Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of The Odd Lots podcast.
Speaker 2: I'm Jill Wisenthal and I'm Tracy Alloway. Tracy, you know
Speaker 2: I've never had nutello before.
Speaker 3: I know that. I think we're talking about this the
Speaker 3: other day and I said, and I mean this one
Speaker 3: hundred percent, and I don't mean it to come off badly,
Speaker 3: but I genuinely feel really sorry for you for never
Speaker 3: having newtella. I feel like you are missing out on
Speaker 3: one of the best things in life.
Speaker 2: And you know, I've never had the Dubai chocolate before either.
Speaker 4: I know.
Speaker 3: Again, my sympathy for you just continues to expand.
Speaker 2: So as everyone knows, you know, I'm just like a
Speaker 2: real ahead of the curve guy in most things. I
Speaker 2: was really ahead of the curve. I'm having nut allergies
Speaker 2: because now like all kids basically have nut allergies. It
Speaker 2: seems like or like half the kids in any my
Speaker 2: kids class. But I was like, really early on in
Speaker 2: the nineteen.
Speaker 3: You're having nut allergies before it was cool.
Speaker 2: I was having nut allergies before it was cool. I'm
Speaker 2: aware that people love nutella. I'm aware that people love
Speaker 2: Dubai chocolate or some people do, or they at least
Speaker 2: like posting about it on Instagram and all things pistachios,
Speaker 2: et cetera. And yes, but I take it. It's all
Speaker 2: good stuff.
Speaker 3: It's so good. Oh my god, it's I mean, there
Speaker 3: is nothing better than eating nutella out of a spoon,
Speaker 3: or sorry, eating nutella out of a jar with a spoon,
Speaker 3: preferably with a glass of milk. Like, it is so good,
Speaker 3: it looks good. Do you buy chocolate?
Speaker 4: Have you had it?
Speaker 3: I have, but I'm not that enamored with it.
Speaker 2: Interesting. I remember, like it was probably like a year
Speaker 2: and a half ago, and I just started seeing like signs.
Speaker 2: It's like we have the du Bui chocolate.
Speaker 3: Oh they're everywhere.
Speaker 4: Yeah.
Speaker 2: But the other day I went to my the local
Speaker 2: deli on my block and they had five just on
Speaker 2: the counter. They had five different versions, five different company
Speaker 2: selling it, five different products that you could buy, which
Speaker 2: I take is just some sort of you know, chocolate
Speaker 2: with some sort of creamy pistache shoe in the middle,
Speaker 2: and if you break it open, it looks good. On
Speaker 2: social media, that's pretty much it.
Speaker 3: I do find it kind of funny that this like
Speaker 3: viral chocolate has come out of Dubai, of all places,
Speaker 3: which doesn't necessarily have a strong confectionery history, but it
Speaker 3: has certainly tapped into various luxury markets. So I think
Speaker 3: that's what's going on.
Speaker 2: I was looking through the conference called transcripts on the
Speaker 2: Bloomberg a few weeks ago, and I was looking like,
Speaker 2: what companies have talked about this? And there's one big
Speaker 2: Swiss publicly traded chocolatier and they talked about it, and
Speaker 2: they talked about I guess it was a woman and
Speaker 2: Dubai just started making it. Then we called it the
Speaker 2: Dubai chocolate. Anyway, they were talking about how fast they
Speaker 2: adapted to TikTok trends, et cetera. But I guess the
Speaker 2: business of nuts and how it works not something that
Speaker 2: we discussed much, maybe because of my own you know,
Speaker 2: I'm allergic to talk about these topics.
Speaker 3: Well, there is one nut that.
Speaker 2: You can eat, that's right, almends.
Speaker 3: Almonds, and I still manage to poison you once with almonds.
Speaker 3: I feel really bad about it.
Speaker 2: How did it happen?
Speaker 3: I don't know. I so for listeners. I didn't do
Speaker 3: it on purpose. I bought him some of those Korean
Speaker 3: nuts that we've been talking about in the snack Food episode,
Speaker 3: and they were almonds, so we thought they were okay, but.
Speaker 2: Like laced with something else omens. I guess I didn't die.
Speaker 3: Yeah, so that's always a plus. I didn't kill my co.
Speaker 2: Host anyway, despite my own Because I'm a journalist dedicated
Speaker 2: to learning about the truth about the world, I will
Speaker 2: get over my personal biases against nuts in pursuit of
Speaker 2: journalistic truth and learning more about how all these businesses work,
Speaker 2: in the chocolate business and all these work, how these work,
Speaker 2: just because I want to learn more about the world,
Speaker 2: even when I cannot partake of its goodness.
Speaker 3: I think that is a very worthy cause. The one
Speaker 3: thing I would say is this is really interesting from
Speaker 3: just an investment and business perspective, because you have heard
Speaker 3: every once in a while people do get really excited
Speaker 3: about nuts as an investment. And the exact I'm thinking
Speaker 3: of is remember Michael Burry years ago. Yeah, his whole
Speaker 3: thing was invest in almonds because they're so water intensive.
Speaker 3: It's basically a play on water shortages. I don't think
Speaker 3: it worked out that.
Speaker 2: Way, so I'm kind of curious. Uh Yeah, that was
Speaker 2: like at the end of the big short that very
Speaker 2: cryptic ending where they're like and after betting against the
Speaker 2: collapse of the US housing market, he's now shifted his
Speaker 2: attention to almonds.
Speaker 3: They said, they didn't even say almonds would have.
Speaker 2: Very strange anyway, Yes, what can we learn through the
Speaker 2: medium of nuts? Anyway, very excited to say that. We
Speaker 2: have a couple of guests today who have been doing
Speaker 2: a lot of work on nuts. Someone a couple of guests.
Speaker 2: I think we talked to them about five years ago
Speaker 2: during the pandemic.
Speaker 4: Uh.
Speaker 2: They're interested in frontier markets. They go all around the
Speaker 2: world looking for interesting opportunities that are off the beaten path.
Speaker 2: They've been doing some research on the hazel nut industry
Speaker 2: and they're based in Dubai. We're gonna be speaking with
Speaker 2: Burton Flynn and Ivan Neutronev. They are managing partners at
Speaker 2: Terra Nova Capital. They scour the world for interesting stories.
Speaker 2: They're based in Dubai. Burton and Ivan, thank you so
Speaker 2: much for coming back on odd Lots, and thank you so.
Speaker 4: Much for having us.
Speaker 5: Yeah, thanks for having us.
Speaker 2: I just have like a really simple question. In Dubai,
Speaker 2: is it just called chocolate? Like or do they also
Speaker 2: specify that it's Dubai chocolate even when it's in Dubai.
Speaker 4: Like you know, the original Dubai chocolate is called fix
Speaker 4: and so in Dubai there's fixed chocolate and then there's
Speaker 4: the knockoff you know, other kinds of chocolates and the
Speaker 4: fixed chocolate. I didn't know this when I received it
Speaker 4: as a gift once actually about six months ago, when
Speaker 4: the first time I had it, somebody brought it to
Speaker 4: my house. They brought me five bars and as a gift,
Speaker 4: and we ate them that week. And then later I
Speaker 4: found out that these bars go for like twenty five
Speaker 4: dollars apiece.
Speaker 2: Oh that was a good guest, so I did.
Speaker 3: Yeah, it was how much of that is the cocoa
Speaker 3: price versus the pistachio price, because we've seen both of
Speaker 3: those kind of go up recently.
Speaker 4: Well, I mean this was before any of that went up, right,
Speaker 4: So this is all just margin based on marketing, I
Speaker 4: think branding.
Speaker 2: So what do you tell us, generally speaking, besides the
Speaker 2: fact that you're in Dubai, actually tell us about the
Speaker 2: work that you do. We sort of covered it in
Speaker 2: when we talked to you in twenty twenty, but presumably
Speaker 2: we have a lot of listeners who haven't listened to
Speaker 2: that episode. What do both of you tell us, like
Speaker 2: how you approach your work discovering new thing interesting things
Speaker 2: around the world.
Speaker 4: First of all, what we look for in our objective
Speaker 4: is to find stocks that can double in twelve months.
Speaker 4: And the way that we do that is we look
Speaker 4: for basically, you guys know, growth GARP investing right, growth
Speaker 4: at a reasonable price. We are not GARP investors. We
Speaker 4: are growth at an unreasonable price investors. We go on
Speaker 4: and we look for or really huge earnings, growth that
Speaker 4: is being completely miss understood or completely overlooked, because, you
Speaker 4: know what, we believe that a good stock, you know,
Speaker 4: it has to be a good business plus something that's
Speaker 4: fundamentally misunderstood. So the way that we do this is
Speaker 4: we approach it from several different angles. One is that
Speaker 4: on a daily basis, we're looking at insider transactions basically
Speaker 4: CEOs buying theirs of their own companies. We find that
Speaker 4: to be a really strong signal. We also look for
Speaker 4: companies that have very good leading indicators to their earnings
Speaker 4: and we try to monitor those and then also periodically
Speaker 4: we like to reach out to all of the companies
Speaker 4: we've met, and at this point we together Ivan and
Speaker 4: I have met over two thousand companies. We've conducted twenty
Speaker 4: six hundred meetings in the past six years with both
Speaker 4: of us. In all of those meetings, most of those
Speaker 4: were with CEOs, and so we like to reach out
Speaker 4: periodically and just ask about top all situations that are happening.
Speaker 4: The most recent one was the Trump terraces. You know
Speaker 4: and understand how it's affecting your business. So we get
Speaker 4: kind of a global view based on a bottom up perspective.
Speaker 3: So how did nuts actually get on your radar other
Speaker 3: than you know, a friend gave you twenty five bars
Speaker 3: of overpriced luxury chocolate.
Speaker 5: Well, you know, it's an interesting story because we're based
Speaker 5: in Dubai, so just by definition, we are right in
Speaker 5: the center of this Dubai chocolate hysteria. Like you see
Speaker 5: du Bai chocolate bars everywhere in the grocery stores, then
Speaker 5: you see them when you order food online, you see
Speaker 5: them on the billboards, and you know, sometimes you hear
Speaker 5: from people that haven't been in touch for like ten years,
Speaker 5: and then they message you and all they want is
Speaker 5: not actually even ask how are you doing. But they
Speaker 5: just want you to ship some Dubai chocolate to them
Speaker 5: by some express courier delivery, and you know, it's fun.
Speaker 5: A lot of media has written about the Dubai chocolate phenomenon,
Speaker 5: and I think there was also a claim that Dubai
Speaker 5: chocolate led to some severe shortages of pistachios and skyrocketing
Speaker 5: prices of pistachios, which is debatable. But one day we
Speaker 5: were in office and we were just just jogging around
Speaker 5: and we were saying, look, you know, pistachios are such
Speaker 5: a kind of a hot niche commodity. Now, let's let's
Speaker 5: have a look at something else. What about hazel nuts,
Speaker 5: because you know, they're also used in chocolates and so on,
Speaker 5: even in some of the variations of the Dubai chocolate
Speaker 5: and knokovlans. And we checked kind of the recent news
Speaker 5: about hazel nuts just to see what's going on with
Speaker 5: the hazel nuts, and what we found was actually quite
Speaker 5: you know, it was really really really interesting.
Speaker 2: Well, before we actually get to the hazel nuts, I'm
Speaker 2: curious you mentioned there these metia reports of pistachie shortages
Speaker 2: or skyrocketing, skyrocketing prices and then you said, but that's debatable.
Speaker 2: What actually is happening? You know, I don't know, I
Speaker 2: don't know. I don't think we have like a pistachio
Speaker 2: index on the terminal, although I've never actually looked.
Speaker 3: I think a lot of them come from Iran, which
Speaker 3: I also.
Speaker 2: Coright, which right also, But like actually, what like how
Speaker 2: do you what is happening in the pistachio market. What
Speaker 2: has been the effect so far as you can tell,
Speaker 2: from the Dubai chocolate craze to the actual trade in pistachios.
Speaker 5: Actually, quite a lot has to do simply with weather.
Speaker 5: It's not only it's not only the Dubui chocolate demand,
Speaker 5: but a lot of that has to do with the weather,
Speaker 5: and just the weather was not favorable enough and the
Speaker 5: crop was not good enough. So as simple as that.
Speaker 5: So because I remember there was one expert on pistachio
Speaker 5: supply chain and he was saying that basically there is
Speaker 5: now so much talk and a lot of media articles
Speaker 5: claiming that it's all about du Bui chocolate, but in reality,
Speaker 5: the Bui chocolate doesn't use the row pistachios. You know,
Speaker 5: it's a paste, and a paste is very very diluted,
Speaker 5: so you don't really need like all the pistache in
Speaker 5: the world to produce the by chocolate. But you know,
Speaker 5: if the weather events affect the crop, then of course
Speaker 5: the price of the commodity will go up. And this
Speaker 5: is something that also happened to the hazel nuts this year.
Speaker 3: So it's a supply story more than a demand story
Speaker 3: for pistachios, at least.
Speaker 5: It could be both, could be both, but without the
Speaker 5: supply shortage there would not be such a severe price appreciation.
Speaker 3: How did Turkey get into the hazelnut business because they
Speaker 3: seem to have made a conscious decision to actually, you know,
Speaker 3: nurse this particular type of agriculture.
Speaker 5: Yeah, it's a long story which goes back thousands of years,
Speaker 5: and the situation is that Turkish Black Sea region is
Speaker 5: naturally the best region in the world to grow hazel
Speaker 5: nuts because hazel nuts need a cool winter, they also
Speaker 5: need sunny, warm spring and also need a rainy summer,
Speaker 5: and this is exactly what the Turkish Black Sea region
Speaker 5: gives them. And they've been cultivated in Turkey for thousands
Speaker 5: of years. So today there are six hundred thousand farmers
Speaker 5: that grow hazel nuts in Turkey, and there are over
Speaker 5: five million people in Turkey who are in some way
Speaker 5: involved in the hazelnut farming or trading business. So it's
Speaker 5: a very, very long history. It just came naturally. It's
Speaker 5: just where the hazelnuts grow. In a given year, Turkey
Speaker 5: produces about seventy percent of all the hazel nuts in
Speaker 5: the world, so the concentration in this industry is huge.
Speaker 5: It's like seventy percent of all hazelnuts. So if something
Speaker 5: happens to the Turkish hazelnut crop, you know, the consequences
Speaker 5: to the supply can be severe.
Speaker 2: What is the market structure of the Turkish hate nut industry?
Speaker 2: How fragmented are those six hundred thousand farmers? Is a
Speaker 2: huge agribusinesses that dominate the trade. And then what is
Speaker 2: the exchange process? Like I don't know, I assume there's
Speaker 2: not hazel nut futures, but talk to us about like
Speaker 2: that process by which the nuts get to the processors
Speaker 2: and then into a finished product.
Speaker 5: So there's six hundred thousand farmers, they are quite fragmented.
Speaker 5: It's basically some artisan mamonopop farmer shops, and then there
Speaker 5: are some wholesalers who buy hazel nuts from the farmers
Speaker 5: when the harvest time comes around, which is actually next week,
Speaker 5: and then as wholesalers, they might sell their hazel nuts
Speaker 5: to the exporters and then the exporters sell them abroad,
Speaker 5: or some of these wholesalers they also act as exporters.
Speaker 5: So basically, if you compare the hazel nut industry in
Speaker 5: Turkey to the one in Chile, then the Turkish one
Speaker 5: is much more old school. It's very small orchards, it's
Speaker 5: famine businesses, it's some standalone farms, whereas for example, in
Speaker 5: Chile it's kind of industrial scale, and then once a
Speaker 5: year this all gets consolidated. The farmers sell their hazel
Speaker 5: nuts to wholesalers and then the entire kind of chain starts.
Speaker 5: It's quite fragmented, and you know, the quality of the
Speaker 5: entire hazel nut production in Turkey is lower than in
Speaker 5: some other parts of the world because also it's not
Speaker 5: only the history, it's also kind of the terrain. It's
Speaker 5: a bit hilly. It's much harder to have these huge
Speaker 5: fields of hazelnut plantations. It's a long standing tradition and
Speaker 5: it's very very hard to bring any innovation into the
Speaker 5: Turkish hazelnut farming.
Speaker 3: Okay, so you have a traditional business that's resistant to
Speaker 3: innovation in an emerging market that is very, very fragmented
Speaker 3: and also pretty untransparent because it's not like you can
Speaker 3: look up a single benchmark for hazelnut prices. How do
Speaker 3: you deal with I guess the opaqueness of a niche
Speaker 3: commodity like this when you're evaluating an investment.
Speaker 4: Well, this is this is exactly the kind of situation
Speaker 4: we love, actually is opaqueness because it means that it's
Speaker 4: difficult for others to kind of access you know, access
Speaker 4: the information. And so the way we approach it is
Speaker 4: we try to find primary sources, right and so in
Speaker 4: this in this case, we have had the opportunity to
Speaker 4: talk to the world's largest hazelnut processing company and basically
Speaker 4: understand the market situation from them, you know, and then
Speaker 4: kind of collaborate this with other sources that we find
Speaker 4: and you know, continue to ask them questions to understand
Speaker 4: the market situation. But you know, it's possible that we
Speaker 4: might be the you know, some of the world's best
Speaker 4: experts on hazel that's even though we didn't know anything
Speaker 4: about them two months ago.
Speaker 3: So what do you look at in terms of just pricing.
Speaker 4: There is pricing. It's not something you can pull up
Speaker 4: on Bloomberg. So basically, when we are talking to the
Speaker 4: CEO of this hazel nut operating operator, he said that,
Speaker 4: you know, it's it's basically a price that it's called
Speaker 4: on the phone. I mean, it's this is like old
Speaker 4: school trading practices.
Speaker 5: There are no hazel nut futures. It's nearly impossible to
Speaker 5: trade hazel nuts, you know, through any agricultural exchanges, and
Speaker 5: it makes this market so inaccessible that it's it's very hard.
Speaker 5: It's very hard for a regular investor to play it.
Speaker 5: I mean, I think the only way to play the
Speaker 5: hazelnut market is probably through this only listed public like
Speaker 5: the only publicly listed hazel nut processing company in the world,
Speaker 5: and it's listed in Turkey, which also is not so
Speaker 5: easy to access. But when it comes to hazel nuts themselves,
Speaker 5: it looks like you just need to find the party
Speaker 5: that can sell this hazel nuts and you just buy
Speaker 5: the bags the tones of hazel nuts, but you also
Speaker 5: need to find a transportation, you need to find the
Speaker 5: storage and then and then you need to find a buyer.
Speaker 5: When you want to sell. So it's it's a very
Speaker 5: very difficult one to accident.
Speaker 2: Something I'm interested in, you know, this idea of there
Speaker 2: not having been much productivity gains in the actual farming
Speaker 2: of hazel nuts. And I'm sort of fascinated by the
Speaker 2: degree to which different commodities inherently lend themselves to varying
Speaker 2: levels of mechanization in production. Right, And so you know,
Speaker 2: you could have competitively priced wheat in that's grown in America,
Speaker 2: competitively priced wheat that's grown in Russia, competitively priced wheat
Speaker 2: or corn that's grown in Brazil, all because there's very
Speaker 2: little labor involved. You have like one one combine out
Speaker 2: there on a giant field, and then you have other
Speaker 2: commodities that are inherently labor intensative because it's not so
Speaker 2: easy to automate. What have you seen, you know, as
Speaker 2: you've gone around the world to frontier various frontier markets,
Speaker 2: the sort of range by which some commodities lend themselves
Speaker 2: to productivity gains and some don't.
Speaker 5: You know, for example, in this hazel nut industry, right,
Speaker 5: we can look at turkey, which we discussed it's artisanal,
Speaker 5: and then we can look at something like Chili. So
Speaker 5: by nature, Chili is not necessarily the best place for
Speaker 5: growing hazel nuts because it doesn't have enough moisture. However,
Speaker 5: if you manage to provide enough irrigation, then you solve
Speaker 5: that issue. So in Chile, for example, you can grow
Speaker 5: hazel nuts with a much much higher yield than in Turkey.
Speaker 5: You can have huge plantations of hazel nuts, you provide irrigation,
Speaker 5: and then you can get probably five six times more
Speaker 5: hazel nuts per hector of land than in Turkey. And
Speaker 5: this is all this is something that started happening in
Speaker 5: the last several years, and the projection is that Chili
Speaker 5: will become the number two producer of hazel nuts in
Speaker 5: the world in about seven to ten years, with a
Speaker 5: production capacity of two hundred thousand tones a year, which
Speaker 5: still compared to the Turkish supply capacity of eight hundred
Speaker 5: thousand tones a year, is quite small, you know, and
Speaker 5: this just kind of underlines the sheer importance of the
Speaker 5: Turkish market for hazel nut business.
Speaker 3: Do you have any idea why Chili decided to go
Speaker 3: in on hazel nuts. I'm just very curious about how
Speaker 3: they make these decisions, because you know, it's not necessarily
Speaker 3: a completely natural crop. As you pointed out, ChIL doesn't
Speaker 3: have you know, that much rainfall, and so they have
Speaker 3: to do something in order to foster this industry. Why
Speaker 3: did they decide on hazel nuts in particular?
Speaker 5: The initiative comes from the bottom up. So for example,
Speaker 5: the largest hazelnut processor that's based in Turkey, they decided
Speaker 5: to expand in Chile. Right, So it wasn't the kind
Speaker 5: of Chilean government initiative. It was the corporate initiative because
Speaker 5: they looked at many different countries. They looked at New
Speaker 5: Zealand where it's more hilly, which would be more difficult.
Speaker 5: They looked at Latin America, and in Chile, there is
Speaker 5: this great culture of basic of growing agricultural commodities. Right,
Speaker 5: it's industrialized, it's possible to make it large scale, and
Speaker 5: they just needed to add irrigation and that would.
Speaker 4: Be the Other thing is that it provides a very
Speaker 4: nice diversification for them, right because as we're talking about,
Speaker 4: there was a huge weather event that disrupted the supply
Speaker 4: in Turkey. Turkey is the vast, vast majority of the production.
Speaker 4: So for them to have you know, the crop in
Speaker 4: an entire different hemisphere with different conditions pro know provide
Speaker 4: some sort of diversification.
Speaker 2: What do you tell us about that weather event specifically,
Speaker 2: since this seems to be central to your interest, How
Speaker 2: big of a deal is it? Is it a one off?
Speaker 2: And second of all, like give us the overall sort
Speaker 2: of supplied demand imbalance that you analyze right now for
Speaker 2: the hazel net market.
Speaker 5: Every about ten years there's a big frost that happens
Speaker 5: in Turkey. So the previous ones happened in two thousand
Speaker 5: and four and twenty fourteen, and this year there was
Speaker 5: a very very major frost in April which destroyed one
Speaker 5: third of all Turkish hazel nuts. Basically, in a few days,
Speaker 5: one third of the entire crop was destroyed. And frost
Speaker 5: like this, as I said, they happened in once every
Speaker 5: ten years. They are quite one off. But the thing
Speaker 5: is that this year Turkey had a very very warm spring,
Speaker 5: so the hazel nut trees started deloping much earlier, and
Speaker 5: then when the frost happened, they were exposed to this
Speaker 5: huge risk and they got damaged really badly. Now this
Speaker 5: is one thing, so the frost destroyed one third of
Speaker 5: the Turkish hazelnut crop. The second thing is there's another
Speaker 5: small little creature named the marmorated brown, the brown marmorated
Speaker 5: stink bug, which only settled in Turkey in twenty seventeen,
Speaker 5: but it has become so widespread that in a given
Speaker 5: year it can destroy from ten to twenty percent of
Speaker 5: the entire hazelnut crop in Turkey. So we read some
Speaker 5: academic research about it. It was fascinating. So on top
Speaker 5: of the frost, you also have the stink bug. But
Speaker 5: then that's not the entire story. Then there's also the heat.
Speaker 5: And in the western Black Sea region in Turkey this
Speaker 5: year the summer was the worst summer in the last
Speaker 5: sixty five years, the hottest, the driest summer. And what
Speaker 5: does it mean. It means that the hazel nuts that
Speaker 5: did survive the frost, that did survive the stink bag,
Speaker 5: they will not develop as well as they should have
Speaker 5: because they need moisture. The nuts, the kernels, they need
Speaker 5: the moisture. But without the moisture, without the water, with
Speaker 5: this huge like dry, hot weather, they will be damaged.
Speaker 5: They will be underdeveloped, some of them won't develop at
Speaker 5: at at all. So, just to give you some numbers,
Speaker 5: the expectation for this year's crop was seven hundred and
Speaker 5: sixty eight thousand tones of inshell hazel nuts in Turkey
Speaker 5: now after the frost, after the stink bag impact, and
Speaker 5: after the heat, the Ministry of Agriculture in Turkey now
Speaker 5: estimates this year's crop to be at around four hundred
Speaker 5: fifty four hundred sixty thousand tones, which is about forty
Speaker 5: percent lower supply than expected. This is for the inshell
Speaker 5: hazel nuts now kind of going back to this heat.
Speaker 5: If you look at the kernels, then the kernels will
Speaker 5: be impacted even more so. Last year, for example, they yield,
Speaker 5: which is measured as the proportion of the weight of
Speaker 5: the kernel to the to the weight of the entire
Speaker 5: hazel nut, was forty eight percent. This year it will
Speaker 5: be much lower. So the actual hazelnut kernels, which is
Speaker 5: what's important, will probably be in shortage by about forty
Speaker 5: five up to fifty percent this year. So now the
Speaker 5: entire Turkish crop might suffer by forty five fifty percent
Speaker 5: this year, which means the entire global crop of hazel
Speaker 5: nuts might suffer by thirty five percent. And the demand.
Speaker 5: The demand for Turkish hazel nuts is three hundred and
Speaker 5: twenty thousand tones for the export and seventy thousand tones
Speaker 5: for the domestic use, so three hundred and ninety thousand
Speaker 5: tones of kernels. This is kernels, and the production of
Speaker 5: kernels this year in Turkey will probably be half that,
Speaker 5: So we're looking basically at a supply which will be
Speaker 5: half of the demand.
Speaker 3: You know. I have to say that I am unfortunately
Speaker 3: very familiar with marmorated brown stink bugs because they've made
Speaker 3: their way to New England too. Oh really, yeah, they're
Speaker 3: invasive there too, and in the winter they really like
Speaker 3: to crawl into old houses.
Speaker 2: And can they really smell? Huh?
Speaker 3: They if you scare them, they smell, okay, or if
Speaker 3: you kill them and they just sort of fly around
Speaker 3: and make a lot of noise anyway, Okay. The thing
Speaker 3: I don't quite get about this particular investment, I guess
Speaker 3: I understand there's a shortage, a potential shortage of hazel nuts,
Speaker 3: and that could translate into higher wholesale prices, But how
Speaker 3: does that actually feed into higher prices or profits for
Speaker 3: the hazel nut processor, who I assume you know, has
Speaker 3: to pay the higher prices on the wholesale end, and
Speaker 3: then maybe they can charge higher prices for it at
Speaker 3: the retail end, but you know it's not guaranteed that margin's.
Speaker 5: Going to go up. Well, first of all, they have
Speaker 5: some inventory which they have built over the past season.
Speaker 5: And the thing is the processor applies mathematical models and
Speaker 5: weather weather pattern prediction models to manage their inventories. So
Speaker 5: this year, when there was a very very warm winter
Speaker 5: and early spring, they knew that if some kind of
Speaker 5: frost happens, it doesn't have to be a severe frost
Speaker 5: because the hazel nuts already developed quite a bit, so
Speaker 5: if something happens, then the damage will be severe. So
Speaker 5: they managed to increase their inventory. Right, this is one thing.
Speaker 5: The price in the market, of course, will go up
Speaker 5: a lot. We looked at the previous frosts in thousand
Speaker 5: and four and twenty fourteen, so the prices for hazel
Speaker 5: nuts went up about three and a half four x
Speaker 5: from just before the frost to about one year later. Right.
Speaker 5: So if you have inventory and if you hold on
Speaker 5: to it and then you kind of sell it later,
Speaker 5: you make some profits. But also even when you buy
Speaker 5: from the farmers and when there's this shortage of hazel
Speaker 5: nuts in in the world, you can kind of command
Speaker 5: higher margin and the buyers will have to pay it,
Speaker 5: you know, because they have no other option.
Speaker 4: The inventory reported on their Key one financial report was
Speaker 4: one hundred and sixty four million dollars, which is I
Speaker 4: think something like a third of their market cap. And
Speaker 4: that's you know, that's before the increase in prices.
Speaker 2: What is the structural demand story for hazel nuts? So
Speaker 2: again we're telling you know, with the pistachio question, we
Speaker 2: know that whether whether it's the demand that's driving the
Speaker 2: price of the supply, we know that demand has been booming.
Speaker 2: Maybe the Dubai chocolate trend will fizzle out at some point,
Speaker 2: but from we don't know. But for hazel nuts, what
Speaker 2: does the long term structural demand outlook look like?
Speaker 3: Because we already have hazel nuts chocolate, which is already night.
Speaker 2: And it's already been huge, and utella has been a
Speaker 2: staple of the Internet and people talking about it the
Speaker 2: culture for a long time. Is it rapidly growing? Still
Speaker 2: has it plied to what's happening there?
Speaker 5: It's not growing rapidly, but it's still growing. For example,
Speaker 5: from twenty fourteen until now, the demand for hazel nuts
Speaker 5: went up more than thirty percent overall. So I would
Speaker 5: say it's probably like a two three percent a year growth,
Speaker 5: which is still there. So it's it's slow, but it's
Speaker 5: going up. And you mentioned Ntella just wanted to mention
Speaker 5: very interesting fact, so Ferrero Ferrero buys a quarter of
Speaker 5: the entire global hazel nuts supply every year, so so
Speaker 5: it sounds really fascinating, you know that one single kind
Speaker 5: of entity just buys the quarter of the entire supply.
Speaker 3: So one of the really interesting things I think that's
Speaker 3: been happening in the world, certainly since twenty twenty is
Speaker 3: this idea of overlapping emergencies. That's Isabella Weber's term, but
Speaker 3: this idea that you know, something dramatic always seems to
Speaker 3: be going on, and it always seems to be sparking
Speaker 3: some sort of shortage. And we've certainly seen that in
Speaker 3: the world of commodities. And I can rattle off a
Speaker 3: bunch of you know, pretty like niche ones that have
Speaker 3: had some sort of supply squeeze, so coco obviously, orange juice,
Speaker 3: wheat during Ukraine Russia, hazel nuts now, maybe pistachios earlier.
Speaker 3: Would you expect as more of these happen for those
Speaker 3: markets to become maybe more financialized or maybe more easy
Speaker 3: for investors such as yourselves to invest in.
Speaker 4: Well, I don't know about making it easier to invest in,
Speaker 4: but I think that these kinds of events create huge opportunities.
Speaker 4: You know that you mentioned Coco. Coco is really interesting
Speaker 4: because this is actually something that we studied last year.
Speaker 4: We came across a stock which is one of the
Speaker 4: only stocks that you can sort of play Coco, and
Speaker 4: it's listed in Malaysia and it's you know, it doesn't
Speaker 4: have massive liquidity, but it has it has sufficient liquidity,
Speaker 4: and we had noticed last year, of course, there was
Speaker 4: a weather event that caused the coco Coco supply to
Speaker 4: drop by about fourteen percent. You know this is because
Speaker 4: in West Africa they produce seventy percent of the global
Speaker 4: coco supply. You know, we started looking at potential plays
Speaker 4: on Coco. By the time we found this stock that
Speaker 4: we looked at, it had already played out. But what
Speaker 4: we did was we created a case study to understand
Speaker 4: kind of how this timing worked out. What we found
Speaker 4: is actually that the cocoa prices increased several months before
Speaker 4: the stock price had increased. So again it's it's another
Speaker 4: case of kind of an obscure company that people weren't
Speaker 4: really watching, even though there's there's sort of an obvious play.
Speaker 4: The other really interesting thing that we noticed about this
Speaker 4: company is we looked at the insider buying disclosures and
Speaker 4: the CEO and the management. We're buying like crazy the
Speaker 4: stock leading up to or you know, kind of as
Speaker 4: as the weather event and the the coco supply situation
Speaker 4: was was developing. So I'm not sure about you know,
Speaker 4: providing better access, but I think that these sorts of
Speaker 4: global events, you know, can provide really huge opportunities if you,
Speaker 4: you know, if you kind of do the work right.
Speaker 3: But for Coco, I mean, you could just go out
Speaker 3: and buy a future right or I think there's even
Speaker 3: a Coco ETF. Now why not just do that? Is
Speaker 3: that because your expertise is sort of in single stock businesses,
Speaker 3: or you don't want to become a commodity player.
Speaker 4: We're not top down investors. We're very much bottom up investors.
Speaker 4: And so, you know, so when something like this is happening,
Speaker 4: of course you can play the trend of the you know,
Speaker 4: the cocoa price itself, but that you know, that's obviously
Speaker 4: going to also depend on kind of the market dynamics.
Speaker 4: What we find is that there's bigger opportunities in in
Speaker 4: sort of a second order, which is, you know, a
Speaker 4: coco company that's going to benefit, you know, from these prices.
Speaker 4: They're they're earnings, but the earnings bag you know, a quarter,
Speaker 4: two quarters, and the stock really gets rewarded when you know,
Speaker 4: when they start producing the earnings, at least in these
Speaker 4: sorts of markets. You know. That's why we see this
Speaker 4: as as a more interesting way to play it than
Speaker 4: just writing the you know, the trend of the futures prices.
Speaker 2: Can you tell you know, you mentioned finding a random
Speaker 2: cocoa company in Malaysia and the due diligence work you
Speaker 2: have to do reaching out to management. Can you talk
Speaker 2: about the state of essentially IR in frontier markets?
Speaker 4: Right?
Speaker 2: We go to a website like an American big company,
Speaker 2: like a Pepsi or something, and they have this incredibly
Speaker 2: full IR page that has you know, their presentations and
Speaker 2: the number of the you know, the main person, and
Speaker 2: all their earnings, et cetera. How varied is the quality
Speaker 2: of IR in the markets that you look at.
Speaker 4: Hugely varied and so so in the case, you know,
Speaker 4: in the case of this Hazel Nott process, or they
Speaker 4: only have investor relations materials basically in Turkish, which is
Speaker 4: you know, of course you can, you know, if you
Speaker 4: do the work, you can you can translate to this
Speaker 4: stuff easily these days. But but you know, what we
Speaker 4: found over the years is that some companies have very
Speaker 4: good investor relations practices and some don't. And we've selectively
Speaker 4: taken opportunity to basically teach companies how to improve their
Speaker 4: investor relations practices. Basically we give them free consulting, you know,
Speaker 4: after they've become portfolio companies on basically best practices on
Speaker 4: investor relations. What we've seen is that some companies have
Speaker 4: been highly willing to engage with us to improve their
Speaker 4: their investor relations practices. Other companies have have kind of
Speaker 4: shied away from it. And you know, we we actually
Speaker 4: looked at the results of companies that we engaged with,
Speaker 4: and we found that the companies that were willing to
Speaker 4: engage with us, we're three times as likely to see
Speaker 4: their stock prices double in the twelve months following our
Speaker 4: engagement then other stocks that we had bought in our portfolio.
Speaker 4: So it could be on the one hand that these
Speaker 4: recommendations are very valuable. That companies now you know, are
Speaker 4: going out to the market and sharing how great there
Speaker 4: their businesses and investors are learning about that. Another you know,
Speaker 4: another explanation could be that it's a feedback loop and
Speaker 4: that you know, companies that have really great things to
Speaker 4: tell are the companies that you know are are happy
Speaker 4: to go out and talk to the market. Whereas you know,
Speaker 4: if they really don't have great things coming down the pipeline,
Speaker 4: they don't really want to go out and make a
Speaker 4: lot of noise.
Speaker 2: Yeah, Tracy, I had a friend of mine, this is
Speaker 2: like twenty years ago, et cetera, but he was engaged
Speaker 2: in some forms of like frontier market investing, and he
Speaker 2: thought there was like a pretty big alpha opportunity and
Speaker 2: essentially doing exactly what Burton just described. I think he
Speaker 2: wanted told me about I don't know, a change some
Speaker 2: company that owned a lot of gas stations and laos
Speaker 2: or something like that, and the opportunities that it's like,
Speaker 2: can I just like help you build out your IR
Speaker 2: page because your financials are really compelling and was nobody
Speaker 2: nobody even knows about them or could figure it out
Speaker 2: even if they wanted to. Did it work, I don't know,
Speaker 2: but it seems like an interesting idea.
Speaker 3: Okay, So if we look at the past twenty fourteen frost,
Speaker 3: the past precedent, how long did that actually have an
Speaker 3: impact on prices or how long did it take for
Speaker 3: hazelnut prices to normalize?
Speaker 5: So what happened in twenty fourteen. The price started going
Speaker 5: up in March twenty fourteen, right after the frost, when
Speaker 5: the degree of destruction became clear, and then it reached
Speaker 5: its peak at the end of April early May twenty fifteen,
Speaker 5: so the following year, and then by that time usually
Speaker 5: it's quite clear if the new crop of the new
Speaker 5: year will be substantial or not. So in that case,
Speaker 5: was quite a good crop, and the price started going
Speaker 5: down quite quickly. So the price went up over three
Speaker 5: and a half x from March twenty fourteen to May
Speaker 5: twenty fifteen, and then it dropped I would say about
Speaker 5: fifty percent in just one one and a half months.
Speaker 3: So I still have time or to buy nutella before
Speaker 3: the big price spike.
Speaker 5: Yeah, you know, when we looked at it, so first
Speaker 5: there is like a thirty percent spike from the time
Speaker 5: of the frost till August when the harvest starts, and
Speaker 5: then from August to late April there is kind of
Speaker 5: the most of the price increase happens in that timeframe.
Speaker 4: I just have one.
Speaker 2: Last question, and as inspired by a tweet I saw
Speaker 2: yesterday from the Chinese embassy in the US, and they're
Speaker 2: talking about the d desertification that they're doing in China,
Speaker 2: essentially turning desert into arable land. And I'm curious what
Speaker 2: you're seeing if that's something that you're thinking about. I mean,
Speaker 2: we're so used to talk about disruption coming from China
Speaker 2: from a manufactured standpoint, but in terms of its own
Speaker 2: I mean, it has a lot of land, much of
Speaker 2: it historically has not been arable. They're trying to reverse that,
Speaker 2: which you can obviously do if you have sufficient access
Speaker 2: to irrigation technology and electricity, et cetera. When you look
Speaker 2: out in the long term hazel nut supply story you
Speaker 2: mentioned Chile growing, is this going to be a big
Speaker 2: story in more? Is this a story that you're thinking
Speaker 2: about in agg markets, whether hazel nut or general China
Speaker 2: turning itself into a sort of a man made bread basket.
Speaker 5: Everything as possible, but it's a very very long term
Speaker 5: top down trend. So our job is we are emergent
Speaker 5: markets investors traveling the world in search of hidden gems
Speaker 5: through bottom up opportunities. So I mean it's possible, but
Speaker 5: again it's a very long term, top down sort of trend.
Speaker 5: And as I mentioned Chile, it produce double the number
Speaker 5: of hazel nuts they do today in ten years. But
Speaker 5: then who knows what's going to happen to the weather
Speaker 5: patterns in Turkey in ten years, because it looks like,
Speaker 5: you know, the winters are becoming warmer and the summer
Speaker 5: sometimes are becoming drier and hotter, and I think the
Speaker 5: predictability is getting worse.
Speaker 2: Bertand Ivan, thank you so much for coming back on
Speaker 2: odd lots. I've learned a lot about hazel nuts, which
Speaker 2: I didn't know about, and I hear they are good,
Speaker 2: but I still don't know. But now I can't taste them,
Speaker 2: but at least I know something about them.
Speaker 5: Now to us, hazelnuts taste much better than to buy chocolate.
Speaker 5: At least it's much healthier.
Speaker 2: Well, yeah, thank you, Tracy. I think your invocation of
Speaker 2: overlapping emergencies is really app like we're going to be
Speaker 2: doing a lot of these episodes in the future lot
Speaker 2: all kinds of niche commodities.
Speaker 4: Over the years.
Speaker 3: It does feel like that. Yeah, and there are some
Speaker 3: technological solutions I guess can help at the margins. But
Speaker 3: even in that conversation, Burton and Ivan were talking about,
Speaker 3: you know, this Turkish processor. They have weather technology, so
Speaker 3: they had an early sign that the hazel nuts had
Speaker 3: grown you know, big early, which made them susceptible to
Speaker 3: a potential frost and so they started building up their
Speaker 3: inventory and then lo and behold the frost hit and
Speaker 3: they're in a relatively good position. That's good for them,
Speaker 3: but it doesn't expand the absolute supply of hazel nuts, right.
Speaker 2: Yeah, I feel like ag tech is like a really
Speaker 2: interesting story.
Speaker 4: You know.
Speaker 2: We did that episode with the Lental King of Saskatchewan
Speaker 2: several months ago, and I feel like there are sort
Speaker 2: of two different things, because farmers in any country, as
Speaker 2: he noted, are always going to be among the politically
Speaker 2: most protected class. Politicians feel some sort of obligation to
Speaker 2: protect farmers almost always. On the other hand, like any
Speaker 2: other good you know, there's going to at least in theory,
Speaker 2: be opportunities for genuine productivity gains. And if Chile is
Speaker 2: stronger at irrigation, et cetera. It'll be interesting to watch
Speaker 2: the sort of like interplay between like technology that gets
Speaker 2: applied to growing anything, cultivating anything, including in Chile and
Speaker 2: maybe in the future in China, versus the political desire
Speaker 2: and sort of legacy producers to you know, protect the
Speaker 2: small artisan farmer on the hillside.
Speaker 3: Yeah, that's right. There is that tension, and it becomes
Speaker 3: more prominent the more overlapping emergencies that we see.
Speaker 2: I think the problem for a hazel nuts is that
Speaker 2: they're brown, and they could it's just never going to
Speaker 2: go viral the same way because it just does not
Speaker 2: that green. If the pistachio, whether in chocolate or now
Speaker 2: you know, you see them a lot more like on
Speaker 2: top of a croissant, shredded up, et cetera. Like that's
Speaker 2: just made for twenty twenty five in a way that
Speaker 2: a hazel nut isn't.
Speaker 3: Also, sorry, but hazel nut chocolate is already a classic.
Speaker 2: No, yeah, it's sorry, it's mature.
Speaker 3: Maybe someone can come up with green hazel nuts.
Speaker 5: Yeah.
Speaker 2: Genetic engineering, Yeah, yeah.
Speaker 3: That's the next frontier of viral chocolate, making genetically engineered nuts.
Speaker 2: Better looking produce that I mean, that really is going
Speaker 2: to be the key right on. Ironically, any piece of
Speaker 2: produce that photographs well, et cetera is going to be big.
Speaker 2: I mean, this is why people drink Macha.
Speaker 3: Glitter infused hazel nuts.
Speaker 2: Beat okay, happen.
Speaker 3: Shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the Authoughts podcast. I'm
Speaker 3: Tracy Alloway. You can follow me at Tracy.
Speaker 2: Alloway and I'm Jill Wisenthal. You can follow me at
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