Sal Gilbertie freely admits that soybeans and wheat have far less sex appeal with many investors than cryptocurrency.
“People don't think about the things they take for granted, like your food,” said Gilbertie, founder and president of Burlington, Vermont-headquartered Teucrium Trading, an exchange-traded fund provider involved in agriculture-based commodities.
Nonetheless, a combination of tumultuous circumstances over the last year has been lucrative for Gilbertie’s funds.
“We have $370 million under management,” he told Benzinga. “Last year, we had about $170 million. Money has been pouring into our funds.”
Going With The Grain: Gilbertie launched his company after the 2007-2009 financial crisis when he realized there was no agricultural ETF focused on a single commodity. He began focusing on corn with the Teucrium Corn Fund CORN; expanded into soybeans with the Teucrium Soybean Fund SOYB; wheat with the Teucrium Wheat Fund WEAT; and sugar with the Teucrium Sugar Fund CANE.
A fifth fund, the Teucrium Agricultural Fund TAGS, offers a combination of the other four.
The funds are doing “exceedingly well because of the renewed interest in agriculture due to the inflationary environment and the fact that the eight-year bear-to-sideways market has ended," Gilbertie said.
"The supply demand fundamentals on grains have definitely shifted in favor of demand over supply. Since last June, grain started a rally that went 40% or 50%.”
The China Effect: Much of the renewed interest in agricultural commodities — and, by extension, the Teucrium Trading ETFs — is due to a long spell of bad fortune in China’s farmlands.
“The global grain balance sheet, meaning the supply of grains leftover at the end of each year, is shrinking,” Gilbertie said.
“That happened primarily because China had a major issue of production last year with crops, primarily with wheat, rice and corn — they had too much rain. While information from China's a bit sketchy on the ground, you can see the official numbers of what they import and what people sell.”
Gilbertie defined China as traditionally being “spotty corn importers,” but said he saw larger-than-normal corn purchases from global markets.
As a result, “Chinese corn futures hit record highs.”
Further evidence of a problem across the Pacific occurred when the Chinese sold approximately 2.6 billion bushels of corn from state reserves, but corn prices in China still remained high.
“That tells you China had a problem,” he said. “No matter what data you get, the markets don't lie and the import numbers don't lie. You can trust the Chinese numbers or not, it doesn't matter — just look at the markets.”
Not High On The Hog: China was also impacted by African swine fever between 2018 and 2019, an unwelcome development for the country with the world’s largest hog herd.
The Chinese government’s incentives for farmers to produce soybeans ran into a problem when the disease wiped out about half of the nation’s total herd, including breeding pigs, leaving a surplus of soybeans that were not used.
“One would think that they would have used less feed, but they didn't and that's a bit of a mystery,” Gilbertie said, pointing out that the combined calamities have ratcheted up the need to import larger volumes of commodities.
"That's not going away — at least in our lifetime."
Indeed, China’s importing activities have been so great that Gilbertie said Brazil, the world's largest exporter of soybeans, ran out of that staple.
“China bought them all — and Brazil started importing them. The government actually waived import fees on soybeans because they wanted people to import soybeans.”
Still, food supply problems are not unique to China.
“Because of coronavirus and people staying home, No. 1 internet search around the world for several weeks was the recipe for banana bread,” Gilbertie said with a laugh.
“So, everybody had the flour shortage. If you went into your store, you couldn't buy a one- or five-pound bag of flour. At my local Trader Joe's, they were breaking open their 50-pound bags of flour that they used to bake their rolls in the back and packaging them in little plastic bags and selling them one pound at a time, because everybody who was home become a home-based cook.”
A Balanced Sugar Market: One commodity where supply and demand are not out of whack is sugar. Production from Brazil and India has ensured a balance not seen in the other commodities covered by Gilbertie's funds, although he said new economic dynamics might change the picture.
“In the United States, the consumer price index numbers are showing food inflation is already twice the Fed’s target rate of inflation of 2%,” he said. “Food inflation is 3.9%.”
Coming Up Next: Gilbertie toyed with the idea of a hemp fund but said he opted not to pursue it after another fund got to market first.
Instead, he's looking to launch the Teucrium Water Fund. On March 9, the U.S. Securities and Exchange Commission put forward a request for public comment on the proposed fund, with a 21-day window for input followed by a 35-day window for rebuttals.
Gilbertie acknowledged that some people are surprised to hear that water is a tradable commodity.
“Water futures began trading the first week in December,” Gilbertie said.
“They are based on the southern California Water markets, and there's an index published on that. Water is heavily regulated, so it can't be manipulated. In essence, it's you know, the price of water has been regulated for hundreds of years, but there's a price index that's published and the CME put out a futures contract.”
Photo of Sal Gilbertie by Phil Hall.
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