Muse

This message is brought to you by AppleCard. AppleCard puts the power of titanium in the palm of your hand. What does that mean? It means the power to earn unlimited daily cash back on your purchases every day. It means a materially different credit card accepted anywhere in the world. MasterCard is accepted. Ditch the plastic, upgrade to titanium, Apply in the Wallet app on iPhone today. Subject to credit approval, Apple Card is issued by Goldman Sachs Bank USA, Salt Lake City Branch, terms and more at AppleCard.com. The kids really love that playhouse, huh?

You know, it's not just a child's playhouse. It's a rental property. Kids, off Gary's roof. Someone lives in there? Lives, works, and thrives. Your Wi-Fi reaches all the way to the playhouse? We're gagillionaires. It reaches everywhere. Can I check it out? Sorry. Booked solid. But the treehouse just opened up.

Live without limits. Get home internet from AT&T and cover your whole house, even your playhouse-turned-rental property. AT&T extended Wi-Fi coverage service required. Limited availability. Visit att.com forward slash internet to learn more.

The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM.

Bloomberg Audio Studios. Podcasts, radio, news.

To die before the harvest. The crops, the grains, fields of rippling wheat.

wheat all there is in life is wheat sonia here's your chance to do something kind for a dying boy but i don't really love boris i mean i love him but i'm not in love with him

lots of wheat fields of wheat a tremendous amount of wheat ever since russia invaded ukraine grain prices have exploded gaining exposure to grain like wheat is usually a challenge Futures are an entirely different animal than stocks or bonds. They have a very different risk profile, not only from stocks, but just against options. There's a whole lot more downside with futures. The wheat ETF doubled since the war started and have come back down to pre-war levels. Is wheat a fit for your portfolio? I'm Barry Ritholtz. on today's edition of At The Money, we're going to explore the question of buying and selling wheat 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 founder, CEO, and chief investment officer of Techrium Trading, best known for creating exchange-traded funds that give investors direct exposure to agricultural futures. He's also an old school commodity trader since way back in 1982. So what was the problem that the wheat fund, symbol W-E-A-T, was designed to solve for investors who wanted exposure to wheat but are a little skittish about holding futures directly?

Well, and thanks for having me, Barry. So futures of any kind are tough to trade, right? So you've got to have a margin account. They're volatile. It requires a different expertise. And when I heard about ETFs, I didn't even know what an ETF was when I founded this company. And I found out and said, wow, that's brilliant because I always traded commodities and futures. And I said, anybody can buy these things in their stock account. That's amazing. And so we package these things inside of ETFs. And the wheat ETF has been very popular. I don't know if you know Andy Hecht, but he basically says, you know, wheat is more political commodity than oil. It's older. I think it's mentioned 50 or 70 something times in the Bible. Like wheat is wheat. It's a big deal. It also, of the crops, I think a higher percentage of wheat is directly consumed by humans than, say, corn or soybeans, which also goes to animals and fuel and all that. Now, you can run wheat through an ethanol plant as an aside if it's lousy and it'll turn into ethanol, but that's not a common thing. So wheat's so integral to human life, basically, all right? Bread, tortillas, it's a big deal. You've got to have wheat. And so we thought there should be a weak fund. And we started this fund and we structured it, we think, properly. So people can buy it in their stock account. They don't need a margin account like any other ETF. They can buy it. We worry about the futures inside of it. It's designed to track wheat prices through wheat futures. When they go up, the fund's designed to go up. And when the wheat futures go down, the fund's designed to go down, you know, less some fees and expenses and a little bit of static. But it generally works pretty well.

So you mentioned prices. You're not talking about the cash price of physical wheat. You're talking about the sea boat price, the futures price. What's the distinction between the two? How do investors see this reflected in their grocery prices?

Well, so there's kind of a disconnect, not a direct disconnect, but wheat prices are going to move up and down on a bulk level, on a wholesale level. Investors can't buy that. I mean, you want to buy a truckload of wheat or a cargo load of wheat somewhere and ship it around? It's impossible. So futures as a proxy, they have delivery points. OK, each delivery location is going to be a different price. But the advantage of futures and the CME futures are, you know, the global standard, basically, for the soft red winter soft red wheat, that that all you have to do is look at that price. OK, every farm, every location has a different price for physical wheat. It doesn't matter. It all gets to be a futures equivalent price when you factor in delivery. And so futures is the standard to look at to know where wheat's going.

That's what you're looking at. You mentioned soft winter. When I was doing some research for this conversation, I was kind of shocked at how many distinct wheat markets there are. Hard red winter, hard red spring, soft red winter, white wheat, durum. What are all these different wheats?

So in general, all you need to know is the wheat that everybody looks at is the soft red, And that's used for baking. OK, in general, just just baking, home baking, that that kind of stuff. The hard wheats are used more for specialty things like pasta. All right. And, you know, but unless you're a chef, who cares? I mean, it's it's you're going to buy your your wheat in your grocery store and that's fine. And that generally you're soft unless you're buying a specialty wheat for whatever you want to do. And soft soft wheat is the is the benchmark for wheat price, global wheat prices on CME.

Huh. USDA does forecast out for the rest of the year into next year. They're forecasting hard red winter wheat at its lowest price since 1957, 58. How on earth is that possible that 75 years later, wheat prices are still the same? It just seems crazy to me.

So farming advancements and we've kept up with demand. So that's what's happened. That's why, Like, you know, ags get a bad name because people say, well, inflation adjusted, your return is zero or negative. Well, OK, but if you if you got that commodity, it's very cyclical. It trades at flatline. Basically, it trades at break even because farmers are subsidized. And then when it doesn't rain somewhere or there's a political upheaval like like in Ukraine, the price explodes higher when there's a drought in the upper Midwest. Granted, wheat is grown in virtually every country, OK? And wheat probably has more.

Staple, food crop, it's in everything and everybody eats it.

Everything and everybody uses it. What matters to the price of wheat is how much is available for export, OK? And wheat versus corn or soybeans probably has more countries that export it in volume than the other two, the other two big ones. And so it's important to know that a disruption in the United States wheat belt, OK? A disruption in China or India, OK? And I believe India is the number one grower of wheat in the world, but they don't export it. Oh, that's really interesting. Yeah. And so there's a big difference between how much wheat is grown in a certain spot and how much wheat is exported in a certain spot. What investors care about is how much is exported. And that's why during the Ukraine war, wheat prices exploded higher because of that. The amount exported out of the Black Sea from Russia and Ukraine, they're both in the top five global wheat exports. Russia's number one by far. The EU is right up there as a block. So that whole area of the world exports, most of the exports of the world come out of there. Australia is an enormous exporter. In fact, I believe the record high wheat price is still maintained even after COVID and the Ukraine war. And we have to go look it up. But it was for years intact based on back-to-back droughts in Australia back in, I think, the early 2000s.

Wow, that's amazing. So you had mentioned futures trading and how different it is from traditional options trading. Where there is a similarity are different maturities, different expiration dates. WEAT holds three distinct contracts across three different maturities.

about a third each, a little more, a little less. Why go with that structure? That's really kind of interesting with that sort of spread you've created. Two reasons. One is, you know, these

are more, as we've said, strategic allocation products. So they trade flatline for quite a while near break-even, and then they explode higher. So investors kind of layer in a percent or two in their portfolio when they're low and they just sit on them. And then when they go higher they get out. So in fact, there's an expression, weight it into your portfolio when they're break-even, W-E-I-G-H-T, then weight, W-A-I-T, and when there's drought, get out. So it's weight, weight, drought out. And that can take a couple of years. Weight, weight, drought out. Yeah. Weight, weight, drought out. And so an RIA told us that, that we didn't make that up. So what happens is when you layer these things into your portfolio, you're kind of sitting on them for a while. So if we just held spot month futures, there'd be a lot more volatility. And what you really want is the general price appreciation when price goes up and you're buying this thing for the price to go up and you're buying it for portfolio stability. You're going to be more stability because if you own out the curve and there's some temporary dislocation in the front month, your portfolio isn't going to move as much. So you're going to have less volatility in that holding. Yet if there's a true supply disruption and the whole structure of the curve moves up over the course of a half year or a year, you're going to participate. And so that's what we designed for investors. The other practical matter is these things have limits. So agricultural commodities have very strict limits in terms of how many you can own per month. And if we just concentrated this fund in one month, we wouldn't be able to handle all the money that comes in. Because, you know, before the Ukraine war, we had about 80 million in this fund. In weeks after the Ukraine war broke out, we had 800 million in the fund. And so it was easy to move in, easy to move out. These are incredibly liquid instruments because of the underlying commodity. So you can write as big a ticket as you want and put it in there. Just as with any ETF, don't use a market order ever. Put in your limit. And don't trade in the first 15 minutes of the market. Let the markets open because everything's electronic. and if there's some price glitch in one component, you're not going to get the best price. So just sit on your hands until 9.45 East Coast time every morning when you're trading an ETF

and don't put a market order in. It's so funny you say that. I started on a trading desk and some of the rules us newbies had to learn were no market orders, always limit orders. Although I have a few funny stories about market orders that got executed. MCI WorldCom deal is pretty stupid. Um, uh, be really careful around, around the open and no trading IPOs. I mean, those were the three rules, everybody. Those are good rules. Those were pretty good rules. Um, one of the things I've always been fascinated with commodities and futures, the thing that probably confuses lay people the most backwardization and contango, um, explain what those two things are and how you manage around those. All right. So I didn't think you were going to bring that up, but that's the

reason we have three exposures. It's complicated, but that mitigates backwardization and contango. And that's just in a nutshell, let's keep this to 30 or 60 seconds. All right. So when I was working at Cargill, we called it cost of carry. All right. That's contango. They both begin with a C. That's how I remember. Right. But it's cost of carry. If you're a grocer and you buy a can of peas, put it on a shelf. Until somebody buys that, you had a cost. You had to buy the can of peas. You got insurance for your store. You got to pay all these other bills until it goes off the shelf.

That's a cost of carry. Simple inventory. You pay for it until you sell it. Absolutely. You laid out

the cash. And so over time, it costs you money to keep that thing on the shelf. So actually, if grocers were really, if they didn't care about the consumer sentiment and just cared about market prices, they would raise the price of that can of peas once a month. OK, they'd say, well, heck, that cost me a penny more to hold it and pay for the heating and air conditioning. And, you know, my cost of money, I could earn interest on that money or put it to better use. So the price as you go out the futures curve should go higher because you have to store corn. For instance, it costs roughly about a nickel a month to store corn. OK, so if you buy corn at four dollars a bushel at the end of a year, you better get four sixty for that corn if you stored it because it cost you a nickel a month, all right, to go out there. So it costs you another 60 cents to hold that corn. If you look at a futures curve, by and large, that's priced in, all right? That's priced in. So cost of carry or contango is a normal market, all right? Prices go up slightly as you go out just to reflect the cost of buying and holding that commodity. Remember, commodities are real things. It's just not paper, right? It doesn't matter in gold, right? Because gold's worth so much and you just put it in a big pile and there's a guy with no neck and a gun guarding the pile doesn't cost much, right? But in terms of moving corn around and stick it in a grain silo and holding that. That's a big deal. You've got to keep the humidity right and all that. So backwardation is when that breaks, when that system breaks. And that system generally breaks when you're afraid there's not going to be enough corn that next month. So you buy all your corn this month. Well, now you've broken the supply demand economics because as more buyers come in, the price goes higher. So if the price nearby goes higher than the price that's further out, that's backwards. So that's why they call it

backwardation. It's not lower left to upper right. Suddenly it's upper left to lower right

is what the chart looks like. Correct. And backwardation is not a natural occurrence. It's an occurrence during a disruption of some sort, be it supply disruption or political

disruption. Really intriguing. So of all the commodities we've talked about, wheat is probably the most global commodity. Not only does it go into everything from bread to pasta to whatever, it's just such a basic food staple. How do you look at the global changes in wheat production? You mentioned Australia, obviously Russia, Ukraine, lots of parts of Europe, Argentina, and South America, plus the United States and Canada. Given the global production, how do you track all the weather and all the factors driving total global wheat production? If you're in the business, you hire an analyst.

If you're a normal person, you look at the USDA report once a month. And if you're everybody, just look at the futures price. It all gets built in because all the people doing the first two things I just said are building that into the price. And so, you know, just look at the futures and you'll see what's out there. But yeah, really watch the weather. If it's dry in Western Canada, if it's dry in the Dakotas or in Kansas, if it's dry in Ukraine or Russia, if it's dry in Australia, if it's dry in Argentina, you're going to have a wheat problem.

Oh, really, really interesting. So obviously, the price volatility is driven by changes in supply and demand. There's a little bit of geopolitical risk premium. We talked about tariffs and export restrictions and sanctions, and obviously war. But how do we generally think about prices of wheat? What are the key drivers that are going to affect this going forward? Is it simply weather or is that pretty much the only thing that's driving it?

Honestly, for wheat, it's weather and geopolitics. And again, as we saw, if you see the choke points, which primarily Black Sea is a choke point, all right? So that's the geopolitic part. And look, understand, even during the height of the Ukraine war and the political fallout in the first year of that, you could still buy Russian wheat. Anybody who wanted to could buy Russian wheat. sanctions don't go on food that you don't do that like even during war nobody puts sanctions on food you can you can import food from your enemy it's perfectly legal but you might not get a ship to go in there because of the war premium and all that but you can buy it nobody's going to put restrictions on food so as soon as people figured out well wait a minute there's going to be free flow that price came back down where where you have an issue is when it doesn't rain because again that pile at harvest is small you've only got on average six months excess supply at any given time in the world of wheat? If you have a major problem, a major crop problem, be it drought or disease in a major producing area, suddenly you have five months or four months. What if that happens two years in a row? Now you have one month or two months. That's why the price is so responsive. And that's why when you see these things flatlined at the low long-term price levels, that's when you need to look at maybe an allocation to those things.

So wheat, W-E-A-T, the ETF is an unleveraged product, but obviously wheat futures trade with leverage and a lot of volatility. What sort of time horizon and risk tolerance should an investor that's suitable for this really, really be thinking about?

Sure. Well, again, it's a strategic allocation. So I think that if people, if you do the math, Every four to seven years, there's a drought. If you look at the charts, things flatline at certain prices. And with wheat now, your break even is generally about roughly a dollar a bushel more than corn. And that varies a little bit. But if you see corn down at four bucks, if you see wheat down approaching five dollars, you're looking at, you know, based on history, limited historical downside and, you know, pretty significant historical upside. And so, you know, it's not these things can't move lower. They just tend not to stay there because of the usage and the farmers will just ship crops. So I think that it's a strategic allocation. It's something that you move money into. prices are low and it's in the headlines when you run out of food. It's not going to be lost in your portfolio. And the price will spike. You got a 1% allocation or corn or wheat or whatever it is. And all of a sudden it's 2%. When you look at your rebalance quarterly, you take some action.

Really interesting. So to wrap up, investors looking to hedge against the cost of food inflation, against geopolitical turmoil, against exposure to other asset classes that are all fairly correlated, might want to consider commodity ETFs such as wheat. I'm Barry Ritholtz. You've been listening to Bloomberg's At The Money.

En FPL, nos preparamos para la temporada de huracanes todo el año. Y constantemente entrenamos a nuestros equipos. FPL, trabajando para ti todos los días.

Picture a nurse in scrubs. Got it? Okay. Now picture a nurse wearing a windbreaker and rain boots, because those can be scrubs too. In a suit at a policy meeting. Also scrubs. A high-vis vest and a hard hat? Definitely scrubs. sun hat and bug spray scrubs florida style jeans and a tee you guessed it still scrubs you might think you know what a nurse looks like but it's not what they wear it's how they care for us and for all of florida the florida center for nursing recognizing all our state's nurses