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Investors today can gain exposure to any asset class via ETFs. Stocks, bonds, real estate, metals, energy, even crypto. One of the most overlooked sectors are agricultural commodities, wheat, soybeans, corn, sugar, coffee, all sorts of diversified commodities. and the ETF structure means a very different kind of K-1. I'm Barry Ritholtz, and on today's edition of At The Money, we're going to explore the question of whether agricultural products deserve a place in your investment accounts. To help us unpack all of this and what it means for your portfolio, let's bring in Sal Gilberti. He's the founder, CEO, and chief investment officer of Techrium Trading, best known for creating exchange-traded products that give investors direct exposure to ag futures. He's also an old-school commodities trader since 1982, trading various agricultural and energy commodities. So, Sal, let's start really basic. What makes agricultural commodities so fundamentally different from other commodities like energy, metals, or equities or bonds as an asset class.

Sure. And thanks for having me, Barry. It's always fun to be with you and talk with you.

Let's face it. Everyone eats and their animals eat. And that's what ags are primarily used for, although fuel now has come into the mix. But ags are very stable commodities in terms of the downside historically. And we all know past performance is indicative of future results and all that. But the downside on ags is very limited because farmers will just stop planting if they're losing money. And the secret with ags is that demand continues to rise. So the combined global demand of corn, soybeans and wheat since 1960, OK, rises every single year. It's a record or it's almost a record.

So it's either the second highest ever or it's the highest ever every single year since 1960.

So is that is that, Sal, is that driven by population growth or is it driven by I'm thinking about beef, which seems to not only be benefiting from the whole keto trend, but rising wealth in the rest of the world means people are eating more protein and less of other things. What's the underlying driver of increased demand for commodities?

You just hit it. OK, basically, the underlying driver is a rising population and more importantly than that, a rising middle class, the people that rise from the bottom to to the next level. OK, so if you look up people who are in sustenance living, which used to be defined as, I think, less than ten dollars a day, ten dollar equivalents a day of the moment they rise from that. And there are hundreds of studies on this.

They increase the protein in their diet. They increase eating meat. That's what they do. And that is a huge demand. The number one demand around the world for corn is feeding cattle, is feeding animals in general, feeding animals. The second highest demand is for fuel. So, you know, corn goes into ethanol and corn goes into sorry, soybeans go into biofuels. And so what happens is the rising global population, the rising middle class, the growing middle class, which has become huge, by the way, I think as a percentage of the population, we're in our lowest ever percent of people in the bottom, the bottom rung.

That's amazing.

Does this mean we're going to see beef, B-E-F-F, B-E-E-F ETF from you sometime soon? No, it's really hard. To get people to think about eggs is really hard.

It's amazing to me. you know, we always say corn is in everything, right? So number one use is feeding animals. Number two use is ethanol production. It's in. So it makes starch, right? If you use paper, you're using corn. People don't realize that. So it's literally impossible for anyone anywhere on planet Earth to not be using corn every single day, either directly or indirectly. It's not possible. And people don't understand that it's a vital commodity. And so So going back to your original question, I believe, you know, it's a commodity, so it's volatile, but it has this floor because governments around the world subsidize food production. They subsidize their farmers because you don't want your populace to destabilize because they're hungry and you lose power. So everybody subsidizes their farmers. So farmers get used to operating at breakeven. And that actually is, I think you've mentioned it, the golden grain cycle. We can get into it. But grains kind of flatline to get used to trading there. And because that that demand is is very basically static. It's not a dynamic demand. It's just always growing. It doesn't really fall significantly when there's a disruption, which 99 times out of 100 means it doesn't rain somewhere critical. and one time of 100 means there's a war, there's a political upheaval and you might, the transport of grains, the access to grains might be limited. They explode higher. They go

higher really quickly because people are afraid. That's really interesting. So you mentioned the golden grain cycle. Walk us through what that means. Where is corn, wheat, soybeans in that

cycle today? Sure. So golden grain cycle was developed by Jake Hanley, or I think you know

very well. And we looked at it and said, look, because we just looked at the spot continuation, so the continuation price of the front month of futures over time. And the bottom line is on corn as a prime example, between $3.50 and $4 over the last 17 years, actually approaching 19 years since the Renewable Fuels Act 2007-2008, corn doesn't go below that. I think it's traded a few weeks under $3.50 in the last 19 years. I can tell you that corn has only traded under $4 4% of the time in the last four years, five years, sorry. So in the last five years, corn has only been under $4 4% of the trading days. So clearly the breakeven is between $3.50 and $4 and closer to $4 right now. So if you see corn down at near $4, you kind of, based on past history, you're saying, oh, wait a minute, I have limited downside. And in the last 19 years, three times corn has doubled from that price. OK. And twice because of a drought and once because of the war in Ukraine, which was preceded by a drought in the upper Midwest and problems with China grain production. And so wheat production. So you had a wheat problem that kind of started the rally and then Russia invaded Ukraine in 2020 and everything went bonkers or 2022, I guess. And everything went bonkers. The rally started in 2020 in wheat, and then it went to the whole grain complex. So if you've got an asset and you say to somebody, I've got this asset that trades at X. And when there's a supply disruption every four to seven years, it goes to 2X. And then it trades back down to X. And then repeat, lather, rinse, repeat. So stage one of the golden grain cycle is trading sideways, X. Stage two is going to 2X. And stage three is going back to 1X.

So it sounds very much like these are trading vehicles that you're looking to take advantage of these disruptions, such as war or droughts. What are the other variables investors should be aware of? Obviously, weather. The war in Iran sent fertilizer costs skyrocketing. I've been reading about farmers complaining about that. And then government policy. The I'm I'm watching I've been a big fan of both Harry's Farm and then Clarkson's Farm on Netflix. Both of them complain.

about policies in the UK, which are now taxing farm estates and taxing fertilizer and taxing everything from tractors to what have you. How significant are our government policies and what are the other variables investors should be thinking about? All right, sure. So in order,

the main variable is always weather, okay? And then geopolitical upheaval like a war, All right. And like what happened with wheat when Russia invaded Ukraine, between Ukraine and Russia, they're, you know, over almost 40 percent of the world's exportable wheat supply. And everybody was afraid it would get locked in. Well, it didn't get locked in. So you had this this price spike. And the reason price spikes is because you run out of grain. All right. Remember, you plant grain in the spring. It grows all summer. There's a big pile at harvest in the fall. And then you take from that pile. The whole world's taken from that pile, autumn, winter, spring, and summer, okay, because it's still growing. It's not harvested yet. And in general, at the end of that cycle, you have about six months supply of wheat in general, okay, historically. You have about three or four months supply of corn and soybeans, all right? So if there's a disruption and that big pile is reduced by, you know, 10%, 20%, 30%, now you're approaching zero in corn and soybeans, All right. So that's why the price generally in July takes a spike if they realize it's not going to rain in the U.S. U.S. Corn Belt. And there's the weather factor. OK, prices spike and go up and they run up in the next year. What we've seen is a lot of money coming into our ETFs. I mean, we had, I don't know, 200, 250 million in our ag ETFs right before the Iran war broke out. And now we have 800 million to a billion, depending on the day. Wow. But the price hasn't really gone up. The price went up maybe 10 percent. The reason is people are positioning for next year. The fertilizer story is a 2027 story. So farmers will fertilize mid-season, okay, around now just to get, they call it side dressing, and that'll boost the yields. That's going to be cut back around the world. But a lot of farmers pre-treat their fields, especially corn farmers, in the autumn. They get ready so they can get in there in the spring and get everything down. So some of the fertilizer is either priced or goes gets laid down in the autumn for next spring. If the fertilizer price remains high in the autumn or the availability remains limited, you will affect next year's yields. And I think that's what investors have done. And back to your point of it's a tradable product, it's more a strategic allocation because these doubles that have happened prior to now, and again, it's just historical, not making any predictions. You can't, we're not allowed. But you have to be pre-positioned. And I think investors are saying, well, wait a minute. If I stick 1% of my portfolio in corn or beans or wheat or whatever, my downside is pretty limited based on history. If I'm buying within 10% of the breakeven price and my upside is like 90% based on history. And it's going to be stable because assuming, you know, setting aside the one or two days every couple of years that are black days, those black days where everything goes down, grains really remain stable and their portfolio stabilizer. And so people are kind of layering into trying to say, maybe the stock market's frothy. Maybe I'm getting a little too risky. Bonds kind of

move in tandem with stocks. What am I looking for that has a lower correlation? Everything's correlated on certain days. Grains have some of the lowest correlation around besides natural gas

and sugar. Really, really interesting. One of the thoughts I always consider when I'm looking at agricultural products or commodities is as a hedge to inflation. Prices go up on food. Prices go up on key commodities. There are a lot of different ways to hedge inflation. Owning the commodities that go up is a significant aspect of this. How do investors use commodity ETFs as an inflation hedge? They do. I think when people see

inflation coming or feel it coming. And, you know, any commodity, we're grain focused, right? But any commodity, if you see down at its break-even level, it's really, you don't have to be an expert in that commodity. Look at a chart. Look at a long-term decade or two chart. Wherever it flat lines, it's usually around the same number. That's your break-even. That's your futures equivalent break-even cost. Everybody can see those charts. That's when you might want to layer in because your downside based on history is limited and your upside, you know, you can move steadily up with inflation, which we have. Again, that breakeven price of corn used to be $3.50. It's

clearly around $4 now, maybe a little high. Really interesting. You know, the first time I ever heard of a USDA crop report was frozen orange juice futures from the movie Trading Places. How significant are these USDA reports to these underlying ag products? Do investors need to track this. the way equity or bond investors track non-farm payrolls? I think so. And the reason is, you know, granted, it's not quite as dramatic because you may not be as good at predicting the numbers of, say, payroll, right? And those numbers get adjusted, as do the ag numbers sometimes. But I think everybody knows here there's a whole sub-industry within agriculture that's watching. They kind of know what the USDA is going to put out. But the USDA is the gold standard. So when that report comes out, all of your hedge funds, all of your pension funds, all the big institutional investors who, quite honestly, you know, they're looking for opportunities. They also want to cover their rear. All right. So if you've got the USDA as your gold standard, you just follow that. So if the USDA confirms what everybody else already knew, OK, fine, you're a little late to the game, but you're probably going to be OK anyway. So, yeah, those reports are really big. The scary thing, Barry, you and I can probably both relate is when we we give speeches now and I say how many people have seen Trading Places, far more than half the room now has a blank look on their face.

Nobody under 35 even knows what the movie is. Really? Oh, my God. It's just that I'm genuinely I'm genuinely shocked at that. We require our interns to watch it. You got to watch it. It's Eddie Murphy's. It could be his very best movie. So you mentioned earlier drought. We talked about war. Given the rise of prediction markets, everybody's trying to figure out what's going on. How much of information about either weather or geopolitics or whatever, even a poor harvest, how much of that is already embedded in crop prices?

um most of it is the the one caveat again as i've referenced earlier if you get a drought in the u.s midwest around july or august which is what they call kernel fill and pod fill okay kernels when the corns get their kernels and when the soybeans get their fill their pods um if you're if you're too dry and hot in that period it it hits hard in the u.s being this the you know the world's second largest producer of both those commodities. Now, now we're exporter. We're second to Brazil now. That hurts a lot. And but you can see it. OK, so so by the end of June, if you're looking at if it's been dry and hot and the 14 day forecast says it's going to stay dry and hot, you see that price start creeping up and you can look back and drought years in the charts, the price charts. So it gets built in, but you don't know how bad it is until harvest. So you You kind of, in drought years, you get this slow dribble up, and then when you get confirmation in autumn and late autumn, then you get that wintertime spike up. Seasonally, though, the corn low is, there's double low. One is that the middle to late August is a good time to look at layering corn in if you're so inclined to do that to your portfolio, because that's when people have a really good idea that the crop's going to be good or bad. And then October 1st is actually when you do a 20-year smooth or 30-year smooth seasonal. October 1st, the first week of October is the cyclical low. The actual absolute price, though, often occurs in August. So August, when you get a good read on the crop, it rained during that critical time. Everybody's happy. And then October, because the whole big pile is on the ground, everybody's feeling comfortable. Those are good times to look at layering these things into your portfolio.

Really, really interesting. China has become the dominant buyer of so many agricultural products, as well as other commodities. how has their growing economy and even geopolitical importance changed the way grain markets trade?

It has changed the way commodity markets trade as I've watched China for decades and as they become a net importer of something. So when they became a net importer of crude oil, that changed the crude markets. When they became a net importer of corn, that changed the corn markets. When they became a net importer of wheat that changed the wheat markets. When they, you know, increased their importation of soybeans, they are the soybean market, okay? So China buys most of the world's soybeans that are available for export. Only three countries export soybeans, basically Brazil, the United States, and Argentina. Paraguay is a little blip there, but you can't really see it on a pie chart. It's so small. And so those three countries, if they have an export problem, China has a problem because China is the largest swine herd. They feed swine soybean meal. And so they're gigantic importers of soybeans. So yeah, if China imports or not, the interesting part is soybeans, they've kind of maxed out. But on corn and wheat, every year, if you look at long-term trends, they increase how much? Exactly. It's just like oil. The amount of oil they import just

keeps going up. Really, really interesting. Given the role of China, the rising role of China in commodity imports, what was the impact of all the mayhem the past year with tariffs? Did that have a significant effect on-

on how much U.S. grain farmers were able to export? Kind of, because in Trump's first term, when he did the tariffs, that changed everything. So that affected things more. China basically shifted towards Brazil as their first choice for soybean imports toward the U.S.

That persists? The U.S. has fallen behind Brazil in exports to China?

Yes, absolutely. And Brazil's beans, by and large, have been cheaper lately anyway. And so China just, you know, tariff or not, they're going to go where the cheaper beans are. When China buys our beans now, it's the state buying them because our beans are more expensive and they're sending a political signal of goodwill towards the Trump administration. China, I will note, saved the world by cutting down on their crude imports. Their crude imports largely were to support their strategic petroleum reserve in the last couple of years. They've been importing much more than they actually use to boost up their reserves. China is the number one reason that crude demand went down since the Iran war has started. And China has saved the world. China saved energy prices. Everybody said $150, $200 a barrel. If it weren't for China cutting back on their energy imports, we would have seen that.

I think a lot of people in the United States underappreciate how aggressively and let's just call it clever. China has pushed into alternative energy, everything from geothermal to solar to winds. Not a surprise. There are certain things that you can't replace crude oil with, but everything else they can. They seem to have really made an effort to do so.

Correct. And don't quote me on this. I don't know for sure. We have to go look it up. But I think their fossil food usage is still going up. You can't do without. And the fact that, thank goodness, they were filling their strategic petroleum reserve versus actually needing the oil. So when the Iran-Iraq war, they're not going to pay high prices to fill some reserves. So they just stopped importing all that crude. And that has helped us tremendously.

Yeah. China is not doing this because they're advocates against carbon and climate change. They're doing it for strategic reasons. But let's talk about climate change for a moment. I know in New York, our growing season is longer. I know there are, I'm a gardener and there are certain plants that I can plant now that 15 years ago I was told, oh, there's no way that'll survive in New York. What does the changing temperature bands, the changing climate, what's the impact on crop yields? Is this a persistent upward trend? Is this going to help prices? Or is this just going to create more volatility? I think more volatility because rain makes grain and a warmer

earth. Honestly, God, rain makes grain. I love that. A warmer earth, okay, the atmosphere when it's warm holds more moisture. And so you actually get more rain. So global warming has been really good for crops around the world. It's a really good thing for crop production. That might sound counterintuitive to people. Our phones ring off the hook when you get the occasional storm and, you know, a million or two million acres flood out in the U.S. and you get the news, you know, flying helicopters over as far as you can see, all these farms are underwater. And we get the call, you know, what's that going to do to food prices? Well, they popped up a little bit, but you might want to sell the rally because the only way we plant 400 to 500 million acres in the United States. You lose 2 million acres. No one cares in terms of the absolute price. The only people that care are those poor farmers who are underwater. That's it. And hopefully they

have crop insurance. So everybody who's flooded out, less than 1% suffers, but the rest of the rain brings more crop, you're saying. Absolutely. Really interesting. We've talked about everything but technology. And I mentioned I'm a fan of Clarkson's Farm and Harry's Farm And some of the technology, just looking at these tractors run themselves, like autonomous vehicles have been on the farms for years, long before any of the robo taxis that are out there. What is improving technology due to agricultural productivity? Are we seeing precision irrigation, better seeds, higher quality machinery? What is this doing to production? What is this doing to quality? And what does this mean for price?

It's by and large raising everything except the price. So thankfully, everything you just mentioned has worked perfectly because that again, back to 1960, that rising global demand for combined corn, soybeans and wheat. If you look at this, the supply line, it follows that very closely other than in a drought year. OK, so except in a drought year, we generally grow as much or more than we need. And that's only because of...

Genetic engineering of seeds, okay, of amazing technology where, you know, tractors now, not only can they be autonomous, they used to run three to five miles an hour, all right, and you had to kind of guess at your fertilizer. Now they run nine miles an hour across these fields, adjusting the fertilizer every three feet, okay, based on the analysis in the soil. They've got these amazing laser weeders, so you can actually go over your, you know, the eyes in the tractors.

Just zap them without chemicals.

Zapping these wheels, you could do stuff without chemicals. And, you know, there's more and more organic land being set aside for less chemicals. I mean, it's all so wonderful. All the technology is it's a beautiful world. When you look at agricultural technology, it's amazing.

So to wrap up, anyone interested in having exposure to agricultural commodity products, whether you think the price trend is going to go higher or just as a hedge against inflation, check out some of the ETFs you can get that can give you exposure to wheat, soybean, sugar, or any combination of things. I'm Barry Ritholtz. You're listening to Bloomberg's At The Money.

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