Talk Your Book: Teucrium's Sal Gilbertie on Commodities & Crypto

0:00Today's Animal Spirits Talk Your Book is brought to you by Tucrium. Go to Tucrium.com to learn more about all their different ETFs from crops to crypto and white label funds to learn more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

0:34Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

0:43Welcome to Animal Spirits with Michael and Ben. Michael, admittedly, the commodities market is not something that I understand. I don't have a good feel for it. Dude, supply, demand, curves, come on. But that is the thing, supply and demand. But I've been watching Landman lately, okay? And Landman does not constitute reality. But they're talking about how there's this huge oil energy boom. And I'm looking at it and thinking, you know. Whoa, whoa, whoa, no spoilers. I'm on episode 100. Okay. I'm still catching up too. But oil has been$60-ish a barrel for a while now. It's not like oil is – remember people said it's going to go to$200 a barrel.

1:20And you think, well, wouldn't that have to be the case? That oil would have to go really high for this to make sense for people to be making hand over fist? But we talked to Sal Gilberto from Tukrium today. And he said, no, no, no. That's not what you want. You don't want like crazy volatile spiking prices. You want relatively stable prices. And I think that's what we've had because obviously that gives you – It makes it easier for you to plan. It makes it easy. Even if you're making not as much money as you would at higher prices, it's the planning, right? And you don't have these huge crashes and like we had in COVID and these huge spikes that we had in 2022, the flat in commodities or the not going anywhere is probably better for your business planning.

2:00That's right, Ben. That's what Billy Bob would tell you. That's right. So anyway, we've talked to Sale a number of times over the years about agriculture. Today, we're going to talk about crypto and how that's like a commodity as well. So here's our talk with Sal Gilberto, who is the founder and CEO of Tuprium.

2:17Sal, welcome back to the show. Thanks. Great to be here. Always to you guys. All right. Commodities. I feel like people only want to talk about them when they're spiking. And otherwise, it's sort of like out of sight, out of mind. Like, for example, crude oil is about to break. Well, maybe it won't. but it is sitting on right at multi-year lows. And my God, this chart does not look pretty. This looks like it's going to go a lot lower, but who knows? What is the story with oil markets? Like, I feel like it's not getting a lot of attention. At least, I don't know. I'm not hearing about it. What's the story here?

2:53You're not because there's plenty of oil and people don't panic anymore. So it used to be, you know, with the whole thing that's going on now with Venezuela, Venezuela is a big oil producer. Not as much as they were, but they did. And people hear about attacks and military attacks. Somebody else fills the void. And notably, the U.S. fills the void. So we are producing so much oil and exporting so much oil. People are used to the Russian war now. There's plenty of oil. There's no way around it. But wait, I don't understand. There's just more oil now than there has been? Or are we less reliant? Is there less demand?

3:29Is this an economic signal? Or is this just, do we find more oil? What the hell is going on? Almost all of the above, except there's not less demand. There's more demand, but the pace of increase in the demand is declining. OK, and so as OPEC just opens the spigots, which I think the last time we spoke, OPEC was just starting to cut. And now they're not cutting. They're reversing those cuts. And so you've got plenty of oil coming out of OPEC, plenty of oil coming out of the United States, plenty of oil coming out of Russia, even though there are all kinds of sanctions on them. So and China isn't isn't buying as much oil as they were.

4:06And the pace of growth of oil consumption is declining. And so all of that combines to say there's no panic. There's plenty of oil. Oil is almost like wheat now, where if you have a problem in one part of the world, unless it's one of the major suppliers, nobody cares. You just get it from somewhere else. We'll give you credit. I think last time you were on the show, oil is probably like$75 a barrel. And you said$50 is way more of a high probability bet than$100. And we're getting there. It's in the mid-50s. So I looked, so I think oil first hit the mid fifties in like 2005. So essentially for two decades, the price of oil has gone nowhere.

4:44Why hasn't this been a catastrophe for the energy industry? Like, are they better with more stable prices than spiking high prices? Like, why has this not been bad for the industry or has it been? I'm going to tell you, every industry is better with stable prices than spiking prices. Everybody likes spiking prices because you get a quick burst of profits you didn't count on. But in any industry, but particularly commodities, you want to know what the endpoint is and your production costs kind of get managed around that. If the price of a commodity is too low, you just stop producing. OK, you cut way back on producing, which is what they do with oil.

5:17You can't stop producing oil. That's why it went negative. You can't stop pumping. But you can reduce the flow of oil out of a well. And so if the price of any commodity is high enough for a producer to break even or make a little money, that's what they'll do. Do they prefer break even or make a lot of money? Of course they do. But the only thing that's predictable, understand commodities require an investment. And so you've got a plan. You've got to build whatever it is that you build that creates that commodity. Whether it's a mine that takes 10 years or a farmer that's going to plant a field and take a couple of months to get the plans and figure out what kind of seeds and fertilizer you're going to buy.

5:55Everything in between there requires some planning. And to move commodities around, particularly oil, you're building ports, you're drilling wells, you're building ports, you're building pipelines. All that takes time. It takes planning. A bank that gives you a loan to do all that wants to see you hedge. They're making projections based upon the revenues they think you're going to get based upon the price of that commodity. It's a lot easier when it's stable. Everybody's a lot more comfortable. All right. Let me ask you part A of a stupid question. Do agricultural commodities, maybe not even limited to agricultural, but I'll stick with that.

6:28Do they have a positive expected return? No, we talked about that last time. No. I remember that. Yeah. So what has a positive expected return is something that has a proven left to right upward sloping price line, and that's gold. That's Bitcoin, a lot of volatility in there. But in terms of buying and holding something and getting a return from it, commodities and particularly grains, that's not going to happen for you. You have to strategically buy those things. You buy them when they're at, as with any commodity, it is prudent to, if you want to take a shot and you're so inclined to have that in your portfolio, and you should for a lot of different reasons, or you should be inclined to look at it.

7:07I'm not, I shouldn't, I can't say should, okay? I can't make any definitive statements. You might want to consider it. Correct. You should consider, is how we'll say it. That's good. Compliance is going to be really happy. So you should consider looking at whatever commodity it is, putting in your portfolio, some stabilize it better than others, but you're better off doing that. History says you're better off doing that when that commodity is at its breakeven cost. And you don't have to be an expert in that commodity to figure out where the breakeven is. You look at a continuation chart of the price of that commodity, generally based upon some futures it's easy to get.

7:40And when it's flatlined at the low price on that chart over long terms, five years, 10 years, whatever it is, that's the cost of production. I actually want to put a pin in my second part of the question, just to return to the crude oil chart that I mentioned. When I said that looks terrible, this isn't a stock where, yeah, at a certain price, the buyers disappear and the sellers overwhelm it. There is a floor for oil because the suppliers will do what they have to do to make sure that they're getting paid. Is that accurate? That's accurate, yes. Okay. So back to the, do these things have a positive expected return?

8:13I'm looking at a price of sugar. And this thing has gone nowhere for 10 years. And we know there's been inflation. So the real change has been negative, which is great for, I guess, buyers of these products and consumers. Although that doesn't really show up in prices because I still feel like the milkshakes are still$7.85 or whatever it is. But the price of sugar on a nominal basis has gone sideways for a decade. Yeah. Well, there's been a couple of pops in there. Oh, sure. 50 % pop in there. So it's like anything else. I mean, these aren't stocks where you buy them and forget them. You set it and forget it.

8:52Commodities are not a set it and forget it, with the exception of gold. Okay. They're not a set and forget it investment. They're just not. You do have a little bit of paying attention that you need to do. And again, when you sense they're at a breakeven level, which is where that chart flatlines at its low historical values when you look back, that's where you take a shot. You allocate if you're so inclined and you wait. And I think we've said that before. We've had asset allocators come to us and say they wait W-E-I-G-H-T when the price of grains seems to be flatlined. And then they wait W-A-I-T.

9:26And then when there's a drought, they get out. And 99 times of 100, there's a drought that causes grains to route. I like how you always tell it like it is to us. That's a good thing. So for some reason in the whole trade debacle, soybeans became a big thing. So you guys have the soybean ETF. So Trump's team wants China to buy a bunch of soybeans from us, and then we're going to apparently have to bail out a bunch of the farmers. Why does it seem like every couple of years we have to bail out farmers in this country? What is it about the dynamics of the industry that causes that to happen? Well, every single farmer in every single country gets some sort of subsidy from the government.

9:57You want to keep your farmers happy because you want to keep your people fed. In the case of soybeans here, the United States is the world's second largest producer and exporter of soybeans. Brazil wins the title. OK, they've got plenty of land down there and still expanding. But the bottom line is China by far is the world's largest importer of soybeans. And, you know, they they used to until about till pre-COVID, I think they were they were always buying about 50 percent of the U.S. crop. And and that, you know, when you get to a fight with the president, you have a problem and they get mad and they use soybeans as a weapon and they buy from Brazil.

10:34Now, the thing about agriculture is we don't produce enough to... The whole world buys more soybeans than any one exporting country can sell. So China can stop buying from the United States, but then they have to buy all their beans from Brazil. It just so happens that's about the same number. China's import requirements for soybeans are about the same number as all of Brazil's soybean production. Well, that means everybody else has to buy them from the United States. Everybody buys the beans that are available. the beans that are available, if you count them as one big pile, no matter who's producing them, the United States, Brazil, or Argentina, which are the big three, you still need to buy.

11:11That pile is one pile, and it's going to go to almost zero by the end of every single growing season. Okay. There's generally 30 % to 40 % left over. And if you have a crop failure the next year, then it goes down to 10 % or 20 % and people get really nervous. And so what happens with commodities is, particularly soybeans, if somebody stops buying from one country, all it does is create some hardship for farmers short-term. So the government steps in and subsidizes the farmer, but then the farmers are going to sell those beans. So in the end, the farmers are going to win, but they have a huge cashflow problem.

11:43So they do need a bailout, okay? Because they might have to wait till next year to sell those beans, but somebody is going to buy those beans. They're just, there are only so many beans in the world. With all the financial innovations over the years, there isn't like any sort of deep pools of capital that will offset this risk to their own benefit? Isn't there financial opportunities based on the somewhat predictability of these harvests? Michael, we like to think so, but nobody pays attention enough. So when China stops buying soybeans, the price of US soybeans go down. And a lot of people bought this last round.

12:20So the soybean fund, whatever it was, it was down to about 25, 24 million at its lows. And this last round, when China picked a fight with the US, the US picked a fight with China, however you want to look at it, that fund went to$64 million. So it went from$25 million roughly to$64 million. Those inflows all came in in a matter of a few weeks, all right? Because people understood the pattern. Last time China stopped buying US soybeans, price of US soybeans went down. And then the price of US soybeans goes back up because we've got to sell them somewhere. Either China will step in and buy them or somebody else will buy them.

12:53So you get these dislocations from trade fights that smart traders can take advantage of, just like you say. And they win. And that's what's happened here. You had soybeans go down to, I guess, around$10 a bushel. And they went back up to$11.50. Well, that's a 15 % move in a couple of weeks. People like that. Some people participated in that. We like to think more people would. Look, it's like oil. We started with oil, OK? Oil gets to$40 or$50 a barrel. People layer it into their portfolios. They buy the ETS with oil and they just sit on them and wait. It's only a matter of time before oil goes back up on some spike with some political upheaval or whatever.

13:30And so people understand I'm using oil. I'm turning my thermostat up and down, driving my car. They get it that they're using energy. Well, guess what? You're using corn and everything. There's no way to escape corn. If corn gets under$4 a bushel, that historically has been a price where people layer in the portfolio and all of a sudden it's$8 a bushel. Now, it's not all of a sudden. In the last 17 years, three times it's gone to$7.50 or$8 from that$3.50 to$4 a bushel area. But you had to wait. Once you had to wait only a year, once you had to wait two years, once you had to wait six and a half years.

14:02And now we've been, I think, four or five years since that spike again. So I think people would be well advised to consider looking at the grains. Look at corn. When it gets down around that$4 a bushel, look at soybeans. when they get down below that$10 a bushel. Look at wheat when it gets under$5 a bushel. That's a time when it will stabilize your portfolio. And look, one of the reasons people buy grains, no expected return over the long term. But if you put layer grains in your portfolio, seven of the last seven stock market pullbacks, so seven of the last seven S &P 500 pullbacks of 10 % or more, the soybean fund outperformed, soybean index outperformed.

14:44Eight of the last eight, the corn index that the corn fund follows outperformed. Well, tell us when the S &P is going to have a 10 % correction. I'll buy as much as I can. I don't know. But when you get nervous, okay, that you want to diversify your portfolio and have something that's kind of an anchor, you'd be well advised, I would think, to consider grains because people don't stop eating. Hand up, Sal. I eat a lot of edamame when we go to a bear market. Okay. Well, there you go. But I mean, you know, you can - So how close are you to backing up the truck here? Because you've said this in the past.

15:12You're like, hey, there's certain things that I watch for in certain levels where it just makes more sense. How close are you to backing up the truck on this stuff? You're within 10 % in grains. For me, you're within 10 % in grains. 10 % pullback in grains from here. You're now in that$4 area for corn. I mean, corn's only been under$4 two calendar days this year. Two calendar days. It dropped down. It was under for two calendar days and went back up. It went up to$4.80. I mean, a 20 % rally. So I think people are well advised to look at the charts. And when they see those things, understand there's no return on these things either.

15:47So one of the, I don't want to call it a risk, but it's a characteristic of investing in grains. You're not going to get a return on your money while you're waiting. Okay. You wait, wait, drought out, fine. But there's no dividend that's coming to you while you wait. And that's part of the reasons people don't look at these things. Sal, I need you to help me out here. So the price of corn does not necessarily translate into the price of the corn ETF, ticker corn, goodie ticker. So what is the dollar amount? So right now it's at$17.70. Give me my target. When should I buy? When should I consider buying, I should say?

16:22You should consider buying when the price of corn itself is close to$4 a bushel. But so how far away is that? About 10%. Okay. All right. So I could do the math. All right. Understood. All right, Ben, please remind me. If that happens, I want to buy. All right. So Sal, since we first started talking to you, and you were the one who in 2022, when the war started with Ukraine, there's all these people saying, hey, listen, there's not going to be enough food to go around, and there's going to be food shortages everywhere. And you said, no, no, no. Farmers are going to step up to the plate. And you're right.

16:51I think the supply chain for that happening, especially since we were still dealing with COVID, it was kind of a miraculous. It seemed like that there wasn't that much upheaval. So you've always kind of steered us in the right direction. uh since we started talking to you a few years ago you've added other funds so what else is tukrim doing these days in terms of funds besides besides the ag funds um we have the ag funds and we we're doing a couple of things one i should point out we're putting out a a model a model portfolio that's free you can just sign up for it it's called commodities one because a lot of people come to us and say i really want commised exposure for a lot of different reasons but i don't know how to do it and so we publish this free model called commodities one you can find it on our website.

17:31You go to model portfolio or resources or some tab and you find it. And it's once a month, we give what that model does, a simple momentum model, and we invest in a variety of commodities. It has beaten the GSCI with lower returns over time. So since 2020, it's been beating the GSCI, not every year, but over long periods of time, it does with lower volatility. And we buy ETFs. Some of times there are ETFs and most of the time there are other people's ETFs because we don't offer exposure to all different commodities. And so if people are interested, they can go look at that. That's something we started by demand.

18:08It's free. We won't harass you. You sign up for it. We send you a once a month email. That's it. We went into crypto. I'm a big crypto fan. I think we've talked about I really like Bitcoin. I like the supply demand economics of Bitcoin. There are 21 million of them eventually. 4 million, they say, are lost permanently. It's digital gold as long as they're for for bitcoin yeah i do okay all right let me ask you this let's talk about let's talk about ripple which is of course the corn of crypto am i right yeah because because so yes because let's let me put it this way ripple is the company that puts out the token xrp we happen to have a double exposure double long xrp so if you want to be double xrp our ticker is It's XRP.

18:52It's double XRP. OK, that's a levered fund. It's for day trading. It's not a buy and hold fund because it resets every single day. So people who are aggressive traders who are looking at XRP could do that. I believe in XRP. I believe in Ripple. I think that Ripple's, their management team from day one has said, we're going to change the way money moves around. And when it goes on the blockchain, it's going to get moved around and it's going to get Ripple Rails. Ripple's got an RLUSD, so they have the token that's the stablecoin, and they have XRP, which is the tool that you use to move the money around.

19:32And so I just believe in it. I think that if Ripple weren't under unjust attack by the SEC for all those years, and they were vindicated, they won the lawsuits, or the lawsuits have been settled on a couple instances, and now they got a limited banking license last week, it's coming. So will it replace the SWIFT system? I don't know if it'll do it completely because SWIFT system, where how you move money around internationally, OK, is also digitizing on the blockchain. They're doing it. Everybody's doing it. But a lot of people are using XRP. The Ripple team has integrated the Ripple rails and XRP into the banking system internationally.

20:11And I think when the Clarity Act is passed, which is coming, they say, in the next couple of quarters, I think US banks will just unleash. They were afraid because they were under attack. They were told you can't trade crypto. You can't have crypto. You can't participate in crypto. That's no longer the case. You've got a crypto friendly administration. And I think once the Clarity Act is passed, I think XRP and Ripple will be widely used. What that means for XRP's price, I don't know, but there's going to be a lot more usage of XRP. And so we'll see what happens there. I want to give you a data point and then I want you to respond to this.

20:45So you've been in this business for a long time. When did you start Two Cream? I started Two Cream in 2009. I think our first fund launched 2010. Okay. So truly an OG of the ETF industry. You've only had one product for about a minute, the wheat fund that had more assets under management than the double long daily XRP fund, which launched in April and it immediately shot up to$500 million. Now it's about cut in half because the price has been cut in half. People are obviously less willing to engage on the long side of this. But what does that say to you just about where we are, where the industry is, where risk appetite is?

21:29I mean, it's pretty remarkable now. I'm sure you've thought about this. I have. And I think when I started I'm a commodities guy, and I just couldn't believe there weren't grain ETFs and people weren't always thinking about grains. I started at Cargill a zillion years ago, and I launched that. And I thought asset allocators were my target, people who want asset allocated. And that's still the target for those funds. And people do trade them because they're the only single commodity funds around in the grains. It's fine. But the market has a huge risk appetite. Stocks never go down. You buy the dips.

22:00Everybody knows that. And part of the competition with commodities is stocks don't go down. Okay. Commodities go up and down. They have cycles. That's why they call them cycles and super cycles. We've talked about that before in the past too, but stocks just don't go, don't seem to go down. And so people want to return. They, there, there's a whole bunch of extra money out there for a variety of reasons. And we can have a whole, whole other discussion about that, but there's so much extra money about there, out there that people love to speculate. Look at prediction markets. Okay. People just like to speculate.

22:31That's what they like to do. And that's one of the main reasons we came out with a double XRP fund versus an XRP fund. I knew a hundred other people would come out with an XRP fund. We figured out how to launch the double XRP fund ahead of everyone else. What do you mean you figured out? Is there anything that you could share or is that like - Yeah, sure. I mean, everybody knows it's public knowledge. Futures were rumored to be starting on XRP. So a bunch of people filed for XRP funds and double XRP funds, but everybody was waiting for the futures. And I'm thinking, if you're not first, you're nothing.