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Sal Gilbertie in a Vermont cornfield
Jul 11, 2019

Teucrium Trading’s Sal Gilbertie Talks Tariffs, Climate Change and American Farming

The commodities trader and lifelong farmer on what really matters to the global economy right now.

Simon and Garfunkel’s 1960s hit, “Parsley, Sage, Rosemary and Thyme” played a big role in the life of Sal Gilbertie, founder of Teucrium Trading, which trades agricultural commodities ETFs.

As Gilbertie tells the history, his family’s 100-year-old flower farm, based in Easton, Conn., got into the herb business after a perfume heiress returned from Europe fascinated with herb gardens. “She asked my grandfather to grow some herbs for her,” says Gilbertie. “He had never grown them before, so he overseeded. He had all these extra plants, and they put them in the garden center and they sold.”

Once the Simon and Garfunkel song popularized herbs, the business skyrocketed and the elder Gilbertie, now 82, became known as the Herb King, says Sal.

But though he grew up close to the earth in an agricultural family, the younger Gilbertie had a yen for the high stakes of Wall Street. As soon as he graduated from Fairfield University in 1982, he landed a job with the giant grain company from Minnesota, Cargill. Ultimately he became a gasoline trader on Cargill’s New York trading floor, after which he went to work for a futures broker that had been bought by Société Générale, the French bank.

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Eventually gasoline and agriculture came together with the introduction of ethanol to replace the carcinogenic additives that had been used to make gasoline burn properly. Ethanol—a corn byproduct that is essentially grain alcohol—became the future, and Gilbertie’s past and present joined when he created a financial contract to trade ethanol. “I morphed into a desk that traded about 30 different commodities,” he says. “Basically corn trading, soybean trading, gasoline trading, ethanol trading.”

By 2009, Gilbertie was creating exchange-traded funds on agriculture products and launched his own firm, Teucrium Trading. The company’s New York Stock Exchange-listed ETFs include CORN, WEAT, SOYB, CANE and TAGS.

The scion still has an office on the family farm started by his Italian immigrant great-grandfather, Gilbertie’s Herb Gardens. Five years ago, the business went into what they named petite edibles, organic microgreens now ubiquitous in the salad section of grocery stores.

Worth recently talked with Gilbertie about the challenges facing agricultural commodities and the farmers who grow them these days—from Chinese tariffs to climate change.

Q: You went from growing up and working on the farm to getting interested in the stock market, and that took you into commodities. Do you think your lifelong experience with agriculture helps you understand what’s going on with these commodities?

A: Absolutely. I can speak with farmers. I still plant corn. I still plant wherever I need to plant. I have Jimmy Red growing in the fields right now, which is a bootleg corn that was almost going to go extinct. It has a very high sugar content—we’ll see if it makes great grits. Two years ago I planted something called Burro Mountain Popcorn, which was found in a 650-year-old jar in New Mexico. The state of New Mexico actually owns 5 percent of my business; I keep a house out there. I planted that to see what would happen, and it’s this tiny little popcorn. It actually grew and it pops in the microwave. It’s crazy.

You’re the corn man! So let me ask you about the impact of China’s tariffs on U.S. agricultural products, which are a result of the Trump tariff wars. I keep reading about farmers with grains that are stacked up in silos that they can’t sell, and they’re going bankrupt. Is that true?

It’s hard on many farmers—particularly hard on soybean farmers, who are sitting on soybeans that they couldn’t sell. One reason is China was the biggest buyer of our soybeans. They just quit buying from the United States.

Right.

But we are also exporting soybeans around the world. Argentina traditionally is not a top 10 or even top 20 buyer of soybeans in the United States—but they’re like top 3 or top 5 this year because the Chinese bought all their soybeans. The world uses almost all the grains that are produced every year.

How does the wild weather in the Midwest this spring figure into the equation?

You’ve got some number of acres and farms that have been heavily damaged by the flooding and the rains. When you think about the fact that we’re going to plant somewhere between 80 and 85 million acres of soybeans this year and somewhere between 85 and 90 million acres of corn this year, and you think about a million acres being lost to flooding, it’s not that big a deal. It’s a huge deal to the person who lost those acres. That said, overall the farm economy is suffering from cash flow issues because they couldn’t sell to China, and the storms. Rivers are closed, roads are closed, bridges are out. That’s stopping farmers from getting their things to market.

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What is the effect on commodity prices?

Prices are going up. In a nutshell, the global combined demand of soybeans, corn and wheat this year will be more than the global production of soybeans, corn and wheat. So, stock levels will go down. U.S production is already being impacted by the poor weather this spring. Prices have risen pretty substantially off their lows. We clearly bottomed May 13.

What happened that day?

That’s the first business day after the last business day that a USDA World Agricultural Supply and Demand Estimates report—which comes out monthly—was issued. It showed lower demand. Then people stepped back and said, “Wait a minute, that’s impossible. It’s raining so hard and the forecasts are so bad there’s no way that corn can be the way it is in that report, it’s impossible.”

So the rainy weather has kind of saved the corn prices?

The weather has saved the corn prices, there’s no question about it. That happens every five to seven years, generally with a drought. The last time we had a rain event that caused planting to be late was 1993. We’re still past that. No event has matched this year.

Have the prices been going up a lot since the bottom in May?

We’re up double-digit percentages since that bottom.

What if we continue these tariffs? Will there be a recession in commodities?

It’s hard to say. Agricultural commodities kind of do their own thing. They don’t correlate well with the economy. People still need to eat, their animals still need to eat, they’re still going to drive their car. Corn is in everything now. Ten percent of your gasoline is a corn product—ethanol.

Can you explain how that came about?

In 2007, when the United States went to ethanol in gasoline, it did a 10 percent blend. The global price of corn permanently doubled. It went from a sideways break-even area of $1.75 to $2 a bushel, to $3.50 to $4 a bushel. When you have a shortage every five to seven years, you look back on the charts. It used to go up to around $2.50, $3 from that $1.75, $2. Now, it goes up to $7 and $8.

What is China doing on the ethanol front?

China has announced that in 2020, they’re going to a 10 percent blend. They’re doing it for air pollution reasons. China’s gasoline usage is about a third of the United States. So, they’ll use about a third of the ethanol that the United States uses. China does not have the ability to produce that much ethanol, they’re going to have to import. Again, we have a lot going on between China and the U.S. You’re talking about food and fuel. I’m going to think that no matter how long it takes, some agreement is going to be reached because the Chinese need food and fuel, and the United States has it to sell. No one is talking about this.

Can China ever grow enough corn on their own?

No, no they can’t. Now they really don’t buy that much corn from the U.S. But when they started importing soybeans, it just went up like a rocket. They started importing oil, it went up like a rocket. Once the Chinese begin importing something, once they tip their supply-demand balance domestically, they don’t look back.

What is the big takeaway of the trade wars? What is the one thing that people need to understand when it comes to commodities?

No matter what the tariffs are in agricultural products, there simply aren’t enough of them. Demand is relatively inelastic. While you may see a temporary price anomaly, the temporary pain in some farm belts in one place or another due to tariffs, in the end, all of that crop is going to get sold and used.

Secondly, agricultural products are truly a casualty of war here. They are not the crux of this. This is not about agricultural product at all. It’s about other things—like national security. The theory is that China is trying to pressure Trump’s political base, which is very strong in the farming community. That may or may not be true, but ags are an innocent victim, they really are.

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Is climate change a bigger threat to this industry than the tariff wars?

Absolutely. Again, tariff wars provide temporary anomalies, but the global supply-demand balances will not change because of the tariff war. They will change because of climate change. We’re seeing it now. There being so much corn and so many soybeans that we were driven below the cost of production in trading prices. And now there is a legitimate concern that corn prices could become inflationary.

Where do farmers stand on climate change? Is that something that they disagree with Trump on?  

For farmers, climate change is real, they know it. Farmers live at the mercy of the weather their entire lives. Because of climate change the corn belt is moving north into Canada. So, where you used to only plant wheat, say, in the Dakotas and Southern Canada, now a lot of farmers are looking to plant corn because it’s economically fine, but you still have a shorter growing season there. The climate may change, but the tilt of Earth isn’t going change and relinquish the sun anytime soon, we hope.

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