Animal Spirits Podcast - Talk Your Book: The Craziest Commodities Market Ever

Episode Date: March 12, 2022

On today's special edition of Talk Your Book, we spoke with Sal Gilbertie from Teucrium Agriculture ETFs about what's going on in the commodities market. Find complete shownotes on our blogs...  Ben Carlson’s A Wealth of Common Sense  Michael Batnick’s The Irrelevant Investor  Like us on Facebook  And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.    Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is about you by Tukrium. Go to Tukram to check out their agricultural ETFs. They have wheat, corn, soybeans, sugar. All this stuff is in the headlights, right? Did I miss any? No, no, I don't think so. Tukrium.com. That's T-E-U-C-R-I-U-M, Tukram.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. Michael Batnik and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Rit Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rit Holt's wealth management may maintain positions in the securities discussed in this podcast.

Ben, remember, like a couple of weeks ago, we were talking about Chipotle and I'm going to boycott like $15 in my line in the sand? There might be a breakout. I'm telling you right now, I'm not doing it. Are you thought you're going to say it's probably going to be higher than that? I'm not doing it. Okay. So we talked to Sal Gerberty from Tukram ETFs, which is an agriculture

ETF platform in July 2019. Commodities have been in a bear market for a long time then. And some of the different varying degrees and the magnitude was different. But wow, have things changed since then? Not only the pandemic, the war, it's the whole thing is very crazy. what is going on in the commodities markets. And it's not just oil anymore. It's all these other agricultural things. And so Sal really schooled us on a lot of this stuff and told us how crazy it really is. You could easily make the argument that among all of the craziness that's going on,

this is the one that has the most real world impact on the most people globally. I mean, it's going to be people in the United States for sure. But this is the kind of thing that I feel like third world countries are just going to get hammered on this stuff with the cost rising so fast. Yeah, I didn't realize that Ukraine was such a big exporter. of a lot of these agricultural products. The whole thing is just beyond the awful. It is weird to talk about this through the investing lens, but that's what we do. We get into this a little bit on the show today, but there has been such a high demand and assets have risen so much in some of their products, these Tukram ETFs, that they actually ran out of a share. So they put out a statement

the other day, this is on March 7th, just saying that for their wheat fund, W-EAT, the fund had sold all available shares and was suspending creations of its shares. And they basically had to go to the SEC and ask them for a new registration statement that they filed for the fund to let them issue more shares because there's so much competition that people want to get in on this stuff to head to this stuff. So these markets are really crazy. Sal goes into at the end of the podcast where this ranks in terms of the craziest commodities markets he's ever seen. But this was a fascinating conversation. So here's our talk with Sal Gilberti of Tukrim ETS. We are joined again today for the second time by Sal Gilbert. He is the CEO and founder of Tukram ETFs. We last had sale on, I was looking

today, July 2019. So it was seven or eight months before the pandemic hit. We're in a totally different world now. Back then, no one wanted to talk about commodities. In terms of investors, is there wasn't a ton of interest, and now commodities are going crazy. They're doing all sorts of things. The war in Ukraine has obviously made this market even crazier the last couple of weeks, but this stuff was already moving higher since the end of the pandemic. So we'll get into the stuff with the conflict in Ukraine in a minute. But how much of the current situation can be tied directly back to the start of the pandemic

and had this huge demand destruction? And maybe we had some supply problems as well with the producers. Like how much of the current setup can be tied back to the beginning of the pandemic? I think a lot of it. And the pandemic didn't destroy any ag demand. That's what's interesting. I mean, it destroyed any ethanol usage demand for corn. But everything else went up. Wheat usage went up. The number one search thing on the internet for like a week was banana bread recipe. And people were using wheat like crazy. And when it first happened, we thought, oh my goodness, the 20 ton pallets of wheat going to cruise ships and casinos to make their fresh rolls for their buffets. All that demand's going away. Well, it turns out the retail demand overwhelmed it. Same with for beef. Everybody started cooking their own steak. The demand for commodities went up. So before talking monetary policy, the feds throwing money at the system, but at the banks, at the financials. It never got to the people. It made money really cheap. It made it great to buy stocks. But the people didn't get it until COVID hit and they handed a trillion dollars to people's bank accounts. That's what made inflation come. I'm convinced of it. That's what

made inflation calm. And all commodities are seeing the effects of that. So let's like put some meat on the bones or corn on the cob. Corn is now trading at like $7333 a what. Is that a bushel? I'm not a farmer. How do we? Yeah, it's $7.35 of bushels. So yeah, $7.35 a bushel. All right. So for some context, this is like basically double the levels that we were at the last time we spoke. That's right. We've been pounding the table to tell people, look, ag's natural state is the trade at their cost of production. That's how eggs trade, because every government subsidizes farmers because they get overthrown if their people don't have enough to eat. So every government in the world subsidizes their farmers to one degree or another, and farmers are used to operating at break-even.

Demand for grains, if you take the combined soybeans, wheat, and corn demand in the world, it's either a record every year or the second highest. Every single year, going back to 1960, and every single year, that's a fact. It's either record or second-house. So demand is always growing, And when there's a supply disruption, war is unusual, usually because it just doesn't rain somewhere. But we always say, if it doesn't rain in North Dakota, no one in New York City skips their breakfast bagel. They just don't. So the demand stays, supply goes down, easy to see what happens to price. We spend a lot of time with the conflict talking about oil and to a lesser extent natural gas,

but there's other commodities being impacted by this right now. And some of them, I'm guessing, are impacting some of your ETF? So what are the commodities that are most impacted by this that outside of those big energy ones that people talk about? Wheat and corn. Wheat specifically because Russia and the Ukraine combined are 30% of the world export market of wheat. So people don't grow enough wheat themselves has to buy it. 30% of what they buy globally was supplied by the Ukraine and Russia. Hang on, 30%? Yeah, not of all the wheat produced, but 30% of the export market. Okay. That's a gigantic number. What is the total wheat production out of those two countries? Is it 10% or less? I don't know off top of my head. It's more than 10% I think. Okay, got it. Based on those exports, which countries are hurt the worst from that potentially being disrupted big time? Okay, so the countries closest to them, the smaller countries in North Africa and the Middle East are the biggest buyers of Ukraine wheat. And Russian wheat goes all over the world. It all comes out of the Black Sea.

You've got it disrupted. Here's the interesting part. The wheat has already been harvested. It's winter. Okay. So the wheat that we've lost right now is still there. It's sitting in storage. It didn't go away.

So when you see the numbers like came out today with the most recent world agricultural supply report, it shows there's still a lot of wheat in the world. Yeah, it's there, but you can't get to it. So that amount of wheat that is down just off the export market, it's sitting somewhere in Russia and Ukraine just can't be shipped. Here's the interesting part. Most of their wheat is winter wheat. It's planted in the autumn. It goes to sleep in the winter. It's just sleeping now. It will wake up when it's warm. It doesn't matter if they're fighting or not. That wheat's going to grow. So there's going to be wheat in the fields, in Russia and Ukraine. Will they harvest it? Will they export it or not when it comes? And so that's what's really interesting. That's what the market was trying to find a top of. And wheat got squeezed here. You saw those, whatever it was, six days in a row, lim it up in futures of wheat. Everybody in the world who understood eggs and was trading eggs was selling wheat and buying corn and soybeans against it because wheat had actually the best balance sheet, even though the last two years, the world has used more wheat than is produced. So the balance sheet is shrinking. Can you talk about the dynamics of this market and how this works with producers, I guess effectively being the short seller, Matt Levine was writing about that because they're trying to hedge and lock in some of their prices out into the future. Could you talk about the market dynamics of that and how that feeds upon itself? Sure. So back to the beginning, the farmers are getting subsidized.

They're producing stuff in a normal market. It trades at break-even. So you see corn trading, as we said three years ago when we spoke. It had been, I think, at that time, four or five years at 350 a bushel just sitting there. When you look back at a chart, corn will sit there and go sideways at its cost of production until there's a supply disruption. Then it rockets higher. So people kind of layer, they should, layered into their portfolios and just wait because that's what happens to ag. Their natural state is towards the cost of production.

But so who's getting squeezed? Who are the biggest sellers of wheat futures? Is it companies like Kellogg or like who exactly are the sellers there? Well, okay. So there's trade hedgers and there's speculative sellers. So the trade sellers, they can deliver their wheat in. those guys probably didn't get squeezed. If they tried to buy out, they were just taking their hedge off. The people that got squeezed are people who said, well, wait a minute, I see that we normally have

six months of wheat in the United States and we're down to about four months of excess wheat. So wheat's been strong. The price has been going up. But next year, we're only going to have one week supply by some private estimates of soybeans. We usually have five or six weeks. So anybody looking at that who understood ags prior to this war was going to take a shot and sell wheat and buy soybeans and just sit on it for a while. Well, when the war broke, out and you get 30% of the world's wheat exports taken off the market, you had those limit up moves because all those people who were short wheat that couldn't deliver in had to get out. That's what I think happened. And that stopped. Can you talk about some of the dynamics that's

going on in the futures market? Like we're talking about the supply, but how crazy are those markets trading right now and moving? We just did a study. The nine business days before the war versus the nine business days after the war, futures volumes were up 400%. Jeez. So it got a lot of interest. Who's coming in there to trade? Is it hedge funds? Like, who's doing all the extra trading? Well, whoever was short tried to get in there. So it's hedge funds. It's speculators. It's farmers. These are gigantic markets. We were calculating it because our wheat fund, we keep track of things like notional value because all ETSs, they go up and down based upon what they hold. So we hold wheat in our wheat fund, for instance. So we're looking at the underlying

wheat markets because that is actually how liquid the market is. And they were trading between five and eight billion notion of a day of wheat. When you say you hold wheat, what do you hold? Did these futures contracts or what exactly? We hold futures contracts. Yeah, we hold three futures contracts. We never hold spot. We designed the products to mitigate the cost to carry and backwardation so that the price

differentials in the futures curve. You never know if they're going to treat you well or not. If you're holding long term, you just want to mitigate that. So we design these products. For people who could buy and hold them, people trade them like crazy because they're so liquid. What do you think about what happened with the LME canceling some of those? trades that were done in nickel. Do you think that they did the right thing? What's your take?

And basically, so if you could explain to the audience exactly what happened for context. Honestly, I don't know, because we've been so crazy with eggs. I haven't paid the least to nickel. Yeah, so I don't know. So what happened was there was a Chinese producer that got caught on the wrong side and couldn't meet their margin requirements. And the squeeze would have had massive ripple effects. And so not only did they like halt trading, but I think they busted trades, which I've seen like we've had busted trades out of custodian, all right, fine, no big deal. But for an exchange to do that, some people are like that is pretty far over the line and it's a slippery slope of like in exchange's responsibilities. I know that that's happened before on other exchanges and regulators and

exchanges do that arbitrarily, I guess. I guess it's their right to do it if they do it. I'm sure there may be repercussions for a long time from there. Even if we see some sort of ceasefire or negotiation tomorrow between Russia and Ukraine and the war ends, it's not like commodity. of these markets are all of a sudden going to go back to normal. This stuff has got to be disrupted for, I mean, a period of weeks, months. How messed up are these markets right now? Really messed up. We just saw Ukraine ban all exports of food products through December 31st for food security. Unless they change that ban, no food's coming out of the Ukraine. It's just not coming out. So that wheat will grow. It may or may not get harvested. It probably won't be shipped.

Here's the critical part. Ukraine supplied 16% of global corn exports. Who knew? China was their number one buyer. So, Ukraine was such a big exporter of these products. Only ag people. And farmers in Ukraine knew. But the key is here, the corn isn't like the wheat. The wheat's planted and will grow.

So if in June and July, when they harvest that, things are settled down, they'll harvest it. There'll be some. There may be exit. They may decide to export it. Corn has to be planted in the spring. Six weeks from now, Ukraine would be planting. We're seeing on social media, farmers didn't get their seeds delivered six weeks ago. they're not getting fertilizer. They can't get parts for the tractors. We talked to one farmer yesterday.

I talked to the guy who's his cousin. And he said, I asked him, how long do you go before a tractor breaks down when you're pushing hard, working 24 hours to plant? He said two to three weeks. Tractor breaks down. I need parts. I can't get any parts. Supply chains are broken. So we don't know if these guys are even going to plant the corn. So to me, corn is actually the bigger story. The wheat's still there. It's still in global inventories. Corn might not get planted. And that was 16% of the corn global export market. They might not. planted, it might not exist. Jeez.

That's a big deal. Can you give us a sense of the size and the scope here? So, like, how big is the corn market compared to soy and wheat? And, like, obviously, there's more to corn than just corn in the can or corn of the cob. Like, it's in products for farm animals and things like that as well. If you go by the United States and the world, the number one use of corn is to feed animals. So feed any animal product at all, whether it's meat, eggs, cheese, whatever. If it came from an animal or is related to an animal, that's the number one you

of corn. So meat prices could go up as a result. Absolutely. And what happens there is the number two use of corn in the United States is ethanol. And it was number one pre-COVID. Can you explain for the audience and all right, fine, explain for myself. What is ethanol? Sure. Ethanol is alcohol. It's vodka. It's 100% grain alcohol. You can drink it. Here's how old I am. I started trading leaded gasoline for Cargill in 1982 right out of college. We went from leaded to unleaded while I was at Cargill. So you went from lead, which makes you stupid, to unleaded, which was MTBE, which gives you cancer and poisons groundwater, to I heard George Bush Jr. give the speech about ethanol. I said, what's ethanol? I didn't even know. So I looked it up. It's like you. It's grain alcohol. And it's really cool. All right, crude oil boils at different temperatures and the steam that comes off when it's recondensed becomes something. The lowest temperature it boils at, that's like lighter fluid in your cigarette lighter, okay? And the next lowest temperature is like gasoline. And the next lowest temperature is jet fuel and diesel and that and that. 50% of the crude oil in the world, the gasoline that comes off of it needs an additive. And so that's where lead and MTBE and now ethanol come in.

So you need some additive. And I looked at that market and said, holy cow, you can drink this stuff. The future of gasoline is ethanol. So I started an ethanol swap, which didn't exist. And that's how long story short, I was trading inside a sock gen division, started the ethanol contract and ended up trading about 30 different commodities. And then somebody came into my office one day and said, starting this thing called an ETF and I'm going to put oil futures inside of it.

And I was shocked because my whole career, I couldn't trade futures because I always traded for somebody else's book and it was a conflict. So if I thought oil was going up when I was trading for Cargill, I had to buy Exxon or buy mobile. They were separate then as a proxy. This guy comes in my office. I'm like, this guy's a genius. Well, he didn't invent the ETF structure, but I'd never heard of it and I thought it was brilliant. I thought I could develop a better energy ETF. We launched two of them. Nobody bought them. They were third and fourth the market. We closed them. But at the same time, I couldn't believe that nobody had an ag ETF because to me, the last thing any human being will do, anywhere they are, will let themselves, their family or their animals go cold or hungry. So energy and food are the two things you should be thinking about it.

It's just basic. And there were no ag ETF. So I started the company with Aggie TFs. Before we get into the Aggie TFs, because we're obviously going to, I'm just curious from somebody that's been doing this for such a long time, did you ever think you would see the price of oil go negative? and what was your take when that happened? I did not think we would see it go negative. In hindsight, I felt stupid because it could. So there's a deal.

You can't just turn an oil well off. You drill a hole in the ground. There's pressure and there's a lot of stuff that comes up. There's water and junk and oil that comes with it. And you get the pressure just right. I invested in oil well once. I gave it got a ton of money with a whole bunch of other people. They drilled a hole.

Guy calls me up. It's like 7 o'clock at night. We hit oil. We can't believe the rate. We're going to do like a thousand barrels a day. we're all going to be rich this long time. And he calls me the next morning and says the guys were so happy, the guys at the wellhead, they got drunk and tried to see how big the flow could get and they blew it

out, just water's coming up. So, boom, that's the end of the money. That's just how it goes. But the point there is you can't just turn an oil well off or even mess with it too much because there'll be more oil, more water, more junk. You can wreck it. So oil's coming out of the ground. It costs a guy less to pay somebody to take his oil.

oil away than to shut that well off and risk its next five years performance. That's why oil went negative. And what happened was it had been going down and the cost of carry. So the front month was lower than the back month. So you could buy oil, put it in storage and make money selling it in the future. Everybody in the world had already done that. It had been in that position for like two years or whatever it was. So all of a sudden, there was just too much oil and nobody would shut their wells off and went negative. I felt stupid now figuring that. And that's called either contango or backwardation. We know it's one of the two. Correct. Well, Contango is when it pays to store it. And backwardation is when there's not enough right now. And so you're paying more.

We always get those confused. So we kind of went over this last time with you, but the people who don't have as much experience investing in commodities, tell us a little about how that structure works investing in futures. Because obviously, your wheat and corn ETFs and your soybeans and sugar, you're not actually buying those and backing them with these agriculture products. So how does it work with the futures? How do you build products on these? Because I think that's hard for people to wrap their minds around the fact that you're not actually buying the commodities themselves. You're buying futures contracts. You're not, and you can.

Let's start why. So gold, everybody knows an ounce of gold is about as big as a half dollar, and they don't sell it at ounces. It's in these giant vaults, okay? So the vault in Fort Knox or the Bank of England, there's a no-neck guy with a gun standing next to a pile of gold that's worth billions of dollars. It doesn't cost much to have him stand there and insure it, okay, and it's safe. Corn goes bad. You can only store it for three to five years, and it goes bad. And it costs like a nickel a month to store corn.

So if you buy corn for today's price is $7.50 and store it for a month, your cost is going to be $8.505. But over a year, your cost is going to be $8.10 because you spent $5 a month to store that corn. In Cargill, we didn't have the word contango when I started working. It was carry and backwardation, your cost of carry. You had to buy the corn and then carry it for a while until you sold it. So you paid your storage and your insurance and all that stuff and your cost of money. And that's the cost of carry. They both begin with the letter C. Look at it that way. Okay, so that's how you keep it straight. But you can't do that with corn, so you've got to buy futures. And the futures markets build that in. Futures markets know that that's what's going to happen. So it's kind of built into the price.

Then there's seasonality. There's agricultural seasonality. All the corn in the northern hemisphere is harvested in basically two months time, a month, four weeks, either side of October 1st. So just pictured as a gigantic pile of corn on the ground on October 1st. And if you look at seasonal charts, the seasonal low of spot corn, physical corn, is generally around October 1st, all else being equal, the perfect supply demand. And that's because there's a giant pile on the ground, and every day the world comes and takes

it away. Pile gets a little smaller, a little smaller. By the end of the winter, people get kind of nervous because the new crop isn't even planted yet. So things are going higher from October 1st. You plant the new crop, things kind of level off between March and May. And then this is in the United States, Northern Hemisphere. By the time you get the weather reports for the 4th of July, So the last half of June, you can see if it's going to be too hot for the corn not to pollinate. If it's going to be too hot and too dry, prices rocket. And look back on a chart every five to seven years. That's what happens.

The rally X O War always starts in June or July because it hasn't rained and it's terrible for corn if it doesn't rain in that. And then if there is good rain, it starts a seasonal decline down to October 1st. And it just repeats, rather rinse repeat. Sal, I'm looking at a chart of your wheat ETF, the ticker. is W-E-A-T. And one month ago, so we're recording this on Wednesday, March 9th, one month ago, there was $79 million in total assets under management in this particular fund. 30 days later, it's over $400 million. How much of this is, I mean, obviously a lot of this is performance, but there's got to be like serious money coming in here. This is not just

performance. That's a gigantic difference. I'm also curious, is wheat the one that's the most popular right now? Right now, yeah. Absolutely. Got the head. had my corn was always the biggest. Corn is the big dog. Back to a question you asked earlier, Michael, it generally goes corn, soybeans, wheat, in terms of the value of the crops. I always thought wheat should be the biggest fun because it's the most important. Wheat's the one that's human consumption.

Wheat's human consumption, period. Soybeans, it feeds animals, it's human consumption, and it makes fuel. Corn is animal consumption, fuel production, all these other products. And then if you had a pie chart, the slice of the pie that we as humans eat like with a corn on the cob, You can't even see this slice. It's so small. It's irrelevant, the amount of corn that we consumed. So most of the time, just looking back in history, most of the time, to your point, corn had way more assets than wheat. And it fluctuates, of course. But this criss-cross I'm looking at right now is unbelievable. Russia did it twice to us. We started the wheat fund, and it ran for three or four years, stuck at three million bucks. Had three million dollars in and no one cared. Russia went into Crimea in 2014, and in six or whatever, we can look it up. But a couple months, either side of six months, it was at close to 40 million.

And the figures you just gave, $79 million. Last Friday, we sold 16 million shares of wheat. So it was more than $10 a share. So at least $160 million. And one day, one day. Two questions. Do you have any sense for who these buyers are? I know you don't get reports on them.

Actually, let's just start there. This is big money. Who's buying this? So as an ETF provider, we don't know. Because we don't sell the shares to the people who buy them. We sell the shares to market makers who are making bid and ask. hedging it with the underlying futures. So they're offering wheat shares on the New York stock exchange for sales simultaneously buying the wheat contracts that we hold. And then when they're short, so many shares,

they come to us for baskets of shares, which are 25,000 shares in a basket. And this is how all ETF works. It's not unique to two gram. We give them shares and they give us futures. We exchange the futures, so there's no slippage there. And now our fund owns the futures, and they own the shares. That's how it works. And so we don't know who it is. I mean, we know when people call us, so we know investment advisors will call us up and say, I saw it flatlined and I listened to you guys. We're not investment advisors. Okay, but this is what people did. They put 1% of their portfolio in corn and they said, I knew if I've waited long enough, it would go up. And if it doubles, I make 1%. And if I buy the break-even, it might go down. It's

going to be minimal effect on my portfolio. So also, ags don't correlate. It's really interesting. Ags, they correlate, but really low. They do have a positive correlation. You mean, what, to each other? To the S&B 5-0. Stock market. We did a study. It's on our website, to grim.com. And not counting this. dip because it's not over yet, okay? Not counting this stock market pullback. The last 11 pullbacks of the S&P 5, 500 of 10% or more, the S&P grain index outperformed 10 of those 11 times. As Jay Canley says, grains zigg when stock markets acts. It's a great diversifier to put grains in your portfolio. Investment advisors call us, retail call us. We see when we send out the tax forms,

we see once a year who buys, it could be anybody. It's not really institutions. Institutions haven't adapted to ETFs yet. They're kind of doing the big stock ETFs and bond ETS, but they're not using commodities. I mean, if you're an institution, you can call your investment bank and say, give me exposure of this commodity and this timing and this amount. It's done. How about the correlation to energy prices? I mean, obviously, there has to be some correlation because commodities tend to move,

but do you see periods where agricultures and energy are sort of not attached to each other? Yeah, but when energy makes a big move up or down, that's positive or negative for corn and soybeans because of the energy that's derived from them. Cort soybeans is it's sugar. Don't forget. Corn, you pull the starch out to make sugar to make ethanol. Sugar, you just make ethanol. So there's an extra step in corn. It's more efficient to make ethanol out of sugar. But when gasoline prices go up and ethanol prices goes up, that is supportive for corn and sugar. And then soybean, of course, there's soybean oil, of course, there's soybean oil, of course, there's soybean oil, of course, there's soybean oil, of course, there's soybean oil, which is actually chemically different, which everybody's used to. You take diesel and put five or 10 percent soybean oil in it or palm oil or some other cooking type oil. But now there's something called renewable diesel, which is actually chemically different, a different plant is built and it's all diesel from soybeans. So there's demand coming into soybeans and palm oil. And so the price of cooking oil is actually going up because here's one nobody knew. I didn't know. Ukraine provides 80% of the export market for sunseeds. What are sunseeds?

Sunflower seeds and sunflower oil. And if you look on the back of any package of anything that's packaged that you eat, in that ingredient list, it might say contains sunflower oil, cotton seed oil, or soybean oil. It's a big deal. I just googled soybean. I don't think I've ever seen this before. So there are green beans that turn into like, they look like almost like chickpeas. But soybean, like everything's made from soybean. I know not everything, but a lot of things are made from soybean. Like, could you describe some of the things? Well, first, the edamami. So if you're in a restaurant, I need an edamami, that's soybeans. It's just heated up soybeans. That's what it is. Oh. Edomami.

Do you know that was, Michael? Edomami is great. I had no idea that was soybean. I love itamami. Yeah, so that's soybean. So soybean mostly is ground up and made into oil and meal. China's the world's number one importer of soybeans because China has the number one, the largest hog herd, and pigs love soybeans. So you feed pigs and poultry soybean meal. That's where it goes. Do pigs eat it raw? Do they like the edamami? Because I could take a leave out of amami, but what do they eat? They grind them up and they feed it to them. That's how it works. So here's the thing, like food for fuel, that whole debate when ethanol came out, that went away when people realized, well, wait a minute. They're planting all this extra corn to get it for ethanol. All you did was extract the starch out of it. You still had the fiber and the protein left. And so it's called distiller's grains, dried distillers grains or wet distillers grains. That's what was left. So you actually had more animal feed than we started before. Soybeans are a little different. You may have a food for fuel debate eventually with that because people eat soybeans. Are there any other

knock on effects of besides the obvious things, prices at the pump and a few things from this with all the prices rise in commodities that people are going to see, well, geez, this is way more expensive than I thought it would be because of all this stuff going on. Anything that comes to mind? Well, first off, energy underpins everything. So energy makes the cost go higher. One of the highest correlations of the price of grain is the cost of production. And the cost of production and grains has to do with fuel for your tractor and transporting it around and fertilizer, which comes from natural gas. So when those two things come up, the cost to produce everything else goes up. The cost to move everything around goes up. So your box of corn flakes, some tiny single-digit

percentage of the price of that is due to the corn in it. It's all mostly due to packaging and transportation of fuel. That's what it is. All right, Sal, so where do we go from here? Please give us some good news. The good news is that farmers are probably ripping up their flower beds and planting the cracks in their driveways and sidewalks with any food seed that they can. I mean, these are prices that farmers haven't seen in over a decade. They are double the cost of production. Now, the cost of production is creeping higher, so they may not be double the cost of production anymore versus what the cost of production was a year or two ago. But But farmers around the world are resilient.

They will plant. They will harvest. I believe if we get the weather, and that's always a huge if, we are going to see record crops in every country except Russia and Ukraine. I don't have any doubt about it if they get weather. That makes sense. Everything will revert eventually back to the cost of production. The problem is, before the war, we were projecting that, remember, there's two growing seasons.

There's a northern hemisphere and a southern hemisphere. So we were predicting that it would take through next season's Southern Hemisphere harvest, which they're harvesting now this season. So a year from now, if we were to talk, we would have expected that's when the grain stocks would be rebuilding because they've been shrinking globally, okay? Because of the Chinese drought, the drought in the Dakotas in Canada last year, the drought in southern Brazil and Argentina this year, it's been a problem. Okay, so we've drawn down on global inventories. we would start building them back up a year from now during the southern hemispheres next year's harvest. We're still harvesting this year. Seeds aren't even in the ground for next year. Now, because of Ukraine, we think we have to at least look to the northern hemispheres next year's harvest.

We haven't even put the seeds in the ground for this year yet because it's going to take that long. Nobody stops eating. Unfortunately, the poorest of the poor in the world are going to be hurt the worst here. Cooking all is up. Cooking all is a huge part of people's budgets in the poorest countries of the world. cooking oil prices are to the moon because of all this. And it's really bad. Is this the craziest commodity market you've ever seen?

I know it's the history of commodity is booms and bust. Is this kind of par for the course or is this like unlike anything you've ever seen? I remember the Iraq War was crazy for energies. I wasn't old enough to be trading during the Great Grain Robbery of 1972. I wasn't even a teenager yet. And that apparently was a wild grain market. I've never seen anything like this. So, Sal, in 10, 20 years, you'll look back on literally.

today as one of the craziest markets you've ever lived through? Everyone will. No question about it. For us, I mean, we live and die and breathe ag. So, yeah, for us, it's just, it's astounding. And I do want to point out that the focus has been on wheat. If Ukraine doesn't plant its corn, focus is going to be on corn. And we don't have enough soybeans in the United States.

We just don't. And the fact that they had this monster drought in southern Brazil and Argentina, Brazil is the largest exporter of soybeans. Argentina is the largest exporter of soybean products. Paraguay is fourth largest, and they're just a blip. It really goes Brazil, United States and Argentina in terms of big dogs for soybean exports. And Paraguay is importing soybeans. They've never done that before in history.

I mean, it's a disaster down there. We've lost this year's crop. So they really need to do soybean crops next year. It's too much. It's too much. It's too much. It's going to be tight. I think grain prices are going to remain elevated and highly volatile for a minimum of another year.

People need to really be careful because ETFs or futures, ETFs that whole futures are going to be as volatile as the futures, and the futures are volatile and tough. So people need to be careful. That said, there's a place for ags in everybody's portfolio at one time or another. All right, Sal, this was terrific. Thank you so much for your time. We appreciate you coming on. Always fun. Thanks, guys. Thank you to Sal. We turn that podcast around very quickly. We told them that we wanted to get them on this week because of everything is happening and they made time for us in their busy schedule because they are super busy right now. So thank you to tell. Remember, thank you to Sal. Remember, it's tookrium.com and send us an email Animal Spiritspot at

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