With China stepping back from U.S. soybeans, investors are eyeing opportunities in the grain market. Sal Gilbertie, CEO Teucrium Trading explains.
Transcript:
Caroline Woods: Joining me now, Sal Gilbertie, CEO and Chief Investment Officer of Teucrium. Sal Thanks so much for joining me at the desk.
Sal Gilbertie: Thanks for having me.
Caroline Woods: So we’re talking soybeans. I think a good place to start would be the fact that China has totally pulled back on US purchases of soybeans. It was, what, the first time that US soybean shipments fell to 0 since 2018? That’s to China specifically. Talk to me about the ripple effects on the global supply picture?
Sal Gilbertie: Sure it’s creating plenty of soybeans for other people because the US isn’t selling any to China. That’s what’s happening. China has bought virtually all soybeans from Brazil. There are three exporters that matter for soybeans. And that’s Brazil, the United States and Argentina. Paraguay is a little slice in the pie, but the big exporters are Brazil, the United States and Argentina. And China is exclusively buying right now from Argentina and Brazil, which leaves the US out in the cold a bit. So it opens soybeans up to other buyers.
Caroline Woods: But was there a shortage. Is that really even necessary. What does this all mean from an investment perspective?
Sal Gilbertie: From an investment perspective, it’s easy. There’s not a shortage. And grains around the world traditionally trade at their cost of production. And in the United States, for soybeans, that’s between 9 and $10 a bushel. We’re right about $10, I think, as we speak now. And that’s break even price. And what agriculture does, because it’s subsidized farmers get used to planting at break even. They will plant and plant and plant. That’s their job. And they’ll choose which crop to plant, that they make more money. But right now, soybean farmers have plenty of soybeans around the world. There are plenty of soybeans. China is the largest importer of soybeans in the world by far. They’re getting all of their supplies from Brazil, whereas traditionally they would get a large percentage of their supplies from the United States. Now they’re stepping in front of people who would normally buy from Brazil. Those people have to buy from the US. The interesting thing is that soybean demand globally has been growing at 3% to 4% a year for at least the last 10 years. It continues to grow. And so luckily, farmers continue to grow as well. And they grow more every year. Right now there are plenty of soybeans, but three times in the last 17 years, we’ve seen both corn and soybeans double from their cost of break, or nearly double from their cost of break even. And then they go back to that cost when farmers plant. And that’s where now we’re back at that break even cost. Which to your question for an investor, is a time to strategically allocate where grains don’t correlate well at all to the S&P 500 or to stocks. So it might be a good time for investors to consider looking at the grain complex as an addition to their portfolio.
Caroline Woods: Explain why though. Because I would assume that China not buying us soybeans would mean prices would go lower. So why would you want to get in right now?
Sal Gilbertie: Well, we’re at a break even cost. We’re at about $10 a bushel. We’ve seen we’ve seen soybeans go down to 9 ish or so, but then they stop because farmers just stop planting or stop selling. And we’re at peak harvest, meaning actually we’re past peak harvest. So most of the soybeans have already been harvested. All soybeans in the northern hemisphere have been harvested. There’s a huge there’s a huge amount of soybeans for sale right now they’re only at $10. Like how much lower can they go. Farmers obviously have found places to put them. China isn’t buying. That should be an extreme worst case scenario for soybean prices. I’m not saying they can’t get down lower, but we’re at the very low end of a historical 17 year trading range. That’s a good time for investors to look at buying something.
Caroline Woods: So talk to us about what could send prices higher?
Sal Gilbertie: A drought 1099 times out of 100. A drought sends sends prices higher. We did see the war in Russia send wheat prices doubling, almost tripling in 2022. That was very short lived because, of course, wheat supply, wheat supplies were not withheld from the market. Nobody’s going to withhold supplies from the market. That’s not happening. So there are plenty of soybeans. Buyers can find soybeans in the United States. They won’t be able to find them in Brazil, because Brazil sold literally all of their crop to the United States.
Subscribe |
Earn. Live. Invest. |
TheStreet Pro |
#Investing #Stocks #WallStreet
source
