Teucrium offers unusual ETFs that make futures bets on corn, soybeans, sugar and wheat.
The dollar is weak, the world is hungry and the Russians are making a mess of the grain markets. Would you be interested in a food-based inflation hedge?
Sal Gilbertie, farm-family scion turned money manager, has just the thing. His Teucrium Trading offers pure-play exchange-traded funds that hold futures positions in corn, wheat, soybeans and sugar. When the conditions are right, these things add quite some spice to your portfolio.
In the space of four weeks beginning just before the invasion of Ukraine last year, Teucrium Wheat zoomed up 65%. Over the past three years the soybean ETF is up 92%, the sugar fund 162%. Of course, agricultural commodities can sink just as easily. Wheat has given up all last year’s gain. Beans and sugar fared very poorly over the decade of low inflation that preceded the pandemic.
Why subject yourself to such uncertainty? To get diversification. The low correlation between grains and stocks means that a blend ought to be less volatile than either asset alone. In 10 of the 11 stock market corrections of 10% or more since 1998, Gilbertie says, the S&P grains index has beaten stocks.
As a commodities trader, Gilbertie, 63, has spent his entire career in finance. But he has farming in his blood. You get a taste of that when you visit his office in rural Easton, Connecticut. His desk is in a tiny room cluttered with sacks of seeds and housed in a ramshackle building alongside 36 acres of fields and greenhouses. Teucrium’s nine other employees are scattered to the winds, in Vermont, Minnesota and other states.
What’s the chief executive doing in Connecticut? The nearby farm operation is a family business called Gilbertie’s Organics. A century ago, Gilbertie’s great-grandfather came to the U.S. from Italy to grow for the cut-flower market. Handed down from generation to generation, the flower business survived for a long while—Gilbertie remembers helping, as a child, to deliver bouquets to funeral parlors—but it was doomed. Air freight brought in a bumper crop of import competition.
To survive, Gilbertie’s entrepreneurial father pivoted into supplying cut greens and potted herbs to home gardeners and restaurant chefs; at 86, Sal Gilbertie Sr. remains the hands-on mana-ger of a multimillion-dollar operation that employs 62 workers. It would be in the natural order of family businesses for the reins to be handed on by now. But the younger Gilbertie wanted to break away and, apart from taking advantage of some low-rent office space, he has largely succeeded in doing that.
Fresh out of Fairfield University, Sal Jr. headed to Minnesota to learn how to be a trader at Cargill. That giant firm is best known for handling farm commodities, but it gets involved in energy trading, too—no surprise given that food and energy intersect in the ethanol business. At 23, Gilbertie was buying diesel oil from Russia and reselling into the European market. The job responsibility included regular debriefings from a Russia watcher at the Central Intelligence Agency.
Gilbertie went from Cargill to Merrill Lynch to Bear Stearns to Société Générale to out on his own, juggling contracts for oil, natural gas, gasoline, ethanol and even orange juice. In 2009 he created Teucrium Trading. It has $440 million under management, enough, with a 1% management fee on most of the funds, to cover the bills but not enough to make anyone rich just yet. Gilbertie owns a fourth of the equity—other owners include a former employee and the bond trading firm Cantor Fitzgerald—and has voting control.
The Teucrium lineup includes the four single-grain funds, two ag-commodity blends and a bitcoin futures fund. Recently germinated: two ETFs using artificial intelligence to time futures contracts in farm commodities and in metals. Some of these products have tiny assets and might die off. Funds are as chancy as crops.
The whole operation was at risk of withering away when, in 2014, Russia snatched Crimea and drove grain markets into a tizzy. Last year’s invasion of Ukraine was even more powerful, bringing a fickle crowd of speculators into the wheat fund and sending Teucrium’s assets, momentarily, above $1 billion.
“Supply is erratic, demand is steady. Nobody is going to let themselves or their families get cold or go hungry.”
HOW TO PLAY IT
By William Baldwin
If you want a lot of action in a short time, any of the four single-malt ag funds from Teucrium would be tempting, despite their stiff expense ratios (in the vicinity of 1.75% a year). Buy-and-hold investors, though, will gravitate to a more diversified portfolio. For tax-deferred accounts I recommend GraniteShares Bloomberg Commodity Broad Strategy No K-1 (expenses 0.25%), which mixes farm commodities with fossil fuels and base and precious metals. The K-1-free format, however, can be deadly to taxable investors. They should get the Invesco DB Commodity Index Tracking Fund (expenses 0.85%), whose partnership structure makes some of the return a capital gain.
William Baldwin is Forbes’ Investment Strategies columnist.
Here’s the deal with grain prices, per Gilbertie. For years they lie sluggishly at just above the cost of production. Then something happens—a flood in China, a drought in Nebraska, a war—to send prices on dramatic trajectories. As he puts it: “Supply is erratic, demand is steady. Nobody is going to let themselves or their families get cold or go hungry.”
At a sponsor of commodity ETFs, revenue is erratic and the costs of paperwork are steady. Even if a fund consists of nothing but three or four futures positions (as in the corn ETF), Teucrium has to put a “mine safety” statement and 248 pages of additional argle-bargle into the annual report. Gilbertie: “An ETF sponsor is a legal, compliance and accounting company that happens to have some funds.” He will make what he can of these bitter herbs. A recently introduced Teucrium venture is a “white label” fund service. For a fee, it handles the worst of the paperwork for some other sponsor’s fund. There is one customer so far, a vendor of funds that make risky bets on stock market volatility.
Futures trading and securities law have taken Gilbertie far afield from his roots. But he still has one foot planted on the farm. Teucrium is the name of an ornamental herb in his father’s catalog. Not far from his office he is using a patch of soil to experiment with an heirloom corn variety. “I’m a trader,” he says, “but I’d much rather be out there scratching dirt.”