Talk Your Book: The Craziest Commodities Market Ever

Episode Summary

Executive Summary: Sal Gilberte of Teucrium explains how the pandemic, Russia-Ukraine war, and broken supply chains have pushed agricultural commodities into a historic bull market. Wheat is disrupted by export constraints, while corn may be even more at risk because Ukraine may fail to plant. The conversation covers ETF mechanics, futures market squeezes, seasonality, and why food inflation could remain elevated and volatile for at least another year.

Main Topics: Agricultural commodities as a global inflation shock (Priority: 5/5): The hosts and Sal frame the ag rally as one of the most consequential market moves because food inflation affects the largest number of people worldwide, especially poorer countries. Pandemic-era demand and supply distortions (Priority: 4/5): Sal argues COVID did not destroy agricultural demand; instead, it shifted consumption patterns and boosted retail food demand, helping tighten grain balances even before the war. Russia-Ukraine war and export disruption (Priority: 5/5): The war removed a huge share of wheat and corn exports from global markets, with Ukraine also banning food exports, creating severe near-term shortages and longer-term planting uncertainty. How ag ETFs and futures markets work (Priority: 4/5): Sal explains that Teucrium ETFs hold futures contracts, not physical crops, and discusses roll costs, carry, backwardation, and how liquidity and creations/redemptions operate. Market squeezes, volatility, and speculative positioning (Priority: 4/5): The discussion covers limit-up wheat moves, a surge in futures volume, and how shorts and hedgers amplified price moves as the market scrambled to reprice supply loss. Seasonality, production costs, and fundamentals (Priority: 4/5): Sal emphasizes that ag prices tend to revert toward cost of production, but weather, fertilizer, energy, and transport costs can keep prices elevated for extended periods. Broader commodity spillovers into food, fuel, and livestock (Priority: 3/5): The conversation connects grain prices to meat, cooking oil, ethanol, biodiesel, and consumer packaged goods, showing how commodity shocks transmit through the economy.

Key Arguments: The pandemic did not crush agricultural demand overall; retail food demand and home cooking offset lost institutional demand like cruise ships and casinos. Ukraine and Russia together account for roughly 30% of global wheat export supply, so any disruption has immediate global consequences. Corn may be more dangerous than wheat because Ukraine may not be able to plant it at all due to broken supply chains and fertilizer/parts shortages. Commodity prices often trade near cost of production, but supply shocks and energy/fertilizer costs can keep them far above equilibrium. ETF demand surged because investors sought hedges; Teucrium’s wheat fund even had to suspend creations after exhausting available shares. Futures market volatility and short covering drove extreme wheat moves, including multiple limit-up days and a 400% jump in volumes. Food inflation is especially damaging to low-income countries where cooking oil and staple grains consume a large share of household budgets. Agricultural commodities can diversify portfolios because they often behave differently from equities, with grains tending to outperform during stock market drawdowns.

Data Points: Tucrium wheat fund creation halt: March 7, 2022 - The company said its WEAT fund had sold all available shares and suspended creations due to surging demand. WEAT assets under management: $79 million to over $400 million - A month-over-month jump cited during the interview, reflecting both price gains and heavy inflows. Wheat export share from Russia and Ukraine: 30% - Sal said the two countries together represent about 30% of the global wheat export market. Ukraine share of global corn exports: 16% - Sal said Ukraine supplies 16% of global corn exports. Ukraine share of sunseed exports: 80% - Ukraine was described as supplying 80% of the export market for sunflower seeds/oil. Corn price: $7.35 per bushel - Used as a comparison point versus prior levels, described as roughly double where it had been three years earlier. Futures volume change: +400% - Volume in the nine business days before the war versus the nine business days after the war. Wheat market notional trading: $5 billion to $8 billion per day - Estimated daily notional value traded in the underlying wheat market. Wheat market squeeze: Six consecutive limit-up days - Described as the extreme price action during the early war shock. Commodity balance sheet timing: At least another year - Sal said grain prices may remain elevated and volatile for a minimum of another year. Soybean crop stress: One week supply estimate - Sal referenced private estimates suggesting the U.S. may have only about one week of soybean supply next year. Global grain demand pattern: Record or second-highest every year since 1960 - Sal claimed combined soybean, wheat, and corn demand has been either a record or second-highest annually since 1960. U.S. stock pullback comparison: 10 of 11 - Teucrium study: in the last 11 S&P 500 pullbacks of 10% or more, the S&P grain index outperformed 10 times.

Pivotal Quotes: "The pandemic didn't destroy any ag demand." — Sal Gilberte: He explains that food demand largely persisted and in some cases rose during COVID, tightening grain balances. "If it doesn't rain in North Dakota, no one in New York City skips their breakfast bagel. They just don't." — Sal Gilberte: Used to illustrate how localized supply shocks can have global price effects without reducing demand. "If Ukraine doesn't plant its corn, focus is going to be on corn." — Sal Gilberte: He warns that corn could become the bigger story because planting may be impossible amid the war and supply-chain breakdowns.

Implications: Food and feed prices may stay elevated well beyond the immediate war shock, with especially harsh effects on poorer countries. Investors may keep seeking ag hedges, but futures-based ETFs will remain highly volatile and risky.