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Lead-Lag Live
Sal Gilberti on Agricultural Market Dynamics, Geopolitical Influences, and Strategic Investment Opportunities
Unlock the secrets of agricultural markets with Sal Gilberti as we unpack the dynamics behind key commodities like corn and wheat. Discover how these markets are influenced by a web of factors, from unpredictable weather patterns to the global ripple effects of the Russia-Ukraine conflict. Sal shares his insights on price rationing and the cyclical nature of grain production, offering a promising perspective on corn prices that could reshape your investment strategy.
Peek into the world of agricultural commodities as a surprisingly predictable market, offering unique diversification opportunities. With global demand for essential crops hitting record highs, we explore strategic timing and allocation tactics that could bolster your portfolio. Sal and I discuss why advisors are increasingly suggesting multi-commodity ETFs, providing practical strategies for those ready to capitalize on agricultural trends.
Navigating the complexities of leveraged funds and market volatility, we shed light on the suitability of these investments for the short-term trader. Learn how geopolitical events can amplify market movements and discover why inflation is a crucial factor in agricultural commodities. Sal's expertise provides clarity on the political and logistical hurdles of global food distribution, arming you with the knowledge to make informed investment decisions without getting bogged down by technicalities.
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I mean that looks like it's also a basing pattern ready to break out?
Speaker 2:Yeah, and we just don't know. Again, it's mostly dependent on weather. If weather affects the size of that harvest pile, that's a big, big issue for the world. And running out of food is a big deal, and you don't ever run out of food. Interesting to note you have what we in the industry call price rationing, and so the price will just go so high that you don't run out. People will simply shift to something else. Or they'll fast or they'll fast. Thankfully, we live in really good times in a first world country, and so fasting is a luxury, not a necessity. But yeah, there's always enough if you can pay for it.
Speaker 1:This is actually a really good, well-timed conversation because I was just remarking to Sal that I've noticed some of these big moves that are happening in the ag space, especially with corn. I'm curious to hear the reasoning there, and 2Cream actually has been very much at the forefront of talking about cycles and a lot of reasons for why this part of the marketplace looks particularly interesting. And with all that said, my name is Michael Guyatt, publisher of the Lead Lag Report. Joining me here is Sal Goberti. This conversation is sponsored by 2Cream. They are one of my clients and among my favorite clients. I've known Sal and Jake Hanley for a long time. I know it's boring, sal, to talk about yourself, but some people like to do that. But for those who don't know who you, are Great, sure?
Speaker 2:So I'm Sal Gilberti and we do love Michael here at 2 Cream. He's a good guy and he's smart and so that you know, and he's personable, he's a fun guy. So I come from commodities background for many, many years. Started to cream about 15 years ago in order to provide ETF commodity exposure to most investors who can't. They can't really, you know, most investors can't, can't trade futures for whatever reason. It requires a high degree of expertise. It also requires leverage and permission. It requires a high degree of expertise. It also requires leverage and permission. Even institutional clients can't trade futures. So we packaged agricultural products into ETS and we're out here with those available to the, to the general public, and it's it's it's been lucrative for those who trade them.
Speaker 1:I will say, and sometimes lucrative for the issuer. Every now and then.
Speaker 2:Yeah, sometimes Let I really don't.
Speaker 1:Let's talk about Korn out of the gate. I'm going to share my screen because it's been actually a pretty remarkable move that's happened. I know everyone focuses on the S&P and NVIDIA and all these different parts which get all the headlines, but here's your Korn ETF which has the appropriate symbol of Sioran Been a nice run to start the year. What's going on with?
Speaker 2:corn it has, and the reason is that the corn balance sheet keeps tightening. So with ags for those who don't know, you know they grow once a year, twice a year if you're growing them in multiple hemispheres, north and south, and what grows is there and it goes in a big pile, for lack of a better term, and the world takes out of that pile every day until the next harvest. So you have to go through winter, you have to go through spring. When you plant, you have to go through the growing season, which is summer, and you have to get through harvest. So, whatever that pile may be, it has to last for a year. And you know, with corn there's generally six to eight to 12 weeks left over at the end of every given year. With wheat, there's generally between four and six months left over.
Speaker 2:So we saw when Russia invaded Ukraine those are the two top wheat exporting countries on the planet and or Ukraine's top five, russia's number one by far and you know that caused a disruption in wheat and we saw a lot, of, a lot of money pour into the wheat markets. A lot of money was made by people who got in in time and got out appropriately. But grains are pretty cyclical because you have that harvest cycle, so there's all the supplies at once. At the harvest you generally put harvest lows in. That's what we saw here. I can't exactly see that. That chart you've got up there, michael, but the the little rounded almost W bottom there. I don't know when that started, when, when, when did all that?
Speaker 1:start. It's clearly been an abasing pattern for six, seven months. Yeah.
Speaker 2:And so, interestingly, july 26th if I'm right, we put out a piece explaining the fundamental situation with corn and that was very simply that corn had a trifecta going on.
Speaker 2:One was that we were approaching the harvest lows and harvest lows kind of happened double. If you look at seasonal patterns in corn, they kind of set a low in late August when harvest starts and they kind of set their ultimate low, which often matches that August low. They're also very close to one another in price, an absolute price. The first week of October, first week of October, you generally put the harvest low in corn, all else being equal, and so we were approaching, you know, july 26,. We put that piece out and it's on our website and it's got some fundamentals. I'd encourage people to look at it. We were approaching the harvest season, but also we were approaching corn at under $4. And in fact, marketwatch did a great piece on corn. I think the title of the corn under four is like oil under 40. Most people realize if they're inclined to invest in commodities and we can go into how to do that and all that, michael but most people have oil and gold in their portfolio. If their commodity is investing, we think they should also have ags and corn. Under four hours a bushel is like oil under 40. Corn in the last 17 years has doubled three times from the same number from the same area. So corn's break-even is, according to Bloomberg and we think they're right is about 375, futures equivalent. So corn hit 375. You buy it For those who held on to it. It doubled and went up to 750 in one year's time. Then two years later it did it again, went back down to 375 and doubled, went to over 750. And then five years later, almost six years later, it did it again. It went down under $4 to about that 375 area and went over $8.
Speaker 2:So you know you've got an asset that is immensely liquid. There's no amount of money that could move the corn market. It trades deca billions each day, notional value. So you know somebody allocating one, two, 3% to corn. Um, they're no matter how, what they're managing, they're not going to move the corn market. You can get in there, no problem. The ETS trade, you know, without any liquidity issues whatsoever. And um, if somebody said to you, I've got an asset that you know doubles from the exact same price area and it's done it three times in the last 17 years and it's back down towards that price area. You know you're going to say, hey, let me throw a little money in there, and that's what happened.
Speaker 2:So in that August period we went under $4, I think, spot corn for less than two or three business days and it hasn't looked back. Then why that hasn't looked back is the expected surplus of corn after the harvest keeps getting revised lower. Every month the USDA puts out a report and you see that number getting revised lower and lower. Of the leftover corn the corn carryout they call it and so things are getting tight. Things are getting tight and that you know.
Speaker 2:Grains don't correlate. The trifecta that I was referring to was a seasonal pattern by grains at the harvest, a price pattern really look hard at corn when it breaks $4, and then a non-correlation pattern. Corn really barely correlates with the S&P 500. And in fact the two-clear agricultural index, which is a combination of corn, wheat, soybeans and sugar, has outperformed the S&P 500 in seven of the last seven 10% or more pullbacks of the S&P. So corn ags in general really do stabilize your portfolio. There is a time to allocate to them that's more optimal than others. But if you're just looking for diversification, ags work very well.
Speaker 1:Yeah, I'm looking also now at wheat and that kind of looks like it could also have a similar type of move here. This is your wheat fund. I mean that looks like it's also a basin pattern ready to break out.
Speaker 2:Yeah, and we just don't know. Again, it's mostly dependent on weather. If you, you know, if weather affects the size of that harvest pile, that's a big, big issue for the world. And you know, running out of food is a big deal and you don't ever run out of food. Interesting to note, you have what the what we in the industry call price rationing, and so the price will just go so high that you don't run out. People will simply shift to something else and they're all the fasts. I mean, it's all their fats, you. Thankfully, we live in really good times in a first world country, and so fasting is a luxury, not a necessity. But yeah, there's always enough if you can pay for it. And of course, every farmer in the world plants as prices go up, and so you get more the next year. But you have to wait that year, and that's what's really critical about the cyclicality and the opportunity that that's in.
Speaker 1:Is there anything about the Trump administration that furthers the bull case for ags in general? Anything that one can point to policy-wise that it's like. All right, that's more fuel to the fire for ag to have momentum.
Speaker 2:Short answer no. But there's a caveat in that. You know Trump, we've seen it before. Ok, so we've seen this, this game, before, where Trump will use tariffs as a tool so often a negotiating tool when he puts the tariffs in, for instance, tariffs on on China. China then, you know, got mad and they bought US soybeans as a last resort. So using soybeans is a great example of what terrorists do.
Speaker 2:The world needs all the soybeans that are grown, no matter who grows. The two top producers of soybeans are Brazil and the United States, in that order. Both of them supply the world with the soybeans that they need Now. Soybeans are grown in a lot of places, but the only three exporters of consequence are Brazil, the United States and Argentina. Paraguay is just a blip there. So the bottom line is China will simply use US beans as a last resort. But they need US beans as the largest importer in the world of beans. If there's a tariff dispute going on and China gets mad at the US or wants to make a point to the US, they will simply buy US soybeans last. So what happens? It's actually opportunity for investors If you hear there's a tariff tiff going on and one of the major importers say China for soybeans is now mad and they're not buying US soybeans and the price of soybeans goes down.
Speaker 2:That's a temporary aberration because China needs those beans so they'll just buy all the beans from Brazil until Brazil runs out, and that has happened. Literally before they run out of exportable supplies they turn back to the US and the price goes back up and during that time we subsidize our farmers and so farmers by and large are made whole. They feel some frustration because they have cashflow issues and the price of their crops go down. They have to manage their inventory sales pretty carefully. But in terms of investors and price, if you see a tariff spat on a commodity that the world needs, if you just do the analysis and we do it for you so you can you can come to them and get all the information you need.
Speaker 2:Um, if you need soybeans, all right, people will buy them last. That means the dip in soybeans is temporary, much like the dip in in chip stocks happen. You know the beginning of the week everybody was like, oh my God, we don't need as many chips. And then everybody came to their senses and you know some of the math out there says they may even need more chips because more people will be able to use these AI functions easier and so more people will use them, which means even more chip demand. So when people come to their senses after the emotion of a blip in demand for whatever reason that's perceived on things that you don't have enough of, like soybeans, like computer chips, then you buy that then, and that's proven to be true multiple times.
Speaker 1:Is it fair to say that you think there's more visibility on the ag space than there is on what stocks do next or what bonds do next? I mean, everything's always about uncertainty, right? So is there more certainty in the ag space, you think, than other asset classes at this point?
Speaker 2:Well, you know, all right, we're ag-centric. So to me, yes, like I find stocks to be a mystery. You're way smarter than I am. I'll read your stuff quite faithfully and half the time I don't really understand. Like ags and commodities in general are supply and demand. That's why I got into them, that's why I do them. They're easier for me anyway. So you know, there's either enough or there's not enough, and really in grains there's plenty or there's just enough. That's how it works Because, as I said earlier, with price rationing you never really run out. So when there's plenty, you have a surplus and grains here's another unique thing. And empty, you have a surplus and grains here's another unique thing. And for those that have heard us before apologies, but for those that are new listening because farmers are subsidized by every government in the world. They subsidize their own farmers so that people won't go hungry. Prices flatline at break even. The natural price level for an agricultural commodity is its break even price, whatever that may be. So when you see it, you don't have to know what it is. You just look at a chart and see it flatlining for a year or so. That's the breakeven and that's where you should allocate into your portfolio if you're inclined to allocate ags, because at some point there will be a supply disruption.
Speaker 2:Demand for ags because of growing population, because ags are used for a lot of things. As the economy grows and as the middle class grows and as we develop more uses for all of our agricultural products, the demand just keeps going up. We say it all the time the combined use of corn, soybeans and wheat the global combined use of corn, soybeans and wheat since 1960 is either record every year or it's the second highest. 1860 is either record every year or it's the second highest. So it's either the second highest ever in history or the highest in history every single year for the last 64 years Never fails. Because your world is growing, your population is growing, your demand is growing. What affects agricultural supply? Weather? Weather is uncertain. So every few years and in corn statistically, the last time we figured out in the United States it was every 4.6 years you had a drought-induced pop in the price of corn. No pun intended, but yeah, rise in the price of corn. But the bottom line is demand is steady and growing.
Speaker 2:When you see an agricultural commodity flatlining at a price that's likely it's break-even, that's a good time to allocate it into your portfolio because what you get is diversification, limited downside and alpha potential when it goes up. I mean we've actually had advisors call us and say I love trading corn because I put 1% in it when I see it flatlining and then I wait. So I actually had a guy say to me once I wait W-E-I-G-H-T 1% into my portfolio of corn when it's flatlined under $4. I wait W-A-I-T for a drought. When there's a drought I get out. So he's like wait, wait, drought out.
Speaker 2:He said in years when corn say even slips 10%, I've got 1% of my portfolio in there, 10th of a percent on the overall performance with great diversification qualities. Nobody cares, he said, but on the year that it doubles. It's done it three times in the past 17 years. I turned my target 9% into a 10% return portfolio and I'm looking like a hero to my clients. So you know there are advantages here if you time it. And again, it's a key to seasonality, price and diversification properties.
Speaker 1:You talk to a lot of advisors individuals For advisors that are doing allocations. I assume this is sort of the satellite portion against the core, even though you should argue it should be core because it's food. What type of ranges in terms of allocations do you typically find others are putting into ag?
Speaker 2:That's a great question and we actually the question we get the most is you know, when should I do it? And, by the way, you have to tell me because I'm not going to follow ags myself. And two, these are what advisors are saying. Two, how much should I put in? And you know I can't answer the how much should I put in?
Speaker 2:We have most people that we speak with who are commodities friendly. They put about 5% to 10% of their portfolio in commodities and that may include gold. It usually includes a diversified basket of commodities through a diversified fund and then they overweight or underweight through using ETS, which your gold, your oil generally, and now your agricultural ETFs like corn and wheat. Gold, your oil generally and now your agricultural ETFs like corn and wheat. So I think between 1% and 5% for ags. I think 5% for commodities is probably the most common thing we see. You see, I think Harvard. One year they had 25% in alternatives and almost 13% or 15% in commodities, which was amazing.
Speaker 2:I think most people put a 5% or 10% allocation and the base of that should be multi-commodities. You just should. You know when there's a price dip, for whatever reason. I think that's a time to layer in for people, a multi-commodity index, a good multi-commodity ETF, and then keep your eye out or keep in contact with people like 2Cream and other professionals who will put you on their mailing list at your request and let you know, send you newsletters and let you know. In fact, we're starting to publish a model.
Speaker 2:We had a meeting about that this morning because the number one question we get is when do I do this?
Speaker 2:I really want to do this, but when do I do it? And so I think that for most advisors, they should put an allocation that's permanent into commodities let's just say 5%, that's for somebody comfortable with that, and they may want to put 2% or 3% in a multi-commodity index, keep the rest in cash and then overweight. As oil's appealing or gold is appealing or Bitcoin is appealing, I consider that a commodity supply and demand or or or ags are appealing, and I think if you, if you have that in there, we've been asked by many people to please, ok, I'll put X weight this is called five percent in my portfolio. You tell me how to weight it, you tell me if it needs to be all in cash, if it needs to be partially in a multi commodity, if I need to be overweight oil or gold or corn. So we are literally in the process of developing that model. Right now, people can call us directly. We will send them an email and let them know when we publish the site.
Speaker 1:Yeah, I think it's good having a model. Honestly, I mean, even though it's not necessarily recommendation focused, I think I mean the idea just of giving people some sense of well, typically, this is when you'd want to consider. Allocating is important because, you're right, it's it's harder to analyze for the average joe, uh, what's going on in the act space, because it's so supply and demand driven and it's not like stocks, and that there's no evaluation right and it's.
Speaker 2:It's frustrating to me because you know we get all that. When there's a headline, people buy and that's just nature, I guess human nature and animal spirits, whatever you want to call it. So when you see a drought in the mid US Midwest and prices start skyrocketing, people who are trend following, they get in after it's already risen 20 or 30 or 40% and they hopefully get out towards the top within 10 or 20 percent of the top and they take a little bit out of that. Fine, that's a trade, really, it's trend following. Whatever, I think that people can really benefit their portfolio, especially we see the volatility coming into stocks right now and when stocks and bonds, like they have in the past couple of years, correlated so well with one another, you know people really should be thinking about more diversification. And commodities are natural, they're easy to access through ETFs and you can get good information from Tuprim and others, where you, you know we'll tell you hey, overweight, you know. You know me with oil, michael. I'm selling every rally. I think oil is 50 before 100 on WTI and that's what we'll tell you. If it gets down to 60 and things change, we say fine, it's a short-term overweight, but oil shouldn't be overweighted right now, when it's between 75 and 80. You got to really watch out for that. So you should have an equal or underweight of oil, in my opinion, right now.
Speaker 2:Hopefully people did listen to us in the autumn and they have a slight overweight in in corn and wheat. Um, you know, you'd probably look at lightening some of that up right now. Corn at $5 and wheat, wheat at almost, you know, at $6. Those are, those are pretty uh heady prices, given that there actually is no shortage. Um, but again, we're in winter, the uh, the South American harvest't in yet and the North American seeds aren't even in the ground, and so there's a lot of uncertainty. So you do see this strength in grains and they've rallied 20, 25% in the past couple of months, as those charts show. So it's been lucrative for those in it.
Speaker 1:I see a comment from YouTube which echoes a lot of things we're talking about. Commodities are so under-owned right now. Very interesting asset class and certainly ag is probably more under-owned than broader commodities.
Speaker 2:You know it generally is. And when you're in a broad commodity index, you're likely overweighted oil, which you know, okay, I guess, but sometimes you just need to be overweight ags. And again, last autumn, as corn approached you know $4 and the seasonal low was approaching on a calendar that's a no brainer to, in my opinion, to to be looking at at, you know, potentially allocating finally some some of your commodities. Um, uh, basket in came to acts. It's, it's important. And again, corn is King. There's that movie King corn.
Speaker 2:Um, everything follows. There are, there are, you know, soybeans and corn share acres. So they really uh, correlate with one another. Um, wheat does its own thing but everything follows because there's a protein play there. So if you're, if you're, a corn um that you're feeding your cattle gets too expensive versus wheat, which has higher protein, you're going to switch the wheat. If your wheat gets too expensive because it's just ridiculous and you can get the same amount of protein by buying a little extra corn, you're going to switch to corn. So there's a lot of arbitrage that goes on that no one needs to actually know about. It's just. Those are natural corrective things inside the fundamentals of the ag markets that regular investors can take advantage of by really just buying those breakeven prices when ags are moving sideways for long periods of time. That's your breakeven note.
Speaker 1:Let's take a step back and talk about the ETF industry for a second, because one part of the ETF industry that's been really hot is anything that has leverage. I think we need to talk about the usage of leverage when it comes to the ag space.
Speaker 2:Sure, and that's so. We introduced a couple of levered funds corn levered fund and a wheat levered fund. They're new. They don't trade much because you need headlines for levered funds and there aren't any headlines. Like those of us in the know with ags, we know they're a little tight. You know people could have made that 20% buying corn, but they could have made probably close to twice that by buying the 2X. But they haven't even been around. They just launched I'm going to say within the last couple of months I don't remember the exact date we launched those. So, yeah, you can do it, but I find that levered funds they're not buy and hold, they're a trade product.
Speaker 2:If you buy and hold a levered fund, that's not a smart thing to do. If you have a very short-term view on anything that's levered, sure, use the levered. But if you have a moderate to longer term view the levered that's not a smart thing to do. You're going to lose on two out of three times. You're going to lose sideways, you're going to lose when it's going opposite, whatever your levered fund is supposed to do, and you might even lose when it's going in the same direction, just because of the daily rebalances. So very, very if you took, people should be cautious. I you know levered funds are great. People are making a lot of money in those things. But you gotta be on it. You have to be a trader to use leverage so that that.
Speaker 1:So when there's a trend, is there underreaction in price, meaning you tend to see more consecutive up days. I mean, the benefit, in my view, of these levered funds, which people criticize, is the daily reset in an uptrend, because typically in an uptrend you tend to have more consecutive up days in a row, in which case the double levered, that leveraged positioning, helps you.
Speaker 2:It does. But you know the volatility if something gets more volatile, if it moves in the wrong direction. I mean we were doing some studies on some single stock funds the other day and I mean some of those things. If you do, if you back test them. Some stocks that are very volatile, that don't currently have leveraged products there was one. It was in an uptrend. The negative product would have gone to zero in 26 days.
Speaker 2:So you know, if you, fine, if you're on the right side of the trend, sure great. If you're on the wrong side of the trend, that's going to crush you. It's going to crush the sponsor who owns the fund. If it goes to zero, you know we have to reset it or refund it or do something. So yeah, levered funds are great for traders, don't get me wrong. We did launch one in corn. We did launch one in wheat the 2 cream, 2x corn, 2 cream, 2x wheat funds. Those are great if you're so inclined to trade leverage, but if you're an asset allocator or a longer term trader, I would discourage people from going there.
Speaker 1:What gets you excited, sal? I mean, you've been in this space for a long time. You know you're one of the most measured people I know out there. But like, is this like going to be an exciting year for you? I mean, it seems like you go through these cycles and it's like your time. Your time is now for it.
Speaker 2:That's the thing. We don't know. We're kind of, you know, our our life as a sponsor is like like military war there's a lot of waiting involved. You put a fund out there, you do your best to teach people about how to use it intelligently, but until the headline comes, money doesn't pour in. I mean our wheat fund. You know it sat forever and I'm going way back. Okay, it sat forever at, I think, $3 million. And then Russia invaded Crimea I think it was 2014. And it went to $40 million in a couple of weeks, which in those days was a big deal. And then, when Russia invaded Ukraine in whatever it was 2020, 2021, we went from $80 million to $800 million in weeks. In weeks, money just pours in because people want the headline and thankfully, you know the ETF mechanism is so efficient.
Speaker 2:If your underlying component of the ETF, no matter what it is, is liquid, there's no limit as to how much money people can put in very efficiently. You know our bid aspirate on wheat was always a penny, no matter how much came in and out of it. We've had funds that you know have $3 million in them and somebody drops in a $50 ticket and it doesn't move at a penny, because grains are so liquid and any ETF that has a very liquid component as an underlying. If you trade when markets are open, of those underlying markets, you can drop a 50 or 100 million ticket in there. It doesn't move it at all, it's no problem.
Speaker 2:I would tell everybody again no matter how liquid the instrument that you're trading is, always use a limit order, because there are aberrations. Everything is electronic right now and if there's an aberration, just as you hit your market order, your market order is an attack order and you, the machine, will destroy you. You will get a bad fill. So always use a limit price whenever you're trading. Never, ever, put a market order in. That's just a bad thing. We keep telling people that it's important.
Speaker 1:So another question from YouTube Are the two cream ETFs listed in Canada we have somebody who wants to buy, apparently.
Speaker 2:Yeah, they are not. So no, unfortunately we've not done a cross-listing. Up there in Toronto Most people have access to US. We do have a lot of Canadian holders, so somehow they get access in their brokerage accounts to the New York Stock Exchange. And there you are. Yeah, it's interesting, a lot of Canadian. Yeah, we have a lot of Canadian holders. We hear from them. Yeah, yeah, interesting. Canadians know X, especially in Western Canada. They get it.
Speaker 1:They're wheat and canola, they know what's happening, what's your view on inflation and how inflation could impact the asset class?
Speaker 2:So inflation is an interesting thing. We believe that. You know I'm an old school guy, milton Friedman guy. I think that you know too much money chasing too few goods is what makes inflation, and in commodities you have an additional thing and that is not enough production. So it might, in essence, you go back to the too much money thing. But it might not be because the government printed too much money. It might be because everybody wants to eat today and the wheat didn't grow and so they're still going to buy their bagel in New York every morning and so that's way more money chasing less wheat. Wheat will go up and that's part of the appeal of ags, I think. Overall, if you just see inflation kind of hold pretty steady between two and three percent, I think people get used to that.
Speaker 2:I think ags, along with everything else yeah, there's an inflation component $75, $350 area. This last push down indicates to us that inflation is not transient, at least for now in the ag markets. It's just not. The cost of a farmer doing business is primarily based on energy. The cost of everybody doing business is based on energy. But remember fertilizer. Synthetic fertilizer comes from natural gas. Farmers are using a lot of diesel in their tractors. So energy, you know the energy costs are really really big and the fact that corn kind of bottomed at $4 versus $3.75 or $3.50 kind of tells us there's some embedded permanent inflation that's going to take a long while to flush out. If it ever flushes out, you need oil back down at $40 to have that flush out. So overall I think it's supportive for all commodities, but each commodity, especially ags, they have their own supply-demand fundamental.
Speaker 1:Yeah, I love these comments from Gustavo. For me, and this is a humble opinion, inflation is the most nasty way to take money away from the population. Also the nasty way to prevent people from actually eating properly. That's a whole different discussion, as they tend to eat poorly.
Speaker 2:I agree, and one of the conundrums that we have is, you know, droughts and famines are what make prices go up in our asset class, which is, you know, an unfortunate thing, but it is what it is. You know an unfortunate thing, but it is what it is and it's been that way, you know, throughout history. I forget how many times we I think you and I have talked about this before, michael how many times weed is mentioned in the Bible. It's like I don't know 73 times or something. I've got to put that out. But I mean, this is just history, human history, and again, it's politics that keep people from being fed.
Speaker 2:I remember when I just an aside when I first started working at Cargill. I was a young guy, right out of school and I'm working for the world's largest privately held food company privately held company, but it was a food company and I'm like I'm going to figure out how to feed the world. This is wonderful and it was really quick before I learned that. You know, you could ship a ton of stuff and it'll get to a dock somewhere in a country where they need it and people are starving, and it just sits on the dock or it gets stolen because of politics, you know. So there's enough in the world. It's just politics and nastiness that keep everybody from being fed, which is too bad.
Speaker 1:For those that want to learn about the ag space, is there anything? Is there any kind of like course or something? I know you, obviously Tubim offers a bunch of educational content, right, but how does one even become an expert in this space?
Speaker 2:I don't know of one and so I think you have to read up. The government issues the World Agricultural Supply and Demand. We affectionately called it the WASD, w-a-s-d. Once a month they got some great websites that the government has and you can just Google them and they come up. So the FSA, the USDA, they all have these great websites and you can play around, but you've got to have an interest in it to really find something useful in there. So you know, at 2Cream, on our website, we have a lot of charts we put up. We put out a WASDE report which is very simple, gives your supply demand balance sheet, and then some charts which I really like the charts of US supplies and demand and the charts of global supply and demand. We just put it, you know, put it in one spot, pretty easy to understand.
Speaker 2:Again, unless you're going to passionately trade. You know, when I traded heating oil we used to say at Cargill again we say we pour heating oil on our cereal in the morning. You know, you ate, drank and slept it, because that's how you're a good heating oil trader. If you really want to trade ags and really want to trade, say corn, ok, great, and you're going to delve in. You're going to find information, you're going to look at it, but you don't have to do that as an advisor or a straight investor looking to make money.
Speaker 2:Not everybody knows how to build a computer chip, but they sure know how to invest in computer chip stocks. Not everybody knows how to extract oil from the ground or that oil boils at different temperatures and what comes off as different stuff like lighter fluid and gasoline and jet fuel. People don't know that stuff and they don't need to know it to make money. What you need to know is oil at 50 or 40 is probably going to see a return to 80 or 100 at some point. So you layer into your portfolio. You know that's how you do it. Go by price signals. Most people don't need to be experts in something to trade and make money or invest and make money Most people aren't, yeah, and I think that's exactly right.
Speaker 1:What are we not covered? So it looks like there's a in general good tailwinds happening. Especially in corn. Wheat looks particularly powerful, chart-wise at least I think. The leverage side of it you know to your point. You get some news event that's probably going to take off and there'll be sheer excitement in leverage in the leverage ETF space. I suspect we'll get a lot of flows. What's being missed? What about sort of a combination of all these ideas into one?
Speaker 2:product. I think what's missed in general by most investors is having that allocation to commodities and you should have a multi-commodity fund in your portfolio and you should overweight and underweight as you see fit. When all's up at 70 or 80, I wouldn't be getting long in the oil ETFs. When corn is closer to four than to five, I'd be looking seriously at allocating some ags into my portfolio. Sugar's been a great one.
Speaker 2:Look at cocoa. I mean anybody long cocoa and you can't access it because there's no ETF. Ok, so you had to be a pro to be long cocoa or be in a multi-commodity fund that has cocoa. I mean that's bad weather two years in a row headed for three. Look at eggs. Talk about inflation.
Speaker 2:Egg prices are out of control. They're killing chickens left and right because of bird flu and the government policy is such that if they find out there's a sick bird in your flock and it's bird flu, they come and kill all your birds. Now they compensate you for it, but your birds are dead. So now you got to wait the 14, 18 weeks. You got to go out and buy more chicks and grow them and get them to laying. It's actually 20, 24 weeks to get them to laying again laying hens, and that's pushing. So we're talking about shortages that come in on fundamentals and people just need to be allocated to multi commodity portfolio and then they need to overweight when, when the time is right, on the on the core components, and I would say that's that's metals, energy and grains.
Speaker 1:So for those who want to track more your thoughts and moreCream's work, where would you point them to?
Speaker 2:2Creamcom, first and foremost, our Twitter handle. I think it's 2CreamETFs you can probably correct me on that, but yeah, 2creametfs, and just call us. Just reach out and call us. Our job is to help and educate people. Here's the secret. Okay, anybody who actually knows how to trade ags really well is working for a hedge fund or a grain company and they're not going to share their knowledge. What's the point? If you have knowledge ahead of everybody else, you win, you make a lot of money. 2gram is the only firm out there, the only entity out there that I can see, that is providing for free commodity and largely agricultural expertise, because we have products available to the public and we have no vested interest in keeping anything secret, keeping our knowledge secret. We'll share it as much as people want us to share.
Speaker 1:Like I said, sal, I've met a lot of people in the industry, especially the last several months. You and Jake are among my favorites. I do think this is going to be a strong year for you guys. It's all about cycles. I always use that line on X right there's no gurus, only cycles.
Speaker 2:It's true. And our TAGS index, which there's a fund, tags D-H-E-S yeah, let's talk about that, okay. So that is a multi-commodity fund, equally weighted corn, soybeans, wheat and sugar, and that thing has outperformed the S&P 500 seven out of seven times. Some years the S&P goes down and that goes up. Now, a lot of years it goes down just not nearly as much as the S&P 500. And those charts are on our website to show people. But if you see agriculture cycling down and you have a commodities allocation, it behooves you to overweight or underweight Again those components. And for us there's X, and so I really believe people should be looking at these multi-commodity funds. There's TAGS which for some people who care, has a K-1, but most people don't care about that who trade commodity funds because most, all of them have K-1s. For a no K-1 is TIL, t-i-l-l. It's the same thing. It doesn't exactly follow the TAGS index but it's close because it again is weighted corn, soybeans, wheat and sugar. But it's not a fund of funds. Tags is a fund of funds. It's a fund of our other four funds corn, soybeans, wheat and sugar Whereas TILL just trade straight the future, straight through. It's got a different curve structure inside it, too technical for people to care really.
Speaker 2:People can pull up the charts, take their pick on their tax preference and off they go with those. But those are our big ones in that. Hey, everybody wants something that doesn't correlate with the S&P 500. You've heard Jake say it a million times ag zig when the stock market zags, and that's what's important. When you're allocating and my view is, just watch things close enough or sign up with 2Cream and we'll tell you when the ags are down towards their cost of production level, which may be a time when you can allocate to have a more limited downside in terms of absolute price, have a much more alpha potential to help your portfolio and you're going to get that diversification which, historically, has proved to be quite robust.
Speaker 1:Everybody. Please make sure you follow Sal Gilberti, his colleague Mr Jake Hanley, who I hope is watching this, and of course, the two cream handles. I think it's going to be an interesting year in general for the ag space. Again, this was a sponsor conversation. Appreciate those who watched this live, live and I'll see you all in the next episode of lead lag live. Thank you. Thank you, michael, appreciate it.
