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Why corn is the latest commodity to boom

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Sal Gilbertie Teucrium funds Chief Executive Officer and President, joined Yahoo Finance to discuss the commodities boom.

Video Transcript

ADAM SHAPIRO: We've been talking a lot about commodity prices. We got to talk about food prices. We all are seeing it as things go up. And Sal Gilbertie, Teucrium Funds chief executive officer and president is joining us here. We've seen corn hit new highs. We've seen soybeans touch, what, $16 that we had. It hadn't been that high since 2012.

And we see this at the food store. Explain to me why as, for instance, corn goes up, why do we pay more for chicken or Coca-Cola or even tortilla chips?

SAL GILBERTIE: Because corn goes into all those things. Any animal that you eat is eating grains. And it's eating corn, soybeans or soybean meal, and perhaps even some wheat. And so as we see the prices of these grains go as high as they've been, literally, since 2012, 2013--

And what happened is, our supplies are going down, as we spoke last time that I was on. Our supplies, our global supplies of grains are shrinking. And when you look at day's supply, we are down towards the leftover excess day's supply numbers that we were back in 2013. And that's why we're matching those prices again.

SEANA SMITH: So how long do you think it will be until we start to see some of these grain prices pull back a bit?

SAL GILBERTIE: Well, you can back and fill for a while. But until we go back to the world of lower grain prices that we were accustomed to the last six to eight years, that's going to be at least a year, maybe two years because the projections right now on seeds that are being planted right now, if we have perfect weather and perfect harvests, those are the projections for the low balance sheet.

So remember, grains, you use them until the next harvest. Harvest isn't until autumn. So we're living on adequate stores of grains. But those stores are shrinking quickly. And assuming perfect weather, if seeds that are just being planted now, plants that haven't even grown nor been harvested, we still get really tight stock.

So we'll have to go through next year, a year from now when those seeds go into the ground. And then we see perfect growing season next year. Hopefully, we'll begin to rebuild our stocks. And tomorrow, we get a glimpse of the projections for next year's crop. It will be the first official government projections. And they are not expected to be very good.

And that's why you've seen grain prices rally. That's why when you see a down day like yesterday, it's followed by buying today. Grain stocks are tight. And they're not going to loosen up this year. It will take at least until next year. And that means perfect weather around the world for two growing seasons, this summer and next summer. And that's tough to ask for, I think.

ADAM SHAPIRO: Let's talk about weather here in the United States. You've pointed out that rain makes grain. We got a drought in a major part of this country out west. Are we having drought in the areas where corn and where wheat and where soybean are produced?

SAL GILBERTIE: We are. Corn and wheat are the trouble areas right now. In the Northern Plains and in Canada, you've got very, very dry conditions. That's going to affect wheat and canola prices. And you've seen canola going way up. You've seen wheat go up as well.

Southern Brazil, this might sound strange, but Brazil overtook the US as the number one soybean exporter in the world a couple of years ago. They are about to take us over as the number one corn exporter. That will only take a couple of more years. They are the world's second largest corn exporter.

They're equatorial. So they get two crops in. They basically have a very long growing season. They grow soybeans first. They harvest them. They're having a record crop, which we need, which is really good, of soybeans.

They planted their corn late because their soybeans were planted late. And it's not raining now at a critical time in southern Brazil and in northern Argentina, where we need rain for a major corn production area of the planet. It is the world's second largest exporter of corn, Brazil. And they're having a serious, serious drought. That's why you see these grain prices so tight.

China had a crop failure last year. They've imported record amounts of corn this year. They're expected to import a very large amount next year. It'll be their second highest amount of corn imported ever. Their internal grain prices are not going down, their internal corn prices are not going down. We have a very serious situation with corn if it doesn't rain in the next two to four weeks, especially in southern Brazil.

SEANA SMITH: Sal, we also have water, which has shot up as well, lumber, lean hogs, and the list goes on. From your view, does the Fed need to be paying a little bit more attention to this? And I guess, how big of a threat do you think this could potentially be to the US economic recovery?

SAL GILBERTIE: Well, I think moderate inflation is probably very helpful to the recovery. But inflation that we're seeing now, where we're two or three times, depending on what sector you're looking at, the Fed's target rate of 2%, I think that's going to have an effect. I think the Fed is underestimating the impact in terms of the severity.

I think their view that it will be transient inflation is false. I think it's wrong. And remember, energy prices, more than anything, affect the overall inflation rate. And yes, you've got these core commodities going up. But it's energy that will affect the inflation rate.

Oil's solid. Oil's solid at 60, 65. The economy is coming back post-COVID. You see a resurgence in India. But bottom line is the global economy is coming back. COVID will end. And oil demand is there to stay. So I'm not so sure that this inflation is as transient as the Fed hopes it will be.

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