27,960 --> 00:06:30,640
Speaker 1: only traded under four dollars four percent of the time

108
00:06:30,680 --> 00:06:33,080
Speaker 1: in the last four years five years. Sorry, So in

109
00:06:33,120 --> 00:06:35,440
Speaker 1: the last five years, corn has only been under four

110
00:06:35,480 --> 00:06:39,120
Speaker 1: dollars four percent of the trading days. So clearly the

111
00:06:39,160 --> 00:06:41,560
Speaker 1: break even is between three fifteen, four and closer to

112
00:06:41,600 --> 00:06:44,599
Speaker 1: four right now. So if you see corn down at

113
00:06:44,880 --> 00:06:48,440
Speaker 1: you know, near four dollars, you you kind of, based

114
00:06:48,440 --> 00:06:50,120
Speaker 1: on past history, you're saying, well, wait a minute, I

115
00:06:50,120 --> 00:06:53,960
Speaker 1: have limited downside. And in the last nineteen years, three

116
00:06:54,120 --> 00:06:58,159
Speaker 1: times corn has doubled from that price, okay, and twice

117
00:06:58,240 --> 00:07:00,960
Speaker 1: because of a drought, and once because of the war

118
00:07:01,240 --> 00:07:04,440
Speaker 1: in Ukraine, which was preceded by a drought in the

119
00:07:04,520 --> 00:07:10,000
Speaker 1: Upper Midwest and problems with China grain production and so

120
00:07:10,600 --> 00:07:12,880
Speaker 1: wheat production, so you had a wheat problem that kind

121
00:07:12,880 --> 00:07:15,320
Speaker 1: of started the rally. And then Russia invaded Ukraine in

122
00:07:15,400 --> 00:07:18,080
Speaker 1: twenty twenty and everything went bonkers there twenty twenty two,

123
00:07:18,120 --> 00:07:21,360
Speaker 1: I guess, and everything went bonkers. The rally started in

124
00:07:21,360 --> 00:07:22,960
Speaker 1: twenty twenty and wheat and then it went to the

125
00:07:22,960 --> 00:07:25,920
Speaker 1: whole grain complex. So if you've got an asset and

126
00:07:25,960 --> 00:07:27,760
Speaker 1: you say to somebody, I got this asset that trades

127
00:07:27,760 --> 00:07:31,480
Speaker 1: at X, and when there's this by disruption every four

128
00:07:31,480 --> 00:07:34,240
Speaker 1: to seven years, it goes to two X and then

129
00:07:34,240 --> 00:07:38,360
Speaker 1: it trades back down to X and then you know, repeat, gatherins, repeat.

130
00:07:38,400 --> 00:07:40,680
Speaker 1: So stage one of the golden grain cycle is trading

131
00:07:40,720 --> 00:07:44,320
Speaker 1: sideways X, stage two is going to two X, and

132
00:07:44,360 --> 00:07:46,480
Speaker 1: stage three is going back to one X.

133
00:07:46,560 --> 00:07:51,760
Speaker 2: So it sounds very much like these are trading vehicles

134
00:07:51,800 --> 00:07:56,040
Speaker 2: that you're looking to take advantage of these disruptions such

135
00:07:56,040 --> 00:07:59,920
Speaker 2: as war or droughts. What are the other variables investors

136
00:08:00,000 --> 00:08:04,840
Speaker 2: should be aware of? Obviously whether the war and Iran

137
00:08:05,320 --> 00:08:10,880
Speaker 2: sent fertilizer costs skyrocketing. I've been reading about farmers complaining

138
00:08:10,920 --> 00:08:17,080
Speaker 2: about that and then government policy I'm I'm watching I've

139
00:08:17,080 --> 00:08:20,000
Speaker 2: been a big fan of both Harry's Farm and then

140
00:08:20,080 --> 00:08:25,520
Speaker 2: Clarkson's Farm on Netflix, both of them complaining about policies

141
00:08:25,560 --> 00:08:30,320
Speaker 2: in the UK which are now taxing farm estates and

142
00:08:30,400 --> 00:08:36,040
Speaker 2: taxing fertilizer and taxing everything from tractors to what have you.

143
00:08:36,679 --> 00:08:40,120
Speaker 2: How significant are our government policies and what are the

144
00:08:40,160 --> 00:08:42,960
Speaker 2: other variables investors should be thinking about?

145
00:08:43,280 --> 00:08:46,199
Speaker 1: All right? Sure, so in order, the main variable is

146
00:08:46,240 --> 00:08:49,920
Speaker 1: always weather, okay, and then geopolitical upheaval like a war,

147
00:08:50,080 --> 00:08:52,839
Speaker 1: all right, And like what happened with wheat when Russia

148
00:08:52,880 --> 00:08:56,160
Speaker 1: invaded Ukraine. Between Ukraine and Russia, they're they're you know,

149
00:08:56,280 --> 00:08:59,920
Speaker 1: over almost forty percent of the world's exportable wheat supply,

150
00:09:00,000 --> 00:09:02,080
Speaker 1: and everybody was afraid it would get locked in. Well,

151
00:09:02,080 --> 00:09:03,840
Speaker 1: it didn't get locked in, so you had this this

152
00:09:04,040 --> 00:09:06,839
Speaker 1: price spike. And the reason price spikes is because you

153
00:09:06,920 --> 00:09:09,640
Speaker 1: run out of grain. Right. Remember you plant grain in

154
00:09:09,640 --> 00:09:12,880
Speaker 1: the spring, it grows all summer. There's a big pile

155
00:09:12,920 --> 00:09:15,160
Speaker 1: at harvest in the fall, and then you take from

156
00:09:15,160 --> 00:09:19,720
Speaker 1: that pile. The whole world's taken from that pile autumn, winter, spring,

157
00:09:19,840 --> 00:09:23,040
Speaker 1: and summer, okay, because it's still growing, it's not harvested yet.

158
00:09:23,240 --> 00:09:25,560
Speaker 1: And in general, at the end of that cycle, you

159
00:09:25,640 --> 00:09:28,880
Speaker 1: have about six months supply of wheat in general, okay,

160
00:09:28,960 --> 00:09:31,480
Speaker 1: Historically you have about three or four month supply of

161
00:09:31,559 --> 00:09:34,800
Speaker 1: corn and soybeans, all right, so if there's a disruption

162
00:09:35,360 --> 00:09:39,719
Speaker 1: and that's that big pile is reduced by you know,

163
00:09:39,840 --> 00:09:44,199
Speaker 1: ten thirty percent. Now you're approaching zero in corn soybeans,

164
00:09:44,200 --> 00:09:47,360
Speaker 1: all right. So that's why the price generally in July

165
00:09:47,920 --> 00:09:49,720
Speaker 1: takes a spike if they realize it's not going to

166
00:09:49,800 --> 00:09:53,160
Speaker 1: rain in the US corn belt and there's the weather factor. Okay,

167
00:09:53,520 --> 00:09:55,559
Speaker 1: prices spike and go up, and they run up in

168
00:09:55,880 --> 00:09:58,400
Speaker 1: the next year. What we've seen is a lot of

169
00:09:58,440 --> 00:10:00,280
Speaker 1: money coming into our ats. I mean, we we had

170
00:10:00,640 --> 00:10:02,760
Speaker 1: I don't know, two hundred hundred and fifty million in

171
00:10:02,800 --> 00:10:07,040
Speaker 1: our agg ETFs right before the Iran War broke out,

172
00:10:07,480 --> 00:10:09,520
Speaker 1: and now we have eight hundred million to a billion,

173
00:10:09,520 --> 00:10:12,360
Speaker 1: depending on the day. But the price hasn't really gone on.

174
00:10:12,480 --> 00:10:14,960
Speaker 1: The price went not maybe ten percent. The reason is

175
00:10:15,040 --> 00:10:18,319
Speaker 1: people are positioning for next year. The fertilizer story is

176
00:10:18,360 --> 00:10:23,240
Speaker 1: a twenty twenty seven story. So farmers will fertilize mid season,

177
00:10:23,600 --> 00:10:26,040
Speaker 1: okay around now, just to get they call it side dressing,

178
00:10:26,040 --> 00:10:28,200
Speaker 1: and that'll boost the yields. That's going to be cut

179
00:10:28,240 --> 00:10:30,800
Speaker 1: back around the world. But a lot of farmers pre

180
00:10:30,920 --> 00:10:34,319
Speaker 1: treat their fields, especially corn farmers, in the autumn. They

181
00:10:34,320 --> 00:10:35,959
Speaker 1: get ready so they can get in there in the

182
00:10:36,000 --> 00:10:38,120
Speaker 1: spring and get everything down, so some of the fertilizer

183
00:10:38,240 --> 00:10:41,040
Speaker 1: is either priced or goes down, gets laid down in

184
00:10:41,120 --> 00:10:44,280
Speaker 1: the autumn for next spring. If the fertilizer price remains

185
00:10:44,360 --> 00:10:47,400
Speaker 1: high in the autumn or the availability remains limited, you

186
00:10:47,480 --> 00:10:50,400
Speaker 1: will affect next year's yields. And I think that's what

187
00:10:50,440 --> 00:10:52,920
Speaker 1: investors have done. And back to your point, if it's

188
00:10:52,920 --> 00:10:56,760
Speaker 1: a tradable product, it's more a strategic allocation because these

189
00:10:56,960 --> 00:10:59,800
Speaker 1: these doubles that have happened prior to now and again

190
00:11:00,240 --> 00:11:02,640
Speaker 1: historical not making any predictions, you can't, We're not allowed.

191
00:11:02,880 --> 00:11:06,319
Speaker 1: But if you have to be prepositioned, and I think

192
00:11:06,360 --> 00:11:08,320
Speaker 1: investors are saying, well, wait a minute, if I stick

193
00:11:08,360 --> 00:11:11,120
Speaker 1: one percent of my portfolio and corn or beans or

194
00:11:11,120 --> 00:11:14,720
Speaker 1: wheat or whatever, it's my downside is pretty limited based

195
00:11:14,760 --> 00:11:16,880
Speaker 1: on history. If I'm buying within ten percent of the

196
00:11:17,240 --> 00:11:19,880
Speaker 1: break even price, and my upside is like ninety percent

197
00:11:20,000 --> 00:11:22,880
Speaker 1: based on history, okay, and it's going to be stable

198
00:11:22,960 --> 00:11:26,679
Speaker 1: because assuming you know, setting aside the one or two

199
00:11:26,840 --> 00:11:29,640
Speaker 1: days every couple of years that are black days, those

200
00:11:29,679 --> 00:11:33,520
Speaker 1: black days where everything goes down, grains really remain stable

201
00:11:33,559 --> 00:11:35,000
Speaker 1: in their portfolio stabilizer.

202
00:11:35,320 --> 00:11:35,480
Speaker 2: Huh.

203
00:11:35,520 --> 00:11:38,800
Speaker 1: And so people are kind of layering into trying to say,

204
00:11:38,800 --> 00:11:40,840
Speaker 1: maybe the stock market's f a fy, maybe I'm getting

205
00:11:40,880 --> 00:11:43,720
Speaker 1: a little too risky. Bond's kind of moving tandem with stocks.

206
00:11:43,720 --> 00:11:45,800
Speaker 1: What am I looking for that has, you know, a

207
00:11:45,880 --> 00:11:49,480
Speaker 1: lower correlation? Everything's correlated on certain days. Grains have some

208
00:11:49,520 --> 00:11:52,320
Speaker 1: of the lowest correlation around besides natural gas and sugar.

209
00:11:52,640 --> 00:11:56,560
Speaker 2: Huh. Really really interesting. One of the thoughts I always

210
00:11:56,960 --> 00:12:01,640
Speaker 2: consider when I'm looking at at agricultural products or commodities

211
00:12:02,000 --> 00:12:06,079
Speaker 2: is as a hedge to inflation. Prices go up on food,

212
00:12:06,120 --> 00:12:11,480
Speaker 2: prices go up on key commodities. Either are a lot

213
00:12:11,559 --> 00:12:15,200
Speaker 2: of different ways to hedge inflation. Owning the commodities that

214
00:12:15,280 --> 00:12:20,440
Speaker 2: go up is a significant aspect of this. How do

215
00:12:20,640 --> 00:12:25,360
Speaker 2: investors use commodity tfs as an inflation hedge?

216
00:12:25,480 --> 00:12:28,160
Speaker 1: They do? I think when people see inflation coming or

217
00:12:28,200 --> 00:12:32,480
Speaker 1: feel it coming, and you know, any commodity we're grain focused, right,

218
00:12:32,480 --> 00:12:34,640
Speaker 1: But any commodity if you see down at its break

219
00:12:34,679 --> 00:12:36,160
Speaker 1: even level and it's really you don't have to be

220
00:12:36,160 --> 00:12:38,120
Speaker 1: an expert in that commodity. Look at a chart, look

221
00:12:38,160 --> 00:12:41,040
Speaker 1: at a long term decade or two chart wherever it

222
00:12:41,160 --> 00:12:43,800
Speaker 1: flatlines it's usually at the round the same number. That's

223
00:12:43,800 --> 00:12:46,320
Speaker 1: your break even, that's your future's equivalent break even costs.

224
00:12:46,360 --> 00:12:48,920
Speaker 1: Everybody can see those charts. That's when you might want

225
00:12:48,960 --> 00:12:52,440
Speaker 1: to layer in because you're downside based on history is limited,

226
00:12:52,679 --> 00:12:55,400
Speaker 1: and you're upside. You know, you can move steadily up

227
00:12:55,440 --> 00:12:58,360
Speaker 1: with inflation, which we have. Again, that break even price

228
00:12:58,360 --> 00:13:00,640
Speaker 1: of corn used to be three fifty. It's clearly around

229
00:13:00,679 --> 00:13:01,360
Speaker 1: four dollars now.

230
00:13:01,360 --> 00:13:04,280
Speaker 2: Maybe a look fine, really really interesting. You know, the

231
00:13:04,320 --> 00:13:08,760
Speaker 2: first time I ever heard of a USDA crop report

232
00:13:09,200 --> 00:13:14,080
Speaker 2: was frozen orange juice futures from the movie Trading Places.

233
00:13:15,360 --> 00:13:21,839
Speaker 2: How significant are these USDA reports to these underlying ag products?

234
00:13:21,880 --> 00:13:25,720
Speaker 2: Do investors need to track this the way equity or

235
00:13:25,760 --> 00:13:28,160
Speaker 2: bond investors track non farm payrolls?

236
00:13:29,320 --> 00:13:31,760
Speaker 1: I think so. And the reason is, you know, granted

237
00:13:31,880 --> 00:13:34,480
Speaker 1: you it's not quite as dramatic because you may not

238
00:13:34,720 --> 00:13:38,120
Speaker 1: be as good at predicting the numbers of saying payroll right,

239
00:13:38,120 --> 00:13:40,840
Speaker 1: and those numbers get adjusted, as do the ag numbers sometimes.

240
00:13:40,840 --> 00:13:44,120
Speaker 1: But I think everybody knows here there's there's a whole

241
00:13:44,160 --> 00:13:47,360
Speaker 1: sub industry with an agriculture that's watching. They kind of

242
00:13:47,400 --> 00:13:49,280
Speaker 1: know what the USDA is going to put out. But

243
00:13:49,360 --> 00:13:52,200
Speaker 1: the USDA is the gold standard. So when that report

244
00:13:52,280 --> 00:13:55,520
Speaker 1: comes out, all of your hedge funds, all of your

245
00:13:56,160 --> 00:14:01,240
Speaker 1: pension funds, all the big institutional investors, who quite honestly

246
00:14:01,440 --> 00:14:03,600
Speaker 1: you know they're looking for opportunities, they also want to

247
00:14:03,600 --> 00:14:06,640
Speaker 1: cover their rear, all right. So if you've got the

248
00:14:06,720 --> 00:14:10,240
Speaker 1: USDA as your gold standard, you just follow that. So

249
00:14:10,280 --> 00:14:13,560
Speaker 1: if the USDA confirms what everybody else already knew, okay, fine,

250
00:14:13,600 --> 00:14:15,120
Speaker 1: you're a little late to the game, but you're probably

251
00:14:15,160 --> 00:14:17,920
Speaker 1: gonna be okay anyway. So, yeah, those reports are really big.

252
00:14:17,960 --> 00:14:19,880
Speaker 1: The scary thing, Barry, you and I can probably both

253
00:14:19,920 --> 00:14:22,400
Speaker 1: relate is when we give speeches now and I say

254
00:14:22,400 --> 00:14:26,440
Speaker 1: how many people have seen trading places? Far more than

255
00:14:26,480 --> 00:14:28,440
Speaker 1: half the room now has a blank look on their face.

256
00:14:28,720 --> 00:14:30,440
Speaker 1: Nobody under thirty five even knows what the.

257
00:14:30,360 --> 00:14:33,600
Speaker 2: Movie is really going off. God, it's just that I'm

258
00:14:33,640 --> 00:14:35,920
Speaker 2: genuinely I'm genuinely shocked at that.

259
00:14:36,560 --> 00:14:39,320
Speaker 1: We require our interns to watch it. You gotta watch.

260
00:14:39,200 --> 00:14:43,240
Speaker 2: It's Eddie Murphy's It could be his very best movie.

261
00:14:43,600 --> 00:14:47,280
Speaker 2: So so you mentioned earlier drought, we talked about war.

262
00:14:49,200 --> 00:14:52,400
Speaker 2: Given the rise of prediction markets, everybody's trying to figure

263
00:14:52,440 --> 00:14:57,480
Speaker 2: out what's going on. How much of information about either

264
00:14:57,600 --> 00:15:02,080
Speaker 2: weather or geopolitics or whatever, even a poor harvest, how

265
00:15:02,160 --> 00:15:05,120
Speaker 2: much of that is already embedded in crop prices.

266
00:15:07,080 --> 00:15:10,480
Speaker 1: Most of it is the one caveat again, as I've

267
00:15:10,520 --> 00:15:13,640
Speaker 1: referenced earlier. If you get a drought in the US

268
00:15:13,720 --> 00:15:17,120
Speaker 1: Midwest around July or August, which is what they call

269
00:15:17,280 --> 00:15:20,160
Speaker 1: kernel phil and podfill, okay, currents when the corns get

270
00:15:20,160 --> 00:15:23,320
Speaker 1: their kernels and when the soybeans get their fill their pods.

271
00:15:24,080 --> 00:15:27,240
Speaker 1: If you're too dry and hot in that period, it

272
00:15:27,680 --> 00:15:30,240
Speaker 1: hits hard. In the US being the you know the

273
00:15:30,280 --> 00:15:33,960
Speaker 1: world's second largest producer of both those commodities. Now we're

274
00:15:34,080 --> 00:15:38,080
Speaker 1: or exporter, we're second to Brazil. Now that hurts a lot,

275
00:15:38,600 --> 00:15:41,280
Speaker 1: but you can see it. Okay, So by the end

276
00:15:41,320 --> 00:15:43,520
Speaker 1: of June, if you're looking at the if it's been

277
00:15:43,600 --> 00:15:45,880
Speaker 1: dry and hot and the fourteen day forecast says it's

278
00:15:45,920 --> 00:15:47,760
Speaker 1: going to stay dry and hot, you see that price

279
00:15:47,760 --> 00:15:49,600
Speaker 1: start creeping up. And you can look back in drought

280
00:15:49,640 --> 00:15:52,400
Speaker 1: years in the charts, the price charts, so it gets

281
00:15:52,440 --> 00:15:54,440
Speaker 1: built in, but you don't know how bad it is

282
00:15:54,560 --> 00:15:57,360
Speaker 1: until harvest. So you kind of in drought years you

283
00:15:57,440 --> 00:16:01,480
Speaker 1: get this slow dribble up and then when you get

284
00:16:01,520 --> 00:16:04,400
Speaker 1: confirmation in autumn and late autumn, then you get that

285
00:16:04,440 --> 00:16:07,760
Speaker 1: winter time spike up. Seasonally, though the corn low is

286
00:16:08,440 --> 00:16:10,880
Speaker 1: there's double low. One is that the middle to late

287
00:16:10,960 --> 00:16:13,600
Speaker 1: August is a good time to look at layering corn

288
00:16:13,640 --> 00:16:15,920
Speaker 1: in if you're so inclined to do that to your portfolio,

289
00:16:16,160 --> 00:16:18,400
Speaker 1: because that's when people have a really good idea that

290
00:16:18,400 --> 00:16:20,240
Speaker 1: the crop is going to be good or bad. And

291
00:16:20,280 --> 00:16:22,800
Speaker 1: then October first is actually when you do a twenty

292
00:16:22,880 --> 00:16:26,800
Speaker 1: years smooth or thirty year smooth seasonal. October first, the

293
00:16:26,800 --> 00:16:30,480
Speaker 1: first week of October is the cyclical low. The actual

294
00:16:30,680 --> 00:16:34,040
Speaker 1: absolute price low often occurs in August, so August when

295
00:16:34,080 --> 00:16:35,640
Speaker 1: you get a good read on the crop, it rained

296
00:16:35,680 --> 00:16:39,000
Speaker 1: during that critical time, everybody's happy. And then October because

297
00:16:39,040 --> 00:16:41,840
Speaker 1: the whole big pile is on the ground, everybody's feeling comfortable.

298
00:16:41,920 --> 00:16:44,040
Speaker 1: Those are good times to look at layering these things

299
00:16:44,080 --> 00:16:45,040
Speaker 1: into your portfolio.

300
00:16:45,240 --> 00:16:50,000
Speaker 2: Really really interesting. China has become the dominant buyer of

301
00:16:50,160 --> 00:16:55,160
Speaker 2: so many agricultural products as well as other commodities. How

302
00:16:55,280 --> 00:17:00,680
Speaker 2: has their growing economy and even geopolitical importance changed the

303
00:17:00,720 --> 00:17:03,360
Speaker 2: way grain markets trade.

304
00:17:03,840 --> 00:17:07,160
Speaker 1: It has changed the way commodity markets trade as I've

305
00:17:07,200 --> 00:17:10,240
Speaker 1: watched China for decades and as they become a net

306
00:17:10,320 --> 00:17:13,440
Speaker 1: importer of something. So when they became a net importer

307
00:17:13,480 --> 00:17:16,560
Speaker 1: of crude oil, that changed the crude markets. When they

308
00:17:16,560 --> 00:17:20,840
Speaker 1: became a net importer of corn, that changed the corn markets.

309
00:17:20,840 --> 00:17:23,119
Speaker 1: When they became a net importer of wheat, that changed

310
00:17:23,160 --> 00:17:28,000
Speaker 1: the wheat markets. When they know increase their importation of soybeans,

311
00:17:28,440 --> 00:17:32,439
Speaker 1: they are the soybean market. Okay, so China buys most

312
00:17:32,560 --> 00:17:35,040
Speaker 1: of the world soybeans that are available for export. Only

313
00:17:35,080 --> 00:17:39,200
Speaker 1: three countries exports soybeans, basically Brazil, the United States, and Argentina.

314
00:17:39,680 --> 00:17:41,480
Speaker 1: Product Guy is a little blip there, but you can't

315
00:17:41,480 --> 00:17:43,160
Speaker 1: really see it on a pie chart it's so small.

316
00:17:43,200 --> 00:17:46,800
Speaker 1: And so those three countries if they have an export problem,

317
00:17:46,880 --> 00:17:50,159
Speaker 1: China has a problem because China, China is the largest swineherd.

318
00:17:50,400 --> 00:17:53,160
Speaker 1: They feed swine, you know, soybean meal, and so they're

319
00:17:53,320 --> 00:17:56,639
Speaker 1: gigantic importers of soybeans. So yeah, if China imports are not,

320
00:17:56,720 --> 00:17:59,879
Speaker 1: the interesting part is soybeans. They've kind of matched that,

321
00:18:00,240 --> 00:18:02,720
Speaker 1: but on corn and wheat. Every year, if you look

322
00:18:02,760 --> 00:18:06,160
Speaker 1: at long term trends, they increase how much exactly. It's

323
00:18:06,200 --> 00:18:08,440
Speaker 1: just like oil, the amount of oil the import just

324
00:18:08,520 --> 00:18:09,040
Speaker 1: keeps going on.

325
00:18:09,240 --> 00:18:12,840
Speaker 2: Huh really really interesting given the role of China, the

326
00:18:12,920 --> 00:18:16,199
Speaker 2: riseing role of China and commodity imports, what was the

327
00:18:16,240 --> 00:18:19,359
Speaker 2: impact of all the mayhem the past year with tariffs.

328
00:18:19,600 --> 00:18:25,480
Speaker 2: Did that have a significant effect on how much US

329
00:18:25,880 --> 00:18:28,920
Speaker 2: grain farmers were able to export?

330
00:18:29,600 --> 00:18:32,080
Speaker 1: Kind of because in Trump's first term, when he did

331
00:18:32,119 --> 00:18:35,280
Speaker 1: the tariffs, that changed everything, So that affected things more.

332
00:18:35,680 --> 00:18:39,520
Speaker 1: China basically shifted towards Brazil as their first first sort

333
00:18:39,720 --> 00:18:42,840
Speaker 1: you know, choice for so I mean imports toward the US.

334
00:18:42,880 --> 00:18:44,399
Speaker 1: So what kind of that persists?

335
00:18:44,480 --> 00:18:48,680
Speaker 2: The US has fallen behind Brazil and exports to China.

336
00:18:48,520 --> 00:18:51,159
Speaker 1: Yes, absolutely, And Brazil's beans buy and large have been

337
00:18:51,240 --> 00:18:54,000
Speaker 1: cheaper lately anyway, and so China just you know, tar

338
00:18:54,000 --> 00:18:55,360
Speaker 1: if or not, they're going to go where the cheaper

339
00:18:55,440 --> 00:18:57,800
Speaker 1: beans are. When China buys our beans, now it's the

340
00:18:57,880 --> 00:19:00,600
Speaker 1: state buying them because our beans are marks and they're

341
00:19:00,600 --> 00:19:05,000
Speaker 1: sending a political signal of goodwill towards the Trump administration. China,

342
00:19:05,119 --> 00:19:08,399
Speaker 1: i will know, saved the world by cutting down on

343
00:19:08,440 --> 00:19:13,439
Speaker 1: their crude imports. Their cruit imports largely were to support

344
00:19:13,480 --> 00:19:16,000
Speaker 1: their strategic petroleum reserve. In the last couple of years,

345
00:19:16,040 --> 00:19:18,280
Speaker 1: they've been importing much more than they actually used to

346
00:19:18,280 --> 00:19:22,280
Speaker 1: boost up their reserves. China is the number one reason

347
00:19:22,560 --> 00:19:27,320
Speaker 1: that crude demand went down since the Iran War has started,

348
00:19:27,640 --> 00:19:30,280
Speaker 1: and China has saved the world. China saved energy price.

349
00:19:30,280 --> 00:19:32,320
Speaker 1: Everybody said one hundred and fifty two hundred dollars a barrel.

350
00:19:32,560 --> 00:19:35,679
Speaker 1: If it weren't for China cutting back on their energy imports,

351
00:19:35,680 --> 00:19:36,520
Speaker 1: we would have seen that.

352
00:19:37,200 --> 00:19:38,959
Speaker 2: I think a lot of people in the United States

353
00:19:39,080 --> 00:19:46,600
Speaker 2: underappreciate how aggressively and let's just call it clever, China

354
00:19:46,680 --> 00:19:52,199
Speaker 2: has pushed into alternative energy everything from geothermal to solar

355
00:19:52,320 --> 00:19:56,159
Speaker 2: to wins not a surprise. There's certain things that you

356
00:19:56,200 --> 00:20:00,640
Speaker 2: can't replace crude oil with, but everything else else they can.

357
00:20:00,720 --> 00:20:02,680
Speaker 2: They seem to have really made an effort to do so.

358
00:20:02,760 --> 00:20:04,800
Speaker 1: Correct And I you know, don't quote me on this.

359
00:20:04,840 --> 00:20:06,080
Speaker 1: I don't know for sure, we have to go look

360
00:20:06,119 --> 00:20:08,919
Speaker 1: it up. But I think their fossil food usage is

361
00:20:08,920 --> 00:20:11,320
Speaker 1: still going up like you can't, you can't do without.

362
00:20:11,720 --> 00:20:15,800
Speaker 1: And the fact that, thank goodness, they were filling their

363
00:20:15,800 --> 00:20:20,000
Speaker 1: strategic patroleum reserve versus actually needing the oil. So when

364
00:20:20,040 --> 00:20:22,320
Speaker 1: the Iran Iraq work, they're not going to pay eye

365
00:20:22,320 --> 00:20:25,359
Speaker 1: prices to fill fill some reserves. So they just stopped

366
00:20:25,359 --> 00:20:28,400
Speaker 1: importing all that crude and that has helped us tremendously.

367
00:20:29,119 --> 00:20:34,200
Speaker 2: China is not doing this because they're advocates against carbon

368
00:20:34,280 --> 00:20:38,280
Speaker 2: and climate change. They're doing it for strategic reasons. But

369
00:20:38,440 --> 00:20:41,439
Speaker 2: let's talk about climate change for a moment. I know

370
00:20:41,520 --> 00:20:44,879
Speaker 2: in New York our growing season is longer. I know

371
00:20:45,040 --> 00:20:50,040
Speaker 2: there are I'm a gardener, and there are certain plants

372
00:20:50,520 --> 00:20:54,000
Speaker 2: that I can plant now that fifteen years ago I

373
00:20:54,119 --> 00:20:56,960
Speaker 2: was told, Oh, there's no way that'll survive in New York.

374
00:20:57,720 --> 00:21:04,720
Speaker 2: What does the changing temperature bands the changing climate. What's

375
00:21:04,760 --> 00:21:09,160
Speaker 2: the impact on crop yields? Is this a persistent upward trends?

376
00:21:09,280 --> 00:21:11,600
Speaker 2: Is this going to help prices or is this just

377
00:21:11,640 --> 00:21:13,040
Speaker 2: going to create more volatility?

378
00:21:13,440 --> 00:21:16,320
Speaker 1: I think more volatility because rain makes grain, and a

379
00:21:16,440 --> 00:21:19,560
Speaker 1: warmer earth. Honestly, God, rain makes grain.

380
00:21:19,640 --> 00:21:20,120
Speaker 2: I love that.

381
00:21:20,359 --> 00:21:24,840
Speaker 1: A warmer earth. Okay, the atmosphere when it's warm, holds

382
00:21:24,840 --> 00:21:28,000
Speaker 1: more moisture and so you actually get more rain. So

383
00:21:28,000 --> 00:21:32,080
Speaker 1: so global warming has been really good for crops around

384
00:21:32,160 --> 00:21:35,760
Speaker 1: the world. It's a really good thing for crop production.

385
00:21:36,080 --> 00:21:39,000
Speaker 1: That might sound counterintuitive to people. Our phones ring off

386
00:21:39,000 --> 00:21:41,600
Speaker 1: the hook when you get the occasional storm and you know,

387
00:21:41,680 --> 00:21:43,560
Speaker 1: a million or two million acres flood out in the

388
00:21:43,640 --> 00:21:45,840
Speaker 1: US and you get the new you know, flying helicopters

389
00:21:45,880 --> 00:21:47,399
Speaker 1: over as far as you can see all these farms

390
00:21:47,400 --> 00:21:49,400
Speaker 1: are underwater, and we get the call. You know, what's

391
00:21:49,440 --> 00:21:51,680
Speaker 1: that going to do to food prices? Well, they popped

392
00:21:51,760 --> 00:21:53,240
Speaker 1: up a little bit, but you might want to sell

393
00:21:53,240 --> 00:21:56,919
Speaker 1: the rally because the only we plant four hundred to

394
00:21:56,920 --> 00:21:58,920
Speaker 1: five hundred million acres in the United States, you lose

395
00:21:58,920 --> 00:22:01,240
Speaker 1: two million acres. No one cares in terms of the

396
00:22:01,240 --> 00:22:03,360
Speaker 1: absolute price. The only thing would care of those poor

397
00:22:03,359 --> 00:22:06,359
Speaker 1: farmers who are underwater. That's it. And hopefully they have croffitsure.

398
00:22:06,720 --> 00:22:09,640
Speaker 2: So everybody who's flooded out, the one less than one

399
00:22:09,680 --> 00:22:13,800
Speaker 2: percent suffers, but the rest of the rain brings more crop.

400
00:22:13,840 --> 00:22:17,040
Speaker 2: You're saying absolutely really really interesting. You know, we've talked

401
00:22:17,080 --> 00:22:21,360
Speaker 2: about everything but technology, and I mentioned I'm a fan

402
00:22:21,400 --> 00:22:26,720
Speaker 2: of Clarkson's farm and Harry's farm and some of the technology.

403
00:22:26,840 --> 00:22:32,160
Speaker 2: Just looking at these tractors run themselves like autonomous vehicles

404
00:22:32,480 --> 00:22:36,200
Speaker 2: have been on the farms for years, long before any

405
00:22:36,240 --> 00:22:40,600
Speaker 2: of the robotaxis that are out there. What does improving

406
00:22:40,720 --> 00:22:47,159
Speaker 2: technology due to agricultural productivity? Are we seeing precision irrigation,

407
00:22:47,440 --> 00:22:52,720
Speaker 2: better seeds, higher quality machinery? What is this doing to production?

408
00:22:52,880 --> 00:22:55,040
Speaker 2: What is this doing to quality? And what does this

409
00:22:55,119 --> 00:22:55,840
Speaker 2: mean for price?

410
00:22:56,040 --> 00:23:00,520
Speaker 1: It's buy and large raising everything except the price. So thankfully,

411
00:23:00,960 --> 00:23:05,280
Speaker 1: everything you just mentioned has worked perfectly because that again

412
00:23:05,320 --> 00:23:10,000
Speaker 1: back to nineteen sixty, that rising global demand for combined corn, soild, beans,

413
00:23:10,000 --> 00:23:13,960
Speaker 1: and wheat. If you look at this the supply line,

414
00:23:14,200 --> 00:23:17,440
Speaker 1: it follows that very closely. Other than a drought year, okay,

415
00:23:17,600 --> 00:23:20,719
Speaker 1: So except in a drought year, we generally grow as

416
00:23:20,880 --> 00:23:23,480
Speaker 1: much or more than we need. And that's only because

417
00:23:23,520 --> 00:23:28,879
Speaker 1: of genetic engineering of seeds, okay, of amazing technology where

418
00:23:28,920 --> 00:23:31,880
Speaker 1: you know tractors now not only can there be autonomous.

419
00:23:31,920 --> 00:23:33,960
Speaker 1: They used to run three to five miles an hour,

420
00:23:34,200 --> 00:23:36,000
Speaker 1: all right, and you had a kind of guess at

421
00:23:36,000 --> 00:23:38,800
Speaker 1: your fertilizer. Now they run nine miles an hour across

422
00:23:38,840 --> 00:23:43,159
Speaker 1: these fields, adjusting the fertilizer every three feet, okay, based

423
00:23:43,160 --> 00:23:46,080
Speaker 1: on the analysis and the soil. They've got these these

424
00:23:46,240 --> 00:23:50,399
Speaker 1: amazing laser weaders, so you can you can actually go

425
00:23:50,480 --> 00:23:55,240
Speaker 1: over your you know the just chemicals zapp in these wheels.

426
00:23:55,240 --> 00:23:57,880
Speaker 1: You could do stuff without chemicals, and you know there's

427
00:23:57,920 --> 00:24:01,320
Speaker 1: more and more organic land being set aside for less chemicals.

428
00:24:01,359 --> 00:24:03,919
Speaker 1: I mean, it's all so wonderful. All the technology is.

429
00:24:04,040 --> 00:24:06,640
Speaker 1: It's a beautiful world. When you look at agricultural technology,

430
00:24:06,680 --> 00:24:07,240
Speaker 1: it's amazing.

431
00:24:07,320 --> 00:24:11,320
Speaker 2: So to wrap up, anyone interested in having exposure to

432
00:24:11,640 --> 00:24:16,840
Speaker 2: agricultural commodity products, whether you think the price trend is

433
00:24:16,880 --> 00:24:20,160
Speaker 2: going to go higher or just as a hedge against inflation,

434
00:24:20,840 --> 00:24:22,919
Speaker 2: check out some of the ETFs you can get that

435
00:24:22,960 --> 00:24:26,520
Speaker 2: can give you exposure to wheat, soybean, sugar, or any

436
00:24:26,560 --> 00:24:30,840
Speaker 2: combination of things. I'm Barry redults, you're listening to Bloombergs

437
00:24:31,160 --> 00:24:36,760
Speaker 2: at the Money