Teucrium’s Sal Gilbertie on What Investors Miss in the Ags

Commodities like corn and soybean provide a number of benefits to investors, particularly when hedging against market drawdowns and crashes, but remain overlooked and under-allocated. Sal Gilbertie, CEO, President, and CIO of Teucrium, talks commodity cycles, performance, and more before switching gears entirely to weigh in on XRP, institutional uptake,  and catalysts to watch for. 

Transcript

Getting Granular With Commodities 

Nadig: Sal Gilbertie, Teucrium, great to have you back here at ETF.com. I wanted to reach out to you because, hey, look, we've been having lots of conversations about what's going on with soybean exports and tariffs. And now all of sudden we've got XRP launching. I'm like, well, those are two very strange worlds that only overlap in one person. And that's Sal Gilbertie. So I wanted to talk to you about Ripple and commodities.

Let's start with what's going on in the grain space. You guys have the sort of default products here on corn, soybeans and wheat. I think most of us have heard the story of what's going on with tariffs on soybeans, but I doubt we have the full picture. How should investors and speculators, folks just looking to play a short-term bet, how should they be thinking about what's going on in the sort of core agricultural market right now?

Gilbertie: Well, great question and good to see you always Dave. Look, the Ags have been in a three-year bear market since the war broke out. And you got those spike highs in wheat and that dragged all the commodities up, the agricultural commodities, and you know the golden grain cycle that I think Jake Hanley is famous for writing. That's real.

And so, because of government subsidies, grains trade at their cost of production. That's where they naturally trade. And then when there's a drought they don't. And in three times in the last 17 years, that's happened in corn and nearly happened in soybeans. And so we're back down toward that cost of production. And the telling sign was that soybeans in particular – we just finished up the harvest about two weeks ago – harvest finished, there's a lot of pressed soybean, soybeans are all harvested in the Northern Hemisphere.

Well, that's when you have the big pile, okay? You have maximum supply on the ground. And the biggest buyer of soybeans in the world wasn't buying, wasn't buying at all in the Northern Hemisphere because they weren't buying from the United States. It's the Northern Hemisphere seller. And prices weren't going down.

So you know that you've probably hit your cost of production and that's probably now – used to be nine dollars or so in soybeans and now it's ten dollars or so in soybeans – and we saw it break below ten dollars a bushel for a couple days and then it went up. Corn we saw break below four dollars in August when you often have a seasonal low, and I think it stayed for a day under four dollars. So I think the message to investors is it's probably not a short-term. It's a strategic allocation play where it's a portfolio stabilized.

Both the corn index that the corn fund follows and the soybean index that the soybean fund follows both have outperformed seven of seven times the last 10 % or more pullbacks in the S&P 500. Those indexes have outperformed, but you know, you don't stop eating, you don’t stop buying fuels. And so, look, we had an advisor call us once and he said, “I put 1% of my portfolio in corn when I see it trading sideways at the low numbers”. Which is where we are now. “Because I know, I might have 10,20% downside, 1% in my portfolio. I tell the client, “I lost two-tenths on my 8 % target. It's okay.’”

And this portfolio stabilizer really does stabilize your portfolio. That's proven, and when you have a drought, it doubles. And he said that, “My 8 % portfolio just turned into a 9 % portfolio with very low risk trade.” You have to wait, okay? So, in the last three times that it happened, as I referenced before, once you had to wait one year, once you had to wait two years, and once you had to wait six years. And so it does become a dead money, if you will, but it is a portfolio stabilizer and it can give you some positive alpha as a surprise one day.

The Unintended Consequences of Tariffs Could Be... Positive?

Nadig: Should we be thinking about tariffs as potential upside surprise then? I mean, I think we all saw the stories that China's not buying the US, they're buying all the stuff from Brazil and Argentina. Like that tariff story, both with what we've got going on in Supreme Court, but also I think just as we've gotten used to this. And it seems to be normalizing a little bit, at least on core things like agriculture. Should we be seeing tariffs now being maybe a bit of a, you know, a tailwind that could actually help us get prices back up?

Gilbertie: I think you saw it. Think – when Trump met the president of China last week or week or two, whenever that was, you saw that dollar rally in soybeans. And so I think that that's passed. I think you're just going to go sideways now at this cost of production until something happens like it doesn't rain.

And remember, there are unintended consequences here. China goes to Brazil because they're mad at the U.S. Well, Brazil runs out of beans. Now everybody else in the world that needs beans has to come to the U.S. And the U.S. is now aggressively pursuing other buyers.

So, the growth rate for soybean demand of non-Chinese buyers exceeds the growth rate of China the last 10 years. So soybean demand ex-China is actually growing faster than the Chinese soybean demand, which bodes really well.

I still maintain that two to three years from now, U.S. farmers will have a healthier international market into which to sell because of these tariffs. Now, you know, unintended consequences, but it'll happen.

Nadig: There's always this trade off in Ags of like, what are farmers going to plant next year? And some of that's rote because they're on plans, but some of it's not, right? There's always some marginal amount of production that the farmer can sort of make a call in the winter about what they're going to bother planting. Do you think we're going to see any major shifts in the panoply of things that get planted next year because of this? Are farmers going to run away from soybeans? They had a huge crop this year, right?

Gilbertie: Well, we think we did, but the numbers aren't out. So we don't really know, which is really interesting. We also don't know if China's been buying during the government shutdown because there's no reporting and the Chinese buy the cheapest beans in the world no matter what. And for a couple of weeks there, the US beans were the cheapest in the world. So we'll see.

Is there going to be a shift? Probably. Will it be a seismic shift different from other shifts before? I don't think so. A farmer can either plant corn or beans on his acres. It used to be, you know, before fertilizer, you rotate it. You planted corn because it sucks the nitrogen out. Next year you plant beans because it puts the nitrogen in. Back and forth, back and forth. Now you can do corn on corn and skip your beans. So some farmers may skip beans. You may see more corn planted. Jake disagrees with me. He said yesterday he thinks there'll be more beans planted than corn. We'll see. It's just in the math when the farmers plant.

Zooming Out, Crossing Borders With Ripple

Nadig: Hmm, interesting. I love it. This is part of one of the things I love about the Ags, is that it's the real world, right? It's just farmers putting stuff in the ground. That's why I love it.

Let's go all the way to the other extreme, the most abstract, which is XRP, Ripple. I've always been fascinated by Ripple because I sort of see it as this interesting, purely financial asset. Like it's really – my understanding of XRP is it's really a bridge asset for things like big giant cross border settlements and things like that.

Gilbertie: Yes it is.

Nadig: So it's always had this kind of quasi-institutional story under the hood. And now in this much more open regime we have for crypto and its use, both in finance and in ETFs, it's catching a bit again. People are starting to understand what XRP does in the ecosystem. Y'all were out very early with the first, I think was the first XRP tagged ETF of any kind, the 2X fund that you have. Now we've got some other folks coming to market with spot and I'm sure we'll end up with income and leverage and all sorts of other variations on it. What's your take on where XRP is right now and its sort of potential for real adoption, which I think is what people are really hoping for?

Gilbertie: I think the potential for real adoption is more than potential. It’s being adopted. Ripple has worked diligently. They're very professional over there. They are single minded in their purpose and they are building the rails, as they say, across the entire global financial system for the XRPL – so the XRP ledger - to be used. And of course you use XRP on the ledger, use RLUSD, which is their stable coin on the ledger. And all the banks, once the CLARITY Act is passed, I think you're going to see use of that ledger explode.

I don't think people understand how much is being used right now, or it's being prepared right now. And I don't think people, I don't even grasp the scale of how big the use of that ledger is going to be once the CLARITY Act is passed. And that's really a needed thing. I think that the spot ETFs where they actually hold the physical, that does help. It takes some supply off the market. We saw it help the ether price quite a bit when the ether ETFs came out.

I don't know what will happen here. I would think it would provide at least some underpinning. I would think that as more money comes in, the price volatility will go down a little bit because we've seen that in other assets. So, that's something to reasonably expect but I don't think people understand that the… Ripple's a real live use case. Ripple has, the company has been very disciplined in setting itself up in thousands of banks on all the platforms across the world. As soon as there's clarity in the U.S. for banks to – let's face it, all the money in the world goes through the U.S. at one point or another, it just does. And once the U.S. banks have a very clear, well-defined regulatory environment in which to play, I think the use of the XRPL skyrockets and so what that'll do the price of XRP I don't know.

Nadig: Yeah, I mean, that's one of the really fascinating things about about XRP to me, is that because it is really designed as a utility token, people shouldn't be thinking of XRP as a fake thing that you go put money in and then it doubles in value like what people hope Bitcoin will do or gold. It's not designed to be a static store of value. It's designed to be this very living thing that gets moved through the economy to help enable the movement of value through other mechanisms, currencies, et cetera.

Gilbertie: Right. Right.

Catalysts To Watch For XRP Growth

Nadig: So there is that question of like, how does increased adoption translate into the price of Ripple going up? I'm with you. My vibe on it is that we'll see the price stabilize and then grind higher as utilization goes up. And obviously, if we get big spikes in utilization, you would expect to see some spikes in the price as well. So interesting. Are you thinking about other options? Pardon my French on that, but other ways of using other digital assets? There's been a lot of talk about income. You guys were early on the leverage side. You guys don't stand still. What are you guys thinking?

Gilbertie: So, you know, we haven't filed – we did file for a Flair ETF, which is really low on the cap table, and that's another discussion. But I think there's a lot of options that can be had. We've intentionally chosen not to play the spot game because those are big players that gather big assets for almost no fees. We’re a tiny little shop. I can't do things for free, okay? So I do regret, honestly, not having done an XRP physical ETF because we built a name in the XRP community, and so we probably would have attracted a good amount of assets there. But so be it. It's what it is.

I think there'll be more to come. There'll definitely be more crypto plays to come. And our white label, where we do things for other people, that's actually a very big deal. And you'll see, as you've seen the filings come out for a lot of well-known crypto names that are using us as their white label, you'll see a lot of different products coming out from Teucrium.

Nadig: Yeah, I mean, you guys have this track record of really cracking open interesting and innovative markets that other people sort of tilt at for a while and then you guys figure it out. You mentioned that the white label business is taking off. There are some other big players in that space. A lot of them have leaned into some of the more sort of options income-oriented type strategies. What is it that you are bringing to the table in the white label business that you think is resonating with folks?

Gilbertie: I think expertise. I think the white label business doesn't have enough competent players in it. I think there's a handful of us that are capable of doing it that have the bandwidth and the knowledge. Let's face it, the number of white label, the amount of white label demand is immense just for conversions, ok? Just people converting other types of funds into ETFs is gigantic. You know, we were in a meeting the other day. They don't think there'll be enough tickers if all the mutual funds convert, if all the share classes convert. There literally aren't even enough tickers!

Nadig: I’m worried about that myself. We're going to start trading numbers like the Japanese.

Gilbertie: So, it’s just a matter of being in the right place at the right time. And, you know, everything's a 20-year overnight success story and we are 15 years old.

Nadig: Yeah, well, it's great to catch up with you and you guys have had such great success and I wish you nothing but more of it. If folks want to hear more about Teucrium.com I'm guessing is where to go?

Gilbertie: That's the place, Teucrium.com

Nadig: All right, thanks, Sal. This has been great.

Gilbertie: Always a pleasure, Dave. Thanks.

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