Climate is ‘the No. 1 reason why food prices go up,’ Teucrium CEO says

Teucrium funds Chief Executive Officer and President Sal Gilbertie joins Yahoo Finance Live to discuss rising food prices, the impact of climate on food commodities, agriculture concerns, and the outlook for exports.

Video Transcript

- Rising temperatures and the ongoing war in Ukraine, sending waves of concern through the agricultural sector as global grain supplies remain at risk, all of this while food prices remains a hot button issue for consumers and companies alike as Walmart's profit warning shows inflation is still a big problem. For more on the state of agriculture, Let's bring in Sal Gilbertie, who is the Teucrium funds chief executive officer and president. Great to have you here with us this morning. First and foremost, perhaps we can kick things off with what we were seeing from Walmart's mentioning even of the prices that are passed on to consumers that they're having to pay higher for necessities and marry that with what we're seeing on the broader heat wave front, where those costs could continue to get higher.

SAL GILBERTIE: Sure. Good morning, Brad. Thank you for having me.

I think that what it shows is that consumers have to buy food. That's your number one concern is food, and come winter, it will be energy. And that's going to be a big surprise. That's a whole other topic.

But right now, consumers need to buy food. They're prioritizing. Your prior guest Stephanie earlier pointed out that they're buying necessities, needs versus wants.

That's always food. Food prices are up for a variety of reasons. The climate is number one reason why food prices go up.

It happens all the time. If you look at the last six or seven times that global grains have risen, all but one, and that would be the Ukraine war, are caused by weather, and it's usually a drought. It's usually not enough rain. That's associated with heat. And we've seen that around the world.

Now, we've been in La Nina weather pattern the last two years. When you get two years in a row, that affects deeply South American production. We saw soybean production fall dramatically in Brazil.

We're seeing estimates out of Argentina this morning that their corn and wheat crops are a little bit smaller than anticipated. That's keeping support on prices. Now, prices have come down a bit.

We saw the spikes and the fear factor come up with Russia's invasion of the Ukraine, which is a major supplier of wheat and corn to the world. But right now, weather is of primary concern, and it looks better, but we've had a spate of really bad weather. We probably will see US corn and wheat and soybean yields lowered a little bit in official estimates as the USDA comes up with more estimates on their monthlies next month.

- Hey, Sal, it's Julie. When we talked to you back in March, you said it tends to be a biblical event, that was your phrase, when you have food prices rise like this because then people can't afford to buy food. What you're describing is that prices are going to stay high, right?

I mean, is there any relief that we are going to see? You know, you had, for example, Ukraine and Russia and the UN agreed to try to get grain out of Ukraine, and then Russia bombed the Odessa port. So that sort of, you know, put lie to that agreement. So is there any relief coming.

SAL GILBERTIE: I think a little bit, but, you know, remember, prices, wheat prices, especially, are back down now to just slightly higher than where they were right before the war. They were elevated versus, say, two or three years ago because of weather factors, because of global production factors, and because of usage factors, which is always going up for agriculture because the human population and uses for ags keep going up. So is there going to be relief from today's prices?

Maybe not and maybe not so soon. There's already been relief from, you know, a couple of months ago prices. We may have seen the peak in prices.

But I think the poorer countries, Julie, that we spoke about in March, people, those biblical events, those countries are in trouble. And they're going to stay in trouble. They're going to have more affordable wheat. Because wheat will come out of the Black Sea now from Russia and a little bit from the Ukraine that's already loaded on ships if they can get those ships out.

But loading new ships is going to be a big issue. But Russia's got plenty of wheat. There are no penalties for buying Russian wheat for anyone in the world.

And now that the Black Sea appears to have an agreement, shippers and insurers who are having meetings now in London to organize and get rates down so that ships can go in there are going to get as much Russian wheat as they need or want. They're going to get some Ukrainian wheat. That's going to help. I don't think we'll go back to those old high prices, but I think poorer countries who are facing a double issue of affording food and, come winter, affording energy are in trouble, and I don't think that goes away any time soon, unfortunately.

- So Sal, you know, if folks look at the ETFs that are listed behind you that track these various grains, to your point, we've seen them come back mostly to where they were. So why haven't food prices come down more if we've seen these grain prices, you know--

SAL GILBERTIE: Well--

- --come down from the highs?

SAL GILBERTIE: --it takes a while. It takes a while, number one, because you're looking at wholesale prices. So we're talking future prices.

These are futures-based funds. So they're looking at grain it hasn't even been delivered yet. It's predictive prices.

The other thing is your average box of, you know, cornflakes, like on the wall behind me, most of that is not grains. Most of that is the packaging and the transportation to get there. So it goes back to energy prices. Until energy prices come down, the bulk of your food prices aren't going come down or your prices of anything else, for that matter.

- Sal, are there any particular commodity that you think could rally towards the end of the summer, that might relatively outperform others?

SAL GILBERTIE: Sure. I think that in the ag sector, you've got to watch-- keep your eye on the weather. I think that you've got to keep a very close eye on corn right now because we're in pollination. You've got to keep a close eye on soybeans because their pod fill, what they call, will happen in August. If the weather stays hot and dry, you could see some supportive action come in, price action come in.

If anything happens with the agreement at the Black Sea, wheat prices, of course, anything can happen with those. So you've got to keep a very close eye on there. In terms of other commodities, we're really worried about natural gas prices.

We're really worried about heating oil prices. If the price of crude stays up, if Europe's supplies of gas are limited by Russia and by the pipeline access, that globally raises prices for everyone. And people are just now-- nobody's talking about it, but people are just now setting their budgets.

You do it at the end of summer, your wintertime budget for your heating oil or for your natural gas payment plan. And they're being shocked. Those prices are more than doubled from last year.

You hear a lot of talk about gasoline and filling your tank because that's what people do all the time. But guess what? Winter heating bills are coming. That shock is coming.

I think that's why you saw the Walmart warning. I think you're going to see a lot more warnings because again, as Stephanie said earlier, it's needs versus wants, and you need to buy food, and you need to heat your home. And those are going to be the two things that are going to rock the consumer for some time.

- So for some time-- I want to pick up on that last thing and pick up on something that we're saying at the beginning because it's not just about whether. It's about climate, right, when we're talking about this. So is this almost a dress rehearsal, if you will, for what we could see more frequently five years from now, a decade from now, as we see climate change really more profoundly affecting the ability of the world to produce crops?

SAL GILBERTIE: Yes, absolutely. And you know, climate change goes both ways. We have weather forecasts that they look at the cosmic cycles, these long 40 year cycles, these 80 year cycles, 200 year cycles, 400 year cycles.

We're coming into certain cycles that are going to have more weather variability not including whatever effect on weather that humans may or may not do. And so the weather variable is increasing. Storms are getting more intense.

We saw a tremendous heat wave in India, which is often the world's top producer of wheat. No one knows that because they use it all themselves. We've seen tremendous heat and drought in South America.

You of course see the heat wave in Europe that just passed, but that missed the winter wheat crop. It's going to affect summer crops. The American west, the western corn belt and the extreme American west, are facing droughts that are just unbelievable and intensifying.

We don't see that going away. Our weather people, the long term people who've been quite uncannily accurate, they actually are forecasting that next year or two should be the better years of the next 10. And so to your point, Julie, the next decade will probably be dependent on whether crop production is always dependent on weather, and you've got to keep an eye on that.

- Indeed you do. Sal Gilbertie, Teucrium funds president and CEO. Always good to see you.