Animal Spirits Podcast - Talk Your Book: Supply and Demand Always Wins

Episode Date: June 3, 2024

On today's show Ben Carlson and Michael Batnick are joined by Sal Gilbertie, CEO of Teucrium to discuss the cost of production and commodities, how inflation affects the cost of production, how investors are utilizing Teucrium products, what's going on in cocoa, and much more! Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Past performance is not indicative of future results. The material discussed has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by Tukrium. Go to tookrium.com to learn more about their suite of agricultural ETFs. That'stukrium.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be. be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. On today's show, we're joined by Sal Goberty. Sal is the CEO, president, and founder of Tukrium, who's been on the show, a bunch over the years. If you were just looking at the agricultural commodities that we're going to talk about today, you would say that, I don't know what you would say. I'm making this up, but you would say that inflation is behind us, if nothing else?

Yeah, these things are not, they did scream higher. A lot of them did. But now, and I think Sal has been really helpful for us in helping understand these markets and how cyclical they are and kind of how they work. And the biggest thing he taught us, I remember right when the war started is like, yes, as I say, Playa Crunch, but farmers around the globe are going to rush to fill that void. And that's exactly what happened. but just the understanding that these markets are cyclical and supply and demand still drives them.

Oh, we didn't ask about this. I wonder if they oversupply the market. Is that part of the reason why prices have come down as much as they have? But yeah, we're talking things like wheat and corn and soybeans and sugar. And yeah, these things are in a downtrend and have been for many months now. Originally, when the evasion happened, which I think was April 22. Yeah, March right around there. The prices of these commodities, when very much, vertical. Yeah. And to think that we're about two years removed from that and there, I don't know how far each of them are off their peak is at 50% whatever it is. The agricultural commodity world looks a lot different today than the back down. That's for

sure. Yeah, wheat was the one that was most impacted when we talk about that in show and that's down nearly 50% from the highs. Wow. And that's one that had a huge, huge spike. Well, so this should be a lesson. If you went into the rush to buy thinking that prices were going to do one thing, not always the case. It's the old adage. in commodities, high prices help solve high prices, low prices, helps solve low prices. And it's cyclical. And this is the way it happens. Yes. Okay, so here is our conversation with Sal Gilberti, who is the CEO of Tokyo. Sal, I'm looking at the prices of corn, wheat, soybean oil, and sugar. And all of them are in a bare market. We does been acting much better as of late. But they're all

well, well more than 20% below their high. The last time that we spoke, you mentioned something along the lines of, I don't want to put words in your mouth, but waiting until these commodities got below the cost of production or something along those lines. Where do these commodities stand today relative to those costs? They're still, in my opinion, they're still 10, 15, maybe even 20% over those costs. So I think, you know, in that golden grain cycle we've talked about in the past, where things trade flat and sideways at their cost of production. In stage one, in stage two, they go up during some kind of an event, usually a drought. In stage three, they go down.

That takes one or two years. We're in the third year of stage three. They're still going down. Well, let me ask you this. You just said that it's in your opinion. I would have guessed that the cost of production is not subjective, that there's some sort of formula involved. What does the, how does, if an investor wants to know, okay, well, I want to wait until

they're at the cost of production. Where do we find that data? you don't because every farm is different. So my opinion, and again, there are a lot of people saying, look at the old cost of production, futures equivalent. Look at the futures prices, the front month futures. When that starts going sideways for a long time, you're probably at the cost of production. Take corn between $350 and $4 has been its, it's break. Future's equivalent break-even price. It trades in that range, you know, goes below $350 for a month or two at the most, and then it pops back up. And any event happens, it goes above $4. So you know the range is $350 to $4. That's futures equivalent break-even. And we're at 460 spot right now. So sell when it gets above, buy when it gets below, all that sequel? Yes, correct.

That's pretty much it. And, you know, the cycles are cycles. They take a while. I think we talked about cycles the last time I was on. And you know where you're at in them. We are on the way down towards break-even. Why I say subjective is a lot of people are saying break-even is now above that $4 mark. because of inflation.

I don't know. I've been trading, we just figured it out, 42 years, and I think $350 to $4 is still a valid spot because things always overcorrect. So you might take closer to $4.60. Corns on its way down to $4, I think. So how does inflation impact these agricultural commodities? Because in some ways, they are part of inflation,

their input costs, but other input costs obviously impact them. So what is the relationship there between inflation and the movement of these commodities? Well, the biggest thing, no question, is energy prices and natural gas prices. If natural gas prices are high, then you've got a huge issue because that's where farmers get their fertilizer. So the primary input to fertilizer costs is natural gas, and then farmers have diesel. They've got seed costs.

Seed costs have gone way up. But that's primarily due to genetic engineering, not anything else. It just costs more to produce seeds, so break-even goes higher. But you get a better yield, so it evens out. Wait, I'm curious to hear you say that it costs more to produce. seeds. I would think that technology is deflationary here like it is everywhere else. Is that not the case? You know, I don't live inside of those companies that produce those GMO seeds, but they keep raising the prices on everybody. So you assume that their costs are higher to do it. What other costs are

involved? When you talk about cost of production, what else is in there? Well, so the big ones are basically land values. Obviously, you're either paying rent or you own your land. A farmer that pays rent has has some cost in there. You've got your big inputs are fertilizer and seeds. And then you've just got your equipment. I mean, you're paying down tractors that now are, you know, hundreds of thousands or a million dollars for these giant tractors. Farmers have a lot of overhead, a lot of fixed costs, primarily associated with land and equipment and fertilizer, or the variable cost of fertilizer and seeds. You mentioned the energy component of it. Is that the biggest reason that we didn't really have a 1970s-style level of inflation yet, where it's just to sustain a level of really high inflation

because it was the energy crisis that really did it back then? Or do you think there's a lot more that goes into it than that? I think you pretty much hit it in a nutshell. I think energy we're managing. You know, there's inflation and everything, but I still say the root cause of inflation besides obviously too much money chasing too few goods, they're energy prices. Energy prices root of everything. Right. So if people were going to suspect inflation to reaccelerate, one of the bigger reasons for that would probably be rising energy costs. I would say yes, unequivocally, yes. So I'm looking at crude and I don't know, it looks sort of range-bound.

Where do you see the crude markets and how it's impacting the underlying monies of you investing? Last time, I think you said like you'd be more surprised if we had 100 before 50. Like you said 50 is probably coming before 100, right? Right, and I'm sticking with that. So we gave another run up towards 100. I think we touched 90 again since we last spoke six or so months ago. look at crude's obviously it's found a good balance. OPEC has managed to find a good balance with the increases in production in the United States. And the markets are balanced. And between

$75 and call it $85 between WTI and Brent, that's where we live. We pop out of it on some news. We go back in. We're just in perfect harmony here. And unless there's an event, and events, you know, I can't predict them. But unless there's an event that literally disrupts a supply of crude oil. A crew's going to touch 50 before 100. Which is crazy to me that the war in Ukraine and a war in the Middle East hasn't sent oil prices just flying higher. I'm actually surprised with the damage that the Ukrainian drones are inflicting on Russian

energy infrastructure, I'm actually surprised that we haven't seen energy prices go a little bit higher. Although I think product prices and diesel prices are probably a little bit higher because of that. So what's the, is it really just the, I talked to someone of the energy industry a couple weeks about this. And they said, well, one of the biggest reasons is the U.S. is the biggest producer of oil now. Is that, is that the whole reason? It's a big part of the reason. It's not the whole reason. But the U.S., the U.S. basically overwhelms any OPEC, any production cuts

that OPEC, meaning Saudi Arabia, managed to implement. The Saudis are carrying the OPEC cuts right now. So given that, does that, would you throw out any analog, if people were comparing this to any point in history, would you say, well, yeah, but it's not an apples to apples comparison? It's absolutely not. The United States has never had this dominant position in the energy market in the global energy markets before. It's a new world in that regard. So how do you view that the agricultural commodities in light of that information? Does that change any way that you think about it or is it, are the cycle still pretty similar in that they're driven by human nature and costs and supply and demand and all that? I think human nature costs supply and demand.

Supply of demand overwhelmed and everything. Look, we always go back to it. There's either enough or there's plenty. And right now there seems to be plenty because we're, we're in these enduring downtrends, except for wheat. And wheat is a bit of a problem because right now, Russia, the world's largest exporter of wheat has experienced some pretty nasty weather. They had some very late frosts, and they're exceptionally dry. And analysts are reducing their production numbers down by pretty big amounts. In fact, the latest one we heard, the most extreme estimate we heard would basically take the non-China inventories. So global inventories of wheat, less China, because China doesn't export, they only import.

So you can't get wheat from China. It might reduce that number by 10 percent from the last USDA estimates if some of these private analysts extreme forecasts about Russian crop deterioration are true. And that's for next year's crop. Don't forget. There's enough wheat now. But I think there's a pretty big premium built in wheat. So when you're talking about these events, how quickly does that get price into the market?

Oh, my goodness. You know, the moment some analysts put something out, it gets priced in, you know, next day, day after, it's quick and in grains. I'm curious what impact monetary policy has on your world. Well, on everyone's world, monetary policy is the ultimate arbiter of what happens. I still say too much money chasing too few goods is inflation. That's what it is. I was taught that. I believe that. And there's a lot of money sloshing around out there. And

that is creating, in large part, a lot of this inflation. A lot of this inflation. There's just a lot of money. We're not slowing down. These past few years, it seems like there was all the supply chain stuff and that kind of got ironed out. But it seems like every six months you have another commodity that has a huge spike and it just goes vertical. So you had egg prices went crazy and then cocoa prices this year. And I guess people are now saying orange prices or orange juice prices or whatever. Right. Is this just the par for the course in commodities or is this something that that is different in these sort of these cycles where the price just moons? Is that just how it works here? Because there's so many factors that can impact this stuff really

quickly. It's definitely just how it works in commodities. And we, I think we got used to an extended period of time just pre-COVID. Year or two pre-COVID, those five to eight years before that, had pretty stable markets all around. You know, little blips here and there, but markets were stable in commodities. And now you've got weather is not a joke. We do have more extreme weather around the world. You know, orange juice, cocoa, those markets are affected directly by weather. Now wheat affected directly by weather. Coffee affected directly by weather. Sugar, cotton, you know, the last year, year and a half, all of those things have been affected by weather events in producing areas. So weather's getting more extreme and couple that with the growing demand for all of these

things. So the supply side becoming a bit more tenuous, let's just say, because of weather. That's a big deal when demand is rising and you're not sure about your supplies. I think that that's why you see these price reactions as the weather events occur. So given the volatility and weather and higher rates, what's investors' appetite for these commodities right now? We've been seeing outflows, actually. I don't think investors in the last, since we last spoke about six months ago, I think there have been net outflows in almost all the commodities. You know, you see these brief runups, especially cocoa and orange juice or two, natural gas of late.

But you look at most of the commodity funds out there, they're facing outflows. I think investors, because the stock market's been so resilient, people are not looking at the alternatives. The guys who play commodities are playing commodities. They're in, they're out. the people who invest in commodities are largely invested or waiting, like in grains. They're waiting to reinvest. And grains are, you know, probably 10 or 15 or 20 percent away from the spot where some fairly big money will move in.

Same with oil. You know, you'll see the, the ETF flows in oil skyrocket when oil finally does head down toward that 50 number. It is funny how it, I mean, this is, again, just human nature, but you see a spike in price and then the money comes in probably, right? That's typically how it works. Yeah, headlines are a big deal. and everybody loves rising prices.

But how do you educate investors in your funds to understand? Because you always talk to us about how these things are cyclical and kind of waiting for the fat pitcher, just understanding the dynamics. So how do you help investors understand when you go through a low period like this and things aren't going the greatest for these funds? We have open lines of communication. We post on our website, on our social media, what we can to educate people. People sign up for our newsletter, which I think comes out.

We try to do it every two weeks. And it's, you know, just tidbits of teaching people about the markets. You need to learn about them and you can dive in and invest when you're ready and when you learn more about them. Commodity markets aren't that complicated. I mean, if you're a trader, you know, we used to say at Cargill, when I was trading heating oil, we pour heating oil on our cereal in the morning. We drink it in the glass, mix it with your orange juice. Like you had to just eat, drink, sleep it all the time. When you're investing for a cyclical gain or you're allocating for some portfolio stability,

because commodities do stabilize a portfolio when they're used properly. So, you know, those are things you just have to teach people and people have to learn. So you mentioned that commodities can act as stabilizers. So these agricultural commodities, and you guys have a, on your site, one through the show notes, you show the last, I don't know, seven pullback, scratchions, whatever, in the S&P 500 and how the agricultural fund index did during those periods of time. and each of the last seven times agricultural commodities outperform the S&P. Why do you think that is?

Because they go to their own drum. I mean, we say it all the time. No one skips their bagel in New York City. Never. Because the stock market goes up or down. I mean, they have their own fundamentals. So a lot of people, you know, it's what we always say. They will weight cyclically, especially the grains.

You get those things down at their cost of production. They don't really go much. much lower. It's only temporary. It's little aberration. So you put that in your portfolio, it's obviously going to stabilize it. If it goes nowhere, you put anything in your portfolio that's kind of just sitting there, it's going to stabilize it. And then when the grains move to their own beat, if you get an up move, which is what you get when you're sitting down there at the cost of production usually, it just looks terrific. And that outperformance, I think, and I'm not looking at the chart we posted, but I'd recommend people go look at it. But I think five

of the last seven, grains were down. So stock market was down and grains were down. They both went down. Just grains went down a lot less. I think two of those seven, you're shaking your head, Michael. I think you could see two of those seven grains actually went up when the stock market went down. So, and I may be wrong. People can go look at the data. No, you're right. You're right. So most recently, stock market was down 10. Ags were down one. But interestingly, in the bear market of 22, S&P was down 25. Ags were actually up 18, which is, That's a hell of a swing. So I guess within that, I'm curious.

So you see the money coming in and out of your funds. How much turnover do you think there is inside of your funds? Do you think that it's people coming in and coming out quickly? Do you think it's people that are strategic in nature? They're saying, you know what? I want my ags and they provide diversification or whatever. Like, how do you think investors are using these products? Both ways.

It's two different kinds of investors. There are traders that are highly opportunistic and they're trading and they're trading on a headline. So we'll see a lot of money move in on somebody's tweet about our corn or soybean fund or something. We'll see a lot of money move in on the war. We saw that when the war broke out, which is why there was that outperformance in 2022. That was clearly the war. But most times people, the big allocators or the people who are just saying, I'm going to put 1% in grains or whatever their percentages, they do it when the price is down and then they sit on it until the price goes up. And that takes a while. So there's two different kinds of turnover. The headline

trainers, they're fast, a lot of turnover going in, days or weeks, a couple months at the most. And then you've got the allocators who understand the cycles that last, you know, six, six months are longer. So, I mean, people had to wait seven years for the last corn rally and it doubled and more than that. Speaking of the diversification benefits, I'm sure if you put a little correlation matrix with all the different assets of classes, you said marked another own drummer kind of deal. It's not, they're not really correlated to anything else, I would imagine. They correlate a little bit. They're just, most commodities are less correlated to stocks than other things. that that's kind of how it works but we all the commodities when we when we pit them in long term

20 years against um you know the commodities that are available in ets we used to do a chart of this I don't know if we still do against the S&P 500 correlation all of them have positive correlation some have almost none like sugar or natural gas um over long periods of time but but others are pretty highly correlated um including the metals which is was surprising to me when I saw it but so Sal you've got two ETFs I'm curious to talk about the tickers are tags and till, Ben, as in tiller, right, Sal? Is that where you get from? That's right. It's till, like tilling the field. I was telling Ben on animal spirits today that I'm something of a farm myself. I rented a tiller, so I know all about it. Okay.

The question that I have is... It had to be the smallest square footage of tilling that's ever done in mankind. It was 10 by 10. It was 10 by 10. Right, there you go. That needs a tiller. Okay, why would... So as far as I can tell, these are similar strategies, the main difference to correct me from wrong. So the underlying, they are invested. It's a diversified basket of corn, wheat, soybean, and sugar cane. So there's a K1 free option and one that has a K1. Why would one not select the K1 free? Well, most sophisticated investors who are not using an automated system that just puts

their money and say weekly or every paycheck or whatever, they don't care about the K1. Most people are used to K1s. Their ETF K1s are not your father's dry cleaning K1 where you delay your taxes. It's a little, you know, it's like four pieces of information that comes out on Valentine's Day by Pricewaterhouse Coopers every year they've hit Valentine's Day. So it's out before your taxes and you get better tax treatment. So we're not tax advisors. I'm not giving tax advice. But most of our wealthy participants, they actually embrace the K1 because it's better tax treatment.

Now, some people just can't have a K1. They check the no K1 box in their automated investing thing. And so that's why we came out with TIL. And big money goes in and out of Till because there are some people who are fairly decent players. They'll put, you know, 10, 20, 50 million in at a time. And they go in and out according their own signals. And they wanted a no K1 product. That's why we launched that product.

They're slightly different. I must point out. So the seven out of seven outperformance of the stock market is that's tags. That's the index that's in the tags fund. And that is the fund that gets a K1. Till is slightly different. It's weighted 25% at each of those big four commodities, corn, soybeans, wheat and sugar, but it's more discretionary, and it doesn't buy the underlying funds.

It actually buys the underlying futures, and it can pick different futures than maybe the other funds do. But the tags index is the one, the index that underlies tags, that is a two-gram agricultural index, and that's the K-1 fund. That's the one that we have the study on where you outperform the stock market. So you have managed futures investors or tactical investors that are using your fund as a placeholder and just a way to get exposure to these when they're moving up or down, whatever it is? We do know of some people that do that. Remember, ETF issuers, we don't always know who's buying and sell on our funds. They either call us and tell us or we see the tax information with a great

delay. I know this is not necessarily a beat, but for people that I'd seen the headlines over the last couple of weeks and months, what the heck was going on with cocoa? So, cocoa, it's what, 70 or 80 percent of cocoa is produced in West Africa? So there are four tiny little countries in West Africa that produce the vast majority of all the cocoa in the world. And they had a bad weather event. So they had poor weather there. And that created a problem. If you lose, you know, with Russia, you had, what, 25 or 30 percent of the world's wheat exports coming out of Russia and you had a war and wheat prices kind of doubled. I don't remember off the top of my head. But cocoa, you know, more than doubled because you had 80 percent of the world's supply is in a

concentrated area where they had bad weather, that's a problem. And literally it's just a weather problem. It's going away now. You know, prices are really elevated, but they're on their way back down. They're still very elevated because if you get another bout of bad weather in the next whatever it is, six, eight months, whatever is appropriate for their growing season, a double whammy could send it to new highs. Now, I don't know that that's ever happened before in Coco, but people are afraid of it. I mean, if you looked at that market just all by itself, you'd be selling it. You'd be selling with both hands right now. But until it's clear on the crop that's coming out next, the weather event, nobody's going to take a risk and sell that. When you see spikes

like this, I don't know how this business works, but in terms of like hedgers versus speculators, the people that can sell these futures contracts, are they taking advantage of this giant spike that you mentioned? I hope so. Any producer that actually has Coco to deliver, they should be selling into that and locking in their margins. I think anybody who's got confidence in their supply that hasn't hedged or sold out in the future on a cash basis, they're going to sell those futures, absolutely. But I don't think there are enough of those people to, you know, to push it back down. Or the prices would be lower than they are now. How does shipping fit into all of this? There was massive disruption to our supply chain. Remember all the boats or the ships sitting in the

ports of Los Angeles. And so those, the shipping time has normalized the cost of shipping has come way down. Does that, does that flow through to these underlines or are they completely separated? I think it flows through a little bit. So it flows through less to the producer because the producer pays for higher shipping because they have to discount their, their crop. So the thing about ag prices is they're so globalized that the end price to the middleman, not the consumer, but the person who's buying corn for processing to go to the consumer. Okay. That end price is the price. So if it costs more to ship from a certain producer's location, the producer has to discount their sale, not, not raise their price to, you know, the price gets eaten up by the shipping and it gets pushed back on the

producer. The producers get hurt by higher shipping costs. Looking at your biggest funds by Ascent Center Management, our research channel, Sean did this for us. Wheat is by far your biggest fund? Is that because the market's bigger? Why is wheat by your biggest fund by, I don't know, two X, two and a half X? Why is that, do you think? Well, it was always corn until the war. And so, you know, corn's the bigger commodity. So corn was your bigger fund? Correct. And then the war came and people paid attention more to wheat. And so, so wheat is is a very big deal because the war is still here. People are paying attention to it. Wheat's also pretty unique. I mean, wheat's grown on every continent, it's grown in so many different countries that export, that can be major exporters,

okay? There's 10 or 15 or 20 people that can, you know, export pretty decent amounts of wheat, whereas corn is not really like that. There are a few more than soybeans. Soybeans only have, in essence, three people exporting soybeans call it four, if you count potagweig. But wheat's got a lot of attention to it. And, you know, I think somebody looked it up. Wheat's been mentioned in the Bible, like 75 times and grains are mentioned in the Bible like 300 plus times so people pay attention to wheat it's it's i mean Andy hacked if you follow his him he's a commodity writer and out there well known and he's pretty accurate and he always says two things he says that wheat is a more political commodity than oil and that you know people don't pay enough attention to sugar because

he always remembers when sugar was two cents during his trading career but that's interesting you can ask him that's no mentions of invidia in the bible that's true True story. I think so. Yeah. Yeah, I believe it. I believe it. Any chance that technology is going to completely upend how things are grown?

Yes. Will it matter in our trading lifetimes? Probably not. Why do you say that? Because I think, you know, we've, so we've seen genetic engineering can make, you know, wheat and corn and whatever grow in a drought or grow, grow better through different conditions. But you've got people coming out with, you know, synthetic meat. all kinds of weird synthetic proteins and depending upon what happens with humanity and world history

over long periods of time without getting into science fiction, which I know you can delve into. But I think eventually the production of food not in our trading lifetimes, like I say, could look substantially different. I don't see how it can change right now. You're still going to have row crops. I'm still going to eat meat from a cow. but there is a time coming when people may be very willing to eat meat from a petri dish because it's

cheaper. And I think I think somebody trying to feed their family and buying ground beef at a discount store doesn't care where that meat came from. I think, you know, Elon Musk going to Mars is going to be happy to have meat and not a cow on board with him. I think, you know, I'm always going to eat real steak because I can't, right? We have the choice. So I think, you know, that's a broad question. But I I do think we have no idea what technology is going to do to all kinds of production methods, but it'll take a long time. I'm curious, so you mentioned some of these commodities are just produced all over the place. Some of them have very concentrated locations.

Like which of the commodities are most at risk of seeing these short-term price bikes because it's a concentrated lot? I think Michael mentioned this before, but someone sent me finally to read the fish that ate the whale about the banana production. And I was fascinated about it, how we finally got bananas here. for the first time because they could finally ship them and make it in time. Which of the commodities are like that that have a centralized location production that if something goes wrong in that location, be it weather or otherwise, that it can cause a big problem? Well, of the big ones, I think we've seen it already in Coco, where you've got, you know, 80% of the exportable

production produced in one spot that the single weather spot, you know, if you're not diverse, geologically diverse to avoid a weather pattern, okay? So Coco can only be made in that one spot because of weather, climate, whatever reasons? 80% of it's grown around the world in tropical climes. But in that particular spot, 80% of the exportable cocoa is grown. And so that's susceptible to one weather pattern. So I think when you look at agricultural commodities, which are susceptible to weather more than anything else, when you look at concentrated production areas, cocoa just stands out

to me more than anything. Sugar's there, okay, but you've got, you know, India, Brazil, Indonesia, coffee is pretty concentrated in Indonesia and South America, a little bit, you know, well, the Pacific Rim just call it, because we grow coffee in Hawaii, too. Soybeans are a very big deal. But luckily, the two top exporting countries of Brazil and Saudi Arabia and the United States in that order, okay, we're so large that we actually have different. weather patterns inside our own countries. So even though the two top exporters by a long shot,

by most of the soybeans get exported, are just two single countries. We're so big. It's all what's susceptible to weather. So wheat grown in, you know, 10 or 20 different countries that can export. If there's a weather event in Australia, sure, that affects global wheat prices, but only temporarily, not by much, okay? Even Russia, okay? Russia sets the global wheat price in essence because they exports so much and they're generally so much cheaper than everybody else in terms of an absolute price most of the time. If they have a extreme weather event for a good chunk of their wheat-growing region, and that's a pretty big region, that could affect the price of wheat longer term. But unless you have, you know, something weird happens speaking of bananas, like, you know,

the bananas that we eat now, and I've not read the books, so I don't know if they cover this, the bananas we ate when we were kids, are different than the bananas that we eat now. and they're going to be different than the bananas that people eat 10 or 20 years from now because they keep getting these diseases that wipes them out and nobody can fix it. Luckily, the big crops people are paying attention to, corn and wheat and soybeans, and you have genetic engineering to avoid all that stuff. I always tell Michael, it just blows my mind that I bought like 12 bananas this morning for like $2. And I just don't know how that's profitable for anyone to do, yet it is.

They don't make much money. The middlemen make money. The producers don't make much money. They don't. So, that last question for me, one of the popular things in ETFs over the last couple years has been option strategies that spit out income. Given that these agriculture commodities are prone to a lot of sideways action, is there anything inside this market that would make it possible to have a vehicle that would own the underlying and sell the futures or whatever? The case may be or sell some options and generate income. for the end investor?

Absolutely, and we've considered that. I think there's one or two commodity funds out there not run by us. They'd actually do that, that they write some call options and spit out a dividend. But every study we've ever done, including just look at the big stock ETS, the income, when you look at the total return chart of those particular structured ETFs and the actual stock itself, the stock wins every time. If you're capping out your gains mathematically, eventually you underperform. And actually, mathematically, you go to zero if enough time goes by.

I mean, it's, it's, I don't understand why people buy those things. I actually don't. It's beyond me because you get better returns, better absolute returns if you just buy the underlying stock versus a covered call strategy. I guess it's in a commodity, too. You're waiting a while, but then when the big price move happens, you're going to, you're gone. You miss it.

And we ran studies to do a multi-commodity index on just that, though inside ETFs, inside baseball here. And the darn thing theoretically will go to zero. Why is, I mean, I'm just not going to sell a product that I don't believe in that I wouldn't buy myself. So there you go. Well said. All right, Sal, we appreciate the time. Thank you for coming on today. Always a pleasure, guys. Thank you. Thanks to Sal. Remember, check out tookrium.com. That's T-E-U-C-R-I-U-M. For more about their funds, email us, Animal Spirits at the Compound News.com. Thank you.