Today's episode is brought to you by the

Tukrium Corn Fund, ticker CO R N. Let's

get into it. Joined today by Jim

Weiderhold, commodity indices product

manager at Bloomberg. Jim, great to see

you. Welcome to Monetary Matters.

>> Hey, Jake. Thanks. Thanks for having me

here.

>> What's been going on in the commodity

complex this year? What's your outlook

going forward? I know there's a lot of

different drivers. I mean there's

there's I think AI is is a is is a very

big driver in terms of like copper and

silver and then maybe natural gas but

what [clears throat] what do you think

are the big drivers this year

>> overall there's just a clear

ton of tailwinds for the commodities

asset class so not only on the demand

side like you said with AI where we need

data center buildouts which require a

lot of metals power energy to do that

but uh also just we we general macro

themes that are really taking hold this

year. They've they've been in place over

the last few years. Um but basically,

you know, if you look back to the 2010s,

we were in a completely different

environment uh where we had low

inflation, low rates, uh low volatility,

a continued globalization theme that

basically peaked out a few years ago. So

that meant that commodity prices tend to

lag and it was kind of a commodities

bare market but that has completely

flipped its head uh over the last five

years. So so now we see a

deglobalization theme you know we have

increased costs of doing business

everywhere. So especially this year we

we see big pickup in freight costs. So

as as soon as the US Iran war started um

you know the the cost to hire a tanker

increased by three to four times or more

uh in certain areas. So um you know the

cost to actually move goods has picked

up and then with also the extreme

weather we're seeing we're seeing lower

river levels across the world. So um you

know there's drought playing out which

means that it's even tougher to move

some of these goods around just from a

physical standpoint not just the cost

but yeah the the cost of doing business

is going up and it's uh leading to you

know increased cost across commodities.

So energy was the big mover this year so

far and you you basically need some form

of uh an energy commodity in order to

produce the other commodities as well.

So um you know the the input cost to

production of commodities has gone up

and that has just increased.

We still have elevated inflation

although it's it's coming down somewhat

and uh commodities they they tend to be

a diversifier in a portfolio but also

they're used as an inflation hedge. So

people have gone gone back to the asset

class and we're seeing inflows in terms

of people putting total return swaps on

and inflows into ETFs and it's all just

driving more price appreciation across

the commodity complex.

>> So at the beginning of the year you had

a great call. You said that industrial

metals like copper, zinc, etc. were

going to outperform precious metals,

gold and then also silver. Why did you

make that call and that that call has

worked out really well? Do you expect

that trend to continue?

>> The the precious metals, gold and

silver, you know, they're they're

definitely more scarce just by

definition of their name and and they

did have a nice run over the last two

and a half year period. Uh gold tends to

do that historically when when it goes

on these moves higher. It tends to be

two and a half threeyear period. We saw

that uh we we saw a big spike at in

January uh with gold and silver uh and

and it's come off. So there was

definitely a pullback in central bank

buying at least initially although that

that's changing with the latest uh world

gold council surveys with with more

expected buying ahead. But when we go on

these two and a half, threeyear periods,

historically looking back data going

back to 1960, price action tends to

spike and then we have some sideways

move and potentially consolidation over

a few months to even a few years in in

gold. And then on the industrial metals

side, some of them were in a little bit

of bare markets over the last few years.

But copper in particular, it it has

scarcity. It's

the projected demand from the energy

transition from renewables, but also

data center buildout with with AI and

the increased productivity that we're

going to see with with everyone using AI

going forward. That that just means more

need for the raw materials and and

copper is one of the ones that's used in

in almost everything that we use

electronically. It's a it's it's a

conductive and cheaper metal than than

silver is, which is a little more

conductive. But copper, we we've also

had some of this issues with the tariff

announcements and then pullbacks. So

people on in the US, they've they

imported a ton of copper to to try and

get ahead of potential tariffs. But but

now we're seeing issues with the with

the LME copper prices are on the rise

now as well because that that just

happened where we just saw a big move in

in the increase in backwardation in in

the LM uh copper contracts. So so now

there's definite inventory issues in the

short term there and it's because it's

the global economy. There's been a

little bit of a slowdown with the US GDP

readings recently. There's little bit of

a a drop in the retail sales lower than

expected. Sediment's a little bit lower,

but overall economic growth is pretty

good around the world. So, we're seeing

increased demand consistently. And then

also projected more demand going

forward. If if you look at the move that

we are seeing over the last two decades

from a historically fossil fuel-based

global economy to one that is electri

electrification is is the one the one

big piece that's the demand driver for

copper. But

in order to meet that demand, we we need

to increase supply. And sometimes it

takes up to 10 15 years to create a new

new mine, a new metal mine from

discovery to actually be able to

produce. And again, this the the weather

is is a big issue. So we we have

increased incidence of of mines being

flooded and and accidents like this. And

then that just reduces the the amount of

supply that we can actually have.

>> My understanding of the copper demand

supply story is as follows. And I I'm

curious if you agree or you know correct

me if if if anything is wrong is that

there's a huge demand surge from

electric vehicles but particularly the

the you solar and wind and the wiring

associated with that. Data centers are

also a tailwind. I think though that the

the demand like the the bullc case

relies on the demand side but also on

the supply side because like in 2000 we

had a huge demand surge from China and

and basically bu building tons of

buildings around around China. Um but

the supply side actually was very well

suited towards that demand growth.

Whereas now the supply side is a lot

more constrained and in particular the

amount of like mammoth copper mines that

are going to come online green field is

a lot less than was the case 25 years

ago. So I'm just curious your your view

on the supply side and just how many of

these large copper mines can come on to

to meet the demand. Um there's always

potential for especially with increased

prices and when you have a very high

price for any commodity that

incentivizes production. So people have

planned green field mines coming on and

and especially if there's a huge profit

profitability potential, they're they're

they're going to do everything they can

to make sure that things come online.

And this is something the the copper

price was kind of meandering a few years

ago and

especially in the US we we had the whole

ESG push obviously that's completely

reversed its head now but the rest of

the world was still moving more towards

renewables so there was increased demand

and then all these forecasts of oh

there's going to be no supply but some

of these companies were were able to

increase production to to meet the

demand over those few years and and the

copper price didn't initially shoot up,

but this year we're we're having some

some other issues that are compounding

the potential supply demand imbalance.

So we we could see high efficiency from

these these miners, these these

companies to meet the demand, but

they're being hit with other things,

especially this year with the increase

of cost of doing business and the the

weather disruptions

and it's just yeah, it's it's finally

coming to a head this year and that's

why you're seeing these these alltime

all-time high prices and and copper in

particular. what is kind of the

short-term data on just how much the

demand has gone up versus supply has

gone up uh within copper.

>> We have a we have a group in in uh

Bloomberg called BNAF that that publish

these things somewhat regularly and

yeah there there's definitely been a

pullback in in the US in terms of

cancelling

wind projects and and things like that.

But the the energy mix in in Europe has

has picked up pretty dramatically. I

think it it it might be 50% or more

renewable currently. Yeah, we we we had

a little bit of a supply demand demand

balance projected last year and that

that came to fruition across most of the

major traded metals. But what's

interesting this year also is that China

they one of the reasons why the price of

oil it spiked over $100 a barrel when

when the conflict happened when the

conflict started with the USIran war but

because China's uh car fleet has really

moved more towards electric vehicles

that helped to allow them to not import

as much oil as as they possibly would

have if this this conflict started a few

years earlier. So there there's

definitely been a global increase in

demand. I don't have exact figures on

how much it has increased, but

the the competing

decrease in demand from the US has the

the rest of the world is moving more

towards renewables

in particular. And yeah, now with the

higher prices of of these metals,

there's going to be more incentive for

increased mine production and

potentially new green field mines, but

those things, they take years to come

online.

>> Yeah. And I don't know if the long-term

trajectory of renewable energy in the US

has really been dislodged, you know,

other than the the current Trump

administration, which obviously is not a

fan. The president currently like said

that uh, you know, he's not a fan of

offshore wind at all. like it disturbs

the whales, but in terms of like the

long-term trajectory, I don't I don't

know if it's been changed. Would you

would you agree?

>> Yeah, I I wouldn't think over the long

term. It's it's definitely just been a a

hiccup in in in the trend o over the

over the long term. I I would hope, but

it definitely

creating some of these these metals are

in and of itself a high emission

dirty production particular in

particular. So, but but once we're there

overall it should help decrease

emissions over time and you're you're

seeing better results across the world.

But in the US it

it was a a cheaper way to to get to get

around and and power our economy. But

with the higher oil prices,

it it people might have more incentive

now to to move and continue the

renewable trend. But

yeah, it's just it's it's just going to

be volatile at least until 2028 for for

now in the US.

>> And regardless of who's in the

president, one thing that's happening is

is data centers. How much copper do data

centers use and how much silver do they

use? They they use a pretty good amount

of of both metals.

Obviously takes steel and and other

metals as well. But yeah, copper and and

silver are the most conductive of of the

industrial metals and silver is somewhat

considered a industrial metal because

60% of its use is industrial in nature.

So it's a little different than gold in

in that in that way. So yeah, it's

they're both one of the two two of the

metals that have good enough amount of

supply out there to to meet demand and

are

very important to like wiring, copper

wiring and silver,

not not only in the in the data centers,

but silver's used across the renewable

space and solar panels. And we we just

had news about

countries and companies have been able

to skirt some of the tariffs just

because they move like China moved

production

with their initial supply of silicon

wafers to Africa and then they imported

it from there and then obviously that

the US administration didn't like that.

So now they're putting tariffs on on all

solar raw materials. So

That just is another function of this

increase of cost of doing business

everywhere and the uncertain nature of

tariffs which directly affects

especially copper and now uh silver

which it didn't necessarily affect

before

>> and silver is a very key input into

solar panels. It basically is the the

best element at conductivity by far. But

with the rise in silver prices over the

past 3 years, a lot of the Chinese

photovoltaic solar manufacturers have

been thrifting and using less silver,

moving from silver to copper. Just how

serious do you think that is as a a bare

case for silver or either a bare case or

just a a non-bull case like you know

neutralizing the bullcase? Um because I

I do think you know a very high

percentage of of silver demand is is

from solar.

>> Yeah. I mean, as soon as prices are too

high, it it doesn't incentivize

production of the the goods that you're

trying to create. And I I think at the

beginning of the year when silver prices

spiked, like the average cost, total

cost of a panel, the 25% of it was cut

was silver at the time, which

historically was not the case. It was

usually less than half of that. So,

yeah, there there was some some moving

over and and that that happens across

metals historically. There there's

always switching that goes on when when

something becomes too high in price and

it it's not justified economically. So

there there's some of that to copper,

but copper is not as conductive as

solar. So you're having less efficient

solar panels if if you do that. So

that's something to consider. But but

now the price of copper is is just

moving higher as well. So you get a

slight increase in demand on that side.

And then

silver is still elevated pricing here,

too. So, it's it's it's interesting to

to see where where things go from here.

But I I think

clearly there's going to be an an issue

with potential new solar tariffs coming.

>> What did you think of silver at the

absolute peak in late January over $100?

What did you what do you think about

silver now? Now now that it's uh down

at, you know, 65 bucks.

>> Yeah, I mean when when that happened, it

was an exponential move higher that

that's typically unsustainable. It if

you just look at a chart, it was similar

to what happened decades ago when it

spiked up to $50.

And then yeah, this this move was

clearly

something that is unsustainable in the

short term and and you saw a big

pullback after that that spike that that

tends to happen when

some of these things get over their

heels a little bit. So definitely had

huge positioning in in like the futures

markets and and people were prepared for

it and then they they took profit at the

top. So yeah, there's definitely

you still have the demand drivers, but

there's there's less incentive to

continue getting long uh which is what

market participants did. They they kind

of moved away from it and in in

particular in the last few weeks to

months, people have started to get back

into gold as opposed to silver. So

you're seeing positioning pick up in

gold and and less so in silver and

potentially even shorts increasing here.

If you look at the latest CFTC

positioning data, so clearly people are

looking at gold more. They're they have

more of a bullish impetus from the

general market participant mix. But

yeah, silver little less so here. That

doesn't mean it it's a much smaller

market and it's way more volatile. So

there's always potential for things to

spike again, but as of now, people

aren't necessarily

thinking that's going to happen, at

least from the positioning that that we

see.

>> Silver, as as you know, Jim, of course,

is really interesting because less than

half of its production comes from mines

that primarily produce silver. A lot of

the production comes from gold mines

where silver is a byproduct, or copper

mines where silver is a byproduct, or

zinc mines where silver is a byproduct.

And as such, the supply reaction is a

lot less responsive to a surge in

silver. So if I have a mine that's 98%

copper and 2% silver, let's just say,

and the price of silver 10x's, I'm not

necessarily going to increase production

because what I care about is the price

of copper. So that's why you can get

these tremendous squeezes. Jim, yeah, I

I'm more bullish personally on silver

than I am on gold. And I think gold is

really hard to model because I know, you

know, people are going to hate this and

people in the comments going to be say,

"Jack, what about the debt? You know,

the debt is going to go to a hundred

trillion and it's gold is this tra great

hedge because it's a hedge against fiat

debasement." And I'm not saying any of

that is wrong. I'm just saying that as a

investor who attempts to be like

moderately quantitative, it's really

impossible to model because like from

1981 to 2000, you had a 19-year bare

market in gold at even as you know the

fiat currency system and the debt system

like exploded in terms of of growth. So,

it's just really not a onetoone

correlation. Whereas, I see like silver

like demand from solar is going to be

there no matter what pretty much. Demand

from AI data centers is going to be

there. Demand for copper is going to be

there. Demand for tin is going to be

there. like it's real and you can kind

of put it in your Excel spreadsheet and

you can be right or wrong about it but

it it is um modelable whereas gold is

just really very difficult and I'm not a

bear on gold to be clear but uh that's

just my my view.

>> Yeah, I mean gold the the knock is that

it's a it's a non-yielding asset and

yeah I mean it tends to be a good hedge.

it's unc uncorrelated to other asset

classes and clearly when whenever

there's a dollar weakness that's that's

that's in favor of gold. So yeah, I mean

typically what what I've found over the

last few decades is as soon as you see

big pickups in central bank buying

that's like a usually pretty good

indicator that the price is going to go

higher. But yeah, I mean like you I like

the the fundamental story behind the

industrial metals and the ones that are

industrial adjacent like like silver. So

unless you're calling for a recession

and you think global growth is going to

slow down, there's going to be less need

for raw materials, I think most of these

real asset types that are that are

actually the the inputs to our global

economy, I think those are the ones that

are they have done well. like we we have

the the Bloomberg commodity index or

BCOM and it's 25 different commodities

but it's six sectors and industrial

metals is one one of the bigger sectors

in it and yeah I mean it's it's it's up

27% this year so it's it's having one of

the best years it's had and it's it's

not just because gold gold is actually

about flatish compared to the other

commodities so energy is ob obviously a

big part of the the performance, but all

the industrial metals are are doing well

for the most part. Co copper is up over

about 15% on the year. Aluminum and

nickel are doing okay. And then yeah, I

mean it's it's because the global growth

story is still strong there. So like the

copper is one of the most correlated

commodities to PMI readings especially

in China and US. So clearly as as long

as the growth story continues and also

we have this slow but continued energy

transition with increases in renewables.

Yeah. Because I think the the cost of

solar energy is finally one one of the

cheapest out of all the alternatives out

there for the first time ever. So that's

just more potential demand for for that.

And

one interesting anecdote even in places

like London, they had which is a

historically it's a it's a very cloudy

day here in New York. So it's very

London, but

>> they they had the most days of sun last

year in in the history of recording. So,

as weather potentially changes, as the

climate changes, there's definitely some

some new pockets of demand that could be

coming from areas that historically you

would you would not want to have solar

panels in in certain certain places.

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results. Thanks for listening. Let's get

back to today's interview. Tell us about

central banks buying gold

in and can you give us a rough

trajectory of the tonnage of terms of

how much actual gold they're actually

buying regardless of the price be not

denominated in dollars. I don't care if

gold's $1. I don't care if it's $20

million. Like I just care about the

actual how much gold how many how many

tons. just give us a rough trajectory

because I think some charts can be a

little bit unintentionally misleading of

saying central bank purchases have gone

from X to 5x but what they've really

captured is the price going 5xing. So I

think you actually got to actually look

at the actual numbers of the volumes.

>> Yeah. Yeah. I I think from 2022 to 2024

there was over a thousand tons each year

bought of of gold. So, you know, that

that was a pretty consistent and and

drastically increased buying from a few

years earlier and and that led to the

the increase in prices over time. And

then yeah, you you have to look at the

actual tonnage, not the

just the price appreciation because it

more than doubled since then. And but

yeah, that that latest World Gold

Council survey, they've been doing this

for at least six or seven years. And

this was the highest

return answers of over 40% said that

they were going to increase their

holdings over the next 12 months. So, so

clearly they they saw the pullback in

prices and they're taking that as a a

potential buying opportunity again. So,

you're seeing

central banks definitely they're they

are price sensitive. So they're not

going to buy when when things are really

going through the roof like they did at

the beginning of the year. But now that

we had a pullback in prices, a little

consolidation that that latest survey is

pretty telling that the purchases are

going to pick up again after a slight

cooling off after prices more than

doubled in uh two three year period.

>> Jim, let's turn to the agricultural

commodities. What has the price action

been there? what is your outlook and

what are the key drivers?

>> So yeah, among the agricultural

commodities, if we just look at the

grains, the the grains are performing

well and they're doing it in a a

somewhat of a sector rotation move

because they they've been a bare market

over the last few years, but you're

seeing soy and and wheat in particular

perform very well this year. So there's

there's issues with the the wheat crop

in the US. It was just reported it's the

rated the lowest it's been since 1970

and and prices have moved higher.

Chicago wheat, Kansas wheat up over 25%

each and that's just another function of

the weather issues we're seeing. We're

seeing drought in in certain areas that

are the crop producing areas of the US

but also in South America as well. And

then soy soybean is up on the year but

but so soybean oil in particular is is

performing very well this year and on

the demand side one of the reasons for

that is that there was a increase in the

percentage of soybean oil used in the

renewable fuel standard mix. So that

that caused people to chase chase those

moves higher

and but yeah, I mean they they they tend

to move in a slightly more volatile

manner at at times than than the other

commodities. So we could have these

moves higher and then a pullback if if

we get even some better news on the next

crop cycle because they're also

cyclical. They they have seasonality

based into their their their price

action throughout the year because

there's different crops, winter and

summer crops basically.

>> It's real seasonality. It's it's not

like fake seasonality like S&P sell in

May go away. Not not that stuff.

>> Yeah.

>> But see it's weather. So So

>> interestingly that the the AS have done

well and that the best performers are a

wheat and b soybean oil but also

soybeans. is so interesting to me, Jim,

because if you had told me in, let's

say, like March 1st, right after the

Iran war started, do some research,

Jack, and get back to me on which

agricultural commodities you're most

bullish on because of the fertilizer

impact and why. I would have said corn

because corn just is incredibly needy in

terms of its fertilizer demand, where

soybean doesn't need that much

fertilizer at all. And of course,

fertilizer costs spiked in April and

May, have come down a little bit. Price

of sulfur is still very high

and I I I corn hasn't really moved that

much which is which is interesting to

me.

>> Yeah.

>> Could be a sleeper. It could be a

sleeper.

>> Could be. Yeah. I mean with that with

the shutdown of the trigger, one of the

first thing that that spiked was

fertilizer prices because a lot of the

inputs of fertilizers are are come from

that region. and some some interesting

anecdotes from some some of the the

farmers in in the Midwest are not using

their their costs are increasing. So

they they don't use as good of corn

crops. So that could potentially be an

issue where future crop yields are not

as good because they're they're cost

sensitive themselves. So they they're

using less fertilizer potentially and

then they're the the seeds they use are

not as good as higher priced ones that

they could be using to to plant their

fields. So that could lead to potential

issues and corn price appreciation in in

the future. If if they can continue to

do that, if we still have issues with

supply disruptions on the fertilizer

side, then their input cost increase

will mean that it could be potential

future reduction in crop yield on on the

corn front. Definitely.

>> Yeah.

>> Right. And maybe they didn't plant as

much corn this year because of the high

fertilizer cost. So, we're not going to

see it until later. Uh I I do think that

is a key driver. I also say with corn

and soybeans, their production is a lot

more concentrated in terms of like US

and Brazil, whereas there are like 50

countries that make a lot of wheat. So

there's a supply shock to corn and

soybeans theoretically is a lot easier

to happen than than to wheat.

>> Yeah. I I mean you do you do see some

big supply shocks because a lot of the

wheat is especially in the eur in Europe

it's concentrated in in the Ukraine re

region which four four years ago big big

spikes in in in wheat prices. So that

that's because

that conflict there's there there are

issues now with with with even recently

in the last few weeks with with some of

that crop being trans transported

through the Black Sea with new increased

similar to what we're seeing in in the

Red Sea now and and through the St.

Hormuz where where ships are getting

attacked. We we just got some some news

recently, the last few weeks of that

occurring to some commodity tankers in

the Black Sea area. So that that could

lead to increased

wheat prices from here potentially.

Jim, so if I were to ask you, which

commodity are you not necessarily the

most bullish on on kind of a delta

neutral basis, but the commodity that

you think has the highest potential to

see some pretty extreme price

appreciation, you know, such as we saw

natural gas in 2022 or, you know,

something like that. What What would it

be and why?

Yeah, I think at this point obviously

the the energy complex all all those

commodities they've already had some

pretty significant moves. So it's it's

hard to see some issues continuing

there.

crude oil. There's there's been huge

production from the US which at at one

point because of the direct shut off of

the shredder hummus the North American

content was producing almost 50% of

world supply which hasn't happened in in

150 years. So I think oil probably has

the least in incentive to move higher

here because every everyone's trying to

increase production,

but the the byproducts of of oil are are

the things that we're seeing a a lot of

scarcity. So we've seen inventory draw

downs and so some of those petroleum

products are are the ones that I think

could still move from here on on that

front but less bullish on on oil at this

point.

There's some of the softs like cocoa,

cotton, coffee, those ones are much more

volatile typically than than the rest of

the commodities. So, they have more

potential to to move higher. Coco in

particular had had a big spike a couple

years ago. It's it's come off. It's it's

down on the year now. But there's with

this El Nino, there's potential issues

with the crop production in Africa,

which is a large part of the cocoa

producing

regions of the world. It's

depending on how this continues to to

play out, we could have some even bigger

droughts than we already have on the in

in the African continent while we see

increased rainfall in in other areas. So

that that could lead to things like

sugar in India to having ample supply

just because the weather would be good.

So, co cocoa could be something that

could potentially spike back up again.

And then, yeah, I mean, I I do like the

industrial metals. I I still like that

call. Copper's clearly trending higher.

Aluminum's following. It's yeah, I think

those major industrial metals that have

the good fundamental demand story of our

changing economy and potential scarcity

is those are the ones I'm probably more

bullish on at this point. But this is

also something I talked about that you

you see sector rotation occur. You we

saw precious metals move first. energy

tends to, but people talk about being in

a commodity super cycle and and I think

it we really are and across those ecom

sectors basically everything is up on

the year now. Precious metals were the

one that were were down on the air until

recently but yeah every every sector is

moving higher. Obviously energy is the

most but you you see that happen and

then as I said earlier the the input of

production to other things increases and

then the cost of production goes up and

then it's just

a vicious spiral of increased price

appreciation across all the raw

materials that basically fuel our uh

global economy. So

yeah, there's there's some one there's

some particular ones like like I said,

but I think in in general it's it's a

good time to have a small piece of

allocation to commodities in in a

portfolio and and people tend to do that

with a people have like a physical gold

holding which has performed very well

for them. But once these things move, it

it historically was was good to broaden

out your exposure to a broad commodities

exposure like BCOM. And I I wrote about

this in a blog where every time gold

made a new all-time high over the last

six decades.

If you looked at BCOM, it it rose 5%

over the next quarter and 15% over the

next year. So that would have been a

great call if if people did that. Took

it took profit at the beginning of the

year on gold and then broadened out

their exposure. Some some people did.

Yeah. There's there's some some big

pension plans in the US did that. Some

of them were considering what what to do

with their gold exposure after it

already moved over the last few years

and and someone and and and some moved

into the broad exposure which has to

obviously more energy exposure and and

it was good timing because it happened

right before

the shut off of supply at the end of

February. So some people were doing that

and and still looking at the asset class

and continued inflows here.

But yeah, I mean it's BCOM is having one

of the best years it's had and it's just

there's there's there's not just one

commodity that's that's driving that.

It's it's broad-based.

>> Yeah. I I remember having a dinner with

some very shrewd macro hedge fun

managers in February and they said,

"Yeah, we were bullish on gold and

silver, but like literally exactly what

you said. Every time gold goes up, it

always broadens out." and like they

actually were bullish on a so from

February selling your gold to buy

agriculture commodities and other

commodities you know that had had worked

well. I'm curious why it works, Jim,

though. I know we have the back test

showing that the history is is supports

it, but why like when the price of gold

or silver goes up, what fundamentally

supports the commodities trade

broadening out to like buy soybeans or

buy copper? Because on a fundamental

basis, if the price of silver goes up,

it's not like, oh my god, silver went

up, so we need more soybeans. other than

just how much of it do you think is the

financial channel of people made money

on their gold and they're just

broadening out versus it is is a lot

more fundamental on the demand side from

the actual use cases and such. I mean I

I think a a portion of it because gold

and silver are are both they have they

both have in investment as as part of

the reason why why people buy them. So

as the world gets richer because the the

price of their gold silver allocations

increase, they have more spending power

and like the the US is an economy that's

over 60% consumer spending and it's it's

kind of like the the wealth effect. It

it just leads to more economic activity

o overall. So more capex spending by

businesses by governments more

even even though we have huge fiscal

deficits across the world it's they

governments have a little bit

better chance to

create stimulus for the for the economy

which just increased more economic

production and then that leads to more

demand for raw materials across the

board. Uh Jim, I actually interviewed a

fund manager who invests in agricultural

farmland, actually one of the best track

records in the space, and he talked a

lot about El Nino. So just tell us about

El Nino and what crops it is kind of

bullish for versus bearish for in terms

of the production factor.

>> It's it it depends on on which region of

the world certain crops are are grown.

So yeah, I mean when when El Ninos

happen, there's certain areas that get

pretty heavy drought situations and then

other ones that get excessive rain. So

overall, it tends to be there's there's

certain crops like sugar that could

potentially have ample supply after this

because it's they have enough

[clears throat]

rain compared to other areas that that

are in drought. the the U it it it

should potentially create

good conditions for US crop with with

more rain in the crop growing regions of

corn, soy, and wheat, which could

potentially lead to lower prices.

But, you know, there's there's also

after drought, there's there's higher

chance of flooding. So, even though some

of these areas could have better crop

growing potential that we could also see

crop damage from excessive flooding. So

it's kind of across the grains and the

softs that are most directly affected by

El Nino.

>> Jim, I want to close by asking you about

energy o, you know, oil, natural gas.

You mentioned the refined products

already, but but first just tell us

about the institutional landscape for

commodities and how do institutional as

well as retail investors get exposure? I

uh you know there obviously there's an

ETF but ETFs multiple but I in terms of

the assets under management those are

quite small relative to the actual

commodity landscape relative to you know

how much assets under management all

these folks have the the universe has u

you mentioned total return swap as well

and how do people express the various

exposures and and and then what is

interesting to you in terms of where

people are increasing versus decreasing

exposure.

>> Yeah. So yeah, we we've definitely over

the last few years, probably two or

three years ago, we had a very small

global allocation to commodities and

that was a function of what I said

earlier where the the 2010s were kind of

a bare market and people removed

allocations and also

equity markets were just performing very

well and fixed income also. So like the

6040 portfolio was doing very well

during that time. So there was no real

need for diversification. But now people

are looking at it again because they're

concerned about what's happening their

portfolio from here and commodities are

they're the most uncorrelated of the

major asset classes. So people have them

in first of all for diversification and

they typically put 5 to 10% of an

allocation in there. So so institutions

are are coming back to the asset class.

some of the major institutional

investors, they they do a total return

swap with a bank to get exposure

and retail investors and and others and

and institutional investors also get

exposure through ETFs as well. So ETFs,

there's certain ones that that track

BCOM. We have other commodity as well

and those have all picked up in in

assets over the last particularly one

year and it's it's because people have

seen uh there was a consistent gold

holding that people had and typically

like a physical gold holding but as we

talked about the price increased and

moved in an exponential ma manner

recently and and people took profit and

then started to move more towards the

the broad exposure. So you see increases

in in ETF inflows on ETFs that track

BCOM passively

and and and doesn't seem like that's

slowing down at any time soon at least

in the last few weeks, months. There

might have been a chance where people

took a little bit of profit when they

thought oil prices did this spiked up

and then you kind of got the news that

there was a potential truce, but then

obviously oil prices are are back

flirting $80$90 a barrel and it doesn't

seem like there's going to be any

incentive from either side to try and

slow things down. So

people are getting that broad exposure

again and it's yeah just something that

historically performs well when you're

in these conducive macroeconomic

environments for commodities. So when

you have high volatility you have

fragmentation

deglobalization

increased costs increased geopolitical

tensions. We we have a lot more

incidents of geopolitical geopolitical

conflicts in the last few years than we

did the prior decade. And then also the

just the the increased extreme weather

that's it it all leads to potential

supply disruptions which immediately

leads to price increase for the

commodities asset class because there

there are spots

asset class as opposed to equities that

are more forward-looking. So as soon as

there's a disruption of supply

commodities I I say they like to take

the elevator up and the stairs down and

and that happens when you see those

price those supply shocks. E equities

when volatility picks up it tends to be

the reverse. Equities tends to have

immediate quick draw downs and then

commodities do the opposite. So that's

another piece of the diversification of

commodities because when you have that

volatility, when you have draw downs in

equities and fixed income like you saw

in 2022, things like BCOM were up 16% on

the year and that helped your overall

portfolio weather the storm and and

that's what people are seeing now,

especially with the price increases and

yeah, commodities are outperforming

broad equities for the most part as well

and definitely fixed income. So people

are seeing that and they're seeing the

one year, threeear, fiveyear historical

performance and that just leads to more

inflows and and more people gravitating

back to commodities.

In terms of Bloomberg indices, is BCOM,

the Bloomberg commodity index, is that

the majority of where the the funds are

are the AUM is tracking, whether it's

ETFs or swaps or something else and are

the the various other products that that

you work on, are they mainly like for

tracking purposes or in in terms of are

you having assets being being linked to

them as well?

>> Yeah. Yeah. I mean, BCOM has history. It

it started in 1998. It changed hands a

few times and and Bloomberg got involved

back in 2014. So, it has a very

extensive long history and it has the

majority of assets of of all our

commodity indices just because of the

historical nature and people look to

that broad front commodity beta exposure

which BCOM represents. But we also have

other indices that are picking up in

popularity like our Bloomberg enhanced

roll yield which has about five years of

history and and that one has really

picked up in in adoption in the last one

and a half years in particular. We we

have that on the terminal too. We we

have tickers that show the ADUM for

overall our commodities

indices and then we we launched one for

for Barry which is what we call the

Bloomberg enhance yield index. So we

have one showing

>> that that AUM as well and you can see a

big big pick up towards the the 10

billion mark in a short period of time

and and that's because that one it

doesn't look just at the front month

futures contracts like BCOM does. It

brought in out exposure across the curve

which gives you what we call a curve

premium. So you have exposure equally

weighted on four futures contracts as

opposed to just the front month. And

that means Barry's a little bit less

volatile as well because when prices

move to the upside or the downside, it's

typically the front month nearated

futures that move the most. But we're

broadening out the exposure o over time.

it it tends to have at least over the

last five years over 1% more

outperformance per year because of just

that curve premium. And then it also has

a carry premium because it looks at the

futures curves for each commodity and it

tilts the weights according to which

ones have better roll yield dynamics. So

which ones are more in backwardation as

opposed to which ones are more in

contango. So the the ones that are in

contango [clears throat] that typically

lead to a negative rule yield if you

hold exposure like like natural gas

tends to be penalized more than BCOM. So

the the weight of natural gas and Barry

tends to be half of the weight in in

BCOM and that and that that also leads

to a lower volatility profile. I think

Barry is up about 30% this year and then

BCOM is 25 to 26%. So already BCOM did

outperform in the first quarter when oil

price in the front month spiked higher

but when oil came off Barry tends to

perform well in in the aftermath too. So

that's when it really shines when you

have draw downs in the more volatile

front month futures contracts and

barrier has lower draw downs

historically just of the nature of the

construction. So that's the Bloomberg

enhanced ro yield

index. Just looking at at the weightings

of BCOM, Bloomberg commodity index. I

think that the energy waiting is quote

unquote only 30% which I actually think

is a lower waiting than I'm remember

maybe from some competing commodity

ETFs. Tell us about that philosophy. And

you know the grains are 23%. That's a

pretty big waiting.

>> Yeah. Yeah. So it has caps and floors in

place. So yeah, no commodity group can

be more than 33%. So that's why you see

energy as it is some com some

competitors when they in in their in

their index construction it's it's

completely based on world production and

energy commodities are the most produced

commodities. So that's why you see very

heavy energy waiting in in some of those

competitor indices. But ours is meant to

be more of a diversified approach

because we look at not only we look at

liquidity in BCOM. So it's initially

twothirds based on the underlying

trading volumes liquidity of the futures

contracts and then it's one-third based

on world production and then from there

we put these diversification caps and

floors. So we have that sector cap and

then also no single commodity can be

more than 15% of the index when we

reconstitute it every year to the target

weights. So it's it's just a more

diversified broad appro approach which

tends to be less volatile and actually

has similar volatility profile to broad

equities if you look over the last few

years. So actually in in in certain

instances it tends to dip below what

what you see for the S&P 500 which is

pretty interesting because people and

for good reason think that commodities

are more volatile and individual

commodities are but when you put them

together in a broad exposure it it has a

similar volatility profile to equities.

>> Jim as promised I want to now ask you

about energy. I spoke to many great oil

analysts who like 99% of the oil world

said the following. If this rate of

hormuse rate remains closed, the price

of oil is going to go to $150, $200,

maybe even $300. The price of oil is,

you know, below $100. The straight of

nominally remains closed. What happened?

>> So, I mean, several things happened.

Part of it was China immediately was

able to hit some of their economic

levers and not import as much as they

would historically

and then you have the the jaw boning

from the US administration saying oh

it's it'll be good so basically talking

prices down

at the same time increase in production

from North America across Canada US and

all all those oil producers increased

production at a good time and

people were countries were able to use

their inventories as well. So the the

SPR was was was used. China has plenty

of inventory as well. So there was no

need to

for all these importers to to worry. And

then also mo most recently there there's

from from what we're hearing from the

dark fleets that are actually getting

through Hormuz, it's now about half of

what was

lost at the beginning of the year. So

20% was shut off in February, but now it

seems like it's only half of that

currently. So there's there are

oils oil's getting through oil products

are getting through and then there

there's also a significant amount that

was diverted away from the trader hormuz

Saudi Arabia was used able to use their

pipeline that was going west and then

there's it's uh combination of multiple

things so yeah increase in production

from other places diversion and a lot

Job owning.

>> Job owning sounds like a extremely

temporary solution, Ro, because you

know, you say I'm the president and I

say we're doing a deal, the price of oil

goes down, production does not go up,

more oil doesn't get through. I

understand that there is some covert oil

going flu. I mean through literally from

Bloomberg News, covert medies oil flows

are keeping global prices in check. I

had reported on X, you know, a few

months ago, just some of my

conversations with with sources um just

about kind of just how just how much oil

was getting through and and many other

people have done work on that. But job I

mean I mean how is how is your long-term

or even midterm like midterm outlook on

oil 12-month forecast on oil impacted by

these solutions? cuz okay if the

straight of her moves being closed is

kind of just a fake on paper thing and

actually 80% of the oil is still getting

through obviously that's not a bullcase

for oil but if one of the solutions to

oil going up is jaw boning and just

announcing deals that aren't going to be

actual deals then that sounds like it's

just setting up a potential for a very

bullish environment for oil over the

next 12 months and potentially bearish

for the economy and stocks. Yeah, I mean

it's it's worked so far and and and and

part of that is that market participants

that are positioning for this are were

expecting we're going to get a deal

within a few weeks and this has gone on

for the last few weeks to months now.

So, but people are starting to finally

realize there's at least in the last few

weeks that there there's no deal coming.

So it it could lead to

drastically increased prices in the in

the short term, especially if there's

even less

talks going on between the the

negotiations and then we see more

increased attacks in the Red Sea and

then just a more of an escalation. And

yeah, there I mean there there was

another article I read today that

within Iran they're they're they're

getting ready for a prolonged conflict.

So any any any talk and jaw boning, it's

worked for the first three months. Oil

did come down, but I think as the price

continues to go higher now, PE people

are starting to realize that this isn't

going to open immediately tomorrow or

potentially in the next week or two

because both both sides are are really

stubborn at this point and and don't

want to give up anything. So it's yeah I

mean it it worth the job warning work

for now but

we we could get to these $150 $200 a

barrel forecasts because I I did read

what one analyst report as soon as this

happened that if the trader horm stays

closed for six months then we should

have technically $200 barrels oil

according to their model and it's been

six months now so it's

we we we could see continued increased

prices. It's it's it's it's difficult to

tell, but if we see weakening economic

data continuing here, so we see less

demand, that could potentially save us.

But that's that's just one

too probably too optimistic hope at this

point.

>> And part of the solution was China

drawing down its inventory, so importing

less, so oil demand went down.

Yeah. Do you have a rough sense of just

what percentage of traffic of of pre-war

oil traffic is getting through the

straight of Hormuz or being being offset

through the Yanvu you know east east

west pipeline

>> and because I know like Bloomer's got a

great like tracker of ships but they

only track ships that have their

transponder on. So I wonder if maybe you

can give me two answers like one is just

that you know the transponder data and

then the second is kind of the shadow

fleet like some of you know I spoke to

people who you know were speaking to

people who like knew that the ships were

getting through like pime primary

sources like and clearly obviously

that's been reported elsewhere just just

what what percentage of the flows do you

think are getting through right now

compared to January 1? Well, well, now

they they say that there's probably 9

million barrels a day going through and

it's more than half of that is the

shadow fleet and that's basically half

of what was going through prior in

January 1. So clearly it's it's not

disrupted by 20% of the supply anymore.

So it's maybe 10% of the global supply.

And then in terms of the the actual

shadow fleet, there was something I read

this morning that

the the ships that are or the tankers

that are outside of Oman in in the sea.

Historically, you'd only have like 30 to

40 there, but now there's currently 150

or more. And so clearly there's movement

around the straighter hormuz. And then

they load up there.

They turn their transponder back on. I

guess in that area but

>> clearly

>> yeah that's that's what I heard that

basically the adno the UAE oil company

government owned oil company was

transporting a lot of oil through the

straight of Hermuse at night transponder

off escorted by the US military so

either the US military navy was

literally going there or they kind of

just had a guarantee of we'll make sure

you're good

so so that that is a meaningful flow is

what you're saying

>> yeah I mean And and this is just

historically

commodity traders and commodity

companies, they they they find a way to

to move goods. So you just see this

historically with different metals

trades like the the start of oil

production in Russia and and how

people people find a way and and they

get very creative and yeah, we've

definitely seen that recently.

>> Yeah. So So how would you Okay. So, but

what's gone up the most is not oil, but

refined products as you said. And so

that's why the spread, the crack spread

of how much refined products cost

relative to oil is extremely high right

now. I'm looking at it and it's higher

than 2022, which is really something

remarkable to say. Um,

why are crack spreads so high? Do you

think that they can stay this high for

for so long? What's going on here?

Part of the reason there is there was

plenty of inventory of oil but there was

not of the refined products and it it

takes time and certain specific

facilities in in different regions to

create a a refined product to sell from

a barrel of oil. So that is bas we are

seeing scarcity in the refined products

not necessarily in crude oil. It's it's

the the derived products basically that

did not have the the inventory buildup

in in some of the major economies that

we we saw that they had enough crude oil

to put a back stop to to prices. So

yeah, it's there was just not enough

inventory of of the refined products and

it takes time to refine oil too. So

yeah, uh just Marathon Petroleum

Company, a corporation, a giant USbased

refiner, their quarterly oper income

from operations was $7.3 billion. So not

not a bad business making $7.3 billion

in three months.

>> Yeah. I mean, yeah, some of these

producers, they

have also been trying to reduce

production or not necessarily increase

it, but they've had efficiency gains

from just being better at doing what

they do. So, it's just yeah, very

fortuitous for for all these companies.

They're doing very well.

[snorts]

>> Yes. Well, Jim, we will leave it there.

Where can people find out more about you

and where can people track your work?

Give me two answers. If they have a

Bloomberg terminal and then if they

don't have a Bloomberg terminal.

>> Yeah, I mean you can find me on the

Bloomberg terminal, Jim Weirhold. You

can find me on LinkedIn.

Yeah, I post regularly to our Bloomberg

Insights page on on on our website,

which you don't need terminal access

for. So yeah, post pretty regularly to

that. And yeah, I'm on LinkedIn or yeah,

you can find me easily easily on the

terminal.

>> Thanks, Jim. Thank you everyone for

watching. Stay tuned with my interview

with the agricultural

um real estate investor. Leave a rating

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Thank you. Just close the [music] door.