Why Wheat is the World's Most Exciting Market Right Now

which episode it brought it up on. Maybe there's a little bit of market volatility picked up, but it's still kind of a big issue that, you know, where is the volatility? It's very boring. Are you going to tell me that you've actually found some volatility in the market. Yes, Tracy, I have some great news for you. I have found the volatility in the market. I have found a corner of the market that is not boring at all, that

is thrilling every day. And not only that, it's not even that obscure, it's actually one of the it's a crucial market for the entire Really, part of me doesn't want to ask because I think it will be really obscure, But Okay, what is it. No, it's not obscure. I'm not gonna like site like, you know, the spread between Norwegian frozen salmon and Norwegian fresh salmon or anything anything like this. Uh No, the answer is the grains market. All right, you said it wasn't obscure. Well, come on,

grains are not obscure. I mean most people bread all the time, and cereal and uh you know, soft agricultural commodities are. Okay, I'm pretty important to most people. I know they're a big part of life. But I guess when people think about the market, they don't necessarily think about the commodities market, even though I suppose in fairness a lot of the current financial instruments that we have in markets actually developed from boies, right, like futures, I

think we're originally commodities oriented. Every time you read about the history of futures markets, it starts with some made up story, some some fantasy story about the farmer plants the corn and wants the lock of the price and sells it to the speculator. You know, that's like, that's

the classic description of how commodity futures work. And guess what that's exactly what we're gonna be talking about today, because the action in grains lately, particularly in wheat, but also sort soybeans and corn, has been very exciting and volatile, and if you like charts that go up and down very fast, you should be paying attention to grains. All right. Well, I've always had a soft spot for commodities, mostly because I'm amused by the notion of accidentally taking physical delivery

of like a bushel of corn or something. But I'm looking forward to this episode because, as you say, we need a little bit of excitement in markets now exactly. And so today on the Outlaws podcast, we're going to be talking to Tommy Grisafi. He is a risk manager at Advanced Trading, which is a firm that helps players in the agricultural space farmers, grain elevator operators, hedge and

manage their risks. So right, you know, basically right in this whole story of why the futures market exists, and in addition to that, he trades these futures himself. Tommy, thank you very much for joining us. Thank you, thank you, Joe. It's a pleasure to be here, and what exciting time in the agricultural space. I I was listening before, and yes, it's very boring time in commodities. It's been a rough

go for commodity traders the last few years. Someone who trades gold or crude oil, it's just it's just not sexy like it used to be when I first met you on Twitter in O eight oh nine, and yeah, those were what I miss and I say, Corn's limit down. And you know, think about when the Fukushima accident happened in Japan, how crazy we were, and it's it's just changed, and there's a lot of reasons why it's changed. But you know, let's move forward. You know, you can't look back.

All we have is where we are today, right right, and what we have today. You know, as you said that a lot of the markets aren't very sexy right now from a volatility perspective. But one market that is very sexy is the wheat market and that's been, uh, that's been going absolutely wildly. Yeah, for those of us who haven't For those of us who haven't been following the wheat market as much as we should, Tommy, can you give us a sort of high level overview of

what's been happening. Sure, there's three wheat futures. There's one that Minneapolis Grain Exchange sets up in Minneapolis. There's the Kansas City Border Trade which was bought by the Semi Group, but it was in Kansas City. And then there's the Border Trade Wheat contract, which probably has the deepest, most

liquid e but wheat snapped wheat. So I have a customer who grows wheat in North Dakota, it goes to North Dakota mill, gets put on a truck, and that truck brings that flour all the way to New York. And that's what that wheat up there is what's used in your pizza dough and your bagels that New York's famous for. And I'm sure we could all relate. It's also the high gluten wheat. So if you're into the

gluten free, you're probably not eating much of that. So then you have your casey wheat that's your traditional breads and whatnot. And then you have your board of trade wheat, which would be like a cracker. And so wheat's not wheat. It's graded by proteins. And you'll you'll read tweets or you'll hear information they're bidding up protein and you may not have understood what that meant, but now you will. Oh. I always thought protein referred to the animal like a

hog or cow. But when people say they're bidding a protein, it means that the wheat with the higher protein content that stuff up in Minneapolis is selling for premium. Exactly, it can trade for dollars over so currently, Uh, you know, weat a couple of dollars over the other weeks, and so there's people who spread all three weeks against each other. You could buy Minneapolis, sell the board. You could buy Many, sell Kansas City. You could sell many and buy the

other two. And lots of combinations, lots of spreading going on, lots of lots of fun, and unfortunately it's it's been slow for quite a while. And that's how I ended up with this position that advanced trading was they said, I love the grains, I love the commodities. How can I go help people? I went down to the border trade on a high school field trip, and uh, if you, if you eat three meals a day, you're affected by agg How can I go educate the American farmer on

how to better use these products? That's how you ended up in North Dakota. I realized, and this is important where you could use it in other segments of Bloomberg and Finances. That technology has changed. So when you talk about a stock like Montsano, Tommy, how are they how do you have a customer who's two miles from the North Dakota board North Canada border growing wheat and corn

and beans. And so when these big crops come along and everyone's like where they come from, it's really due that to the recent technology and modern changes of the seed. And uh, it's just amazing, just absolutely amazing. I just want to say, Tracy, I've already learned so much on this episode if with I think about two minutes in, so this is great. I want to let's let's sort of break things down. So we started on a little bit about all the volatility lately. Let's back up for

a second and then return to that later. You're a risk manager at Advanced Trading. You talked about how you go up to the Dakota's help farmers and stuff. That sounds like what I was talking about. That textbook story that they always tell about how the futures market serves farmers. Is that right? Tell us about what you do in that capacity, you know, Joe, you couldn't be more more on the money. And so the border trade in the

Semi group and the Minneapolis Grain Exchange. The Minneapolis Grain Exchange was actually formed by members of the Cargill family. So you want to talk about old money, there you have it. I could send you a little tidbit, you know, for you to read. So the old days, a farmer would see the prices were higher, and they would put their wheat on a horse and buggy and bring it to Minneapolis, and by the time they got there, the

market would collapse. They said, this just isn't right. They said, I wish we had something to determine the price of what it was in the future. And that's how futures market started in Chicago with corn, wheat and beans and butter. And you read, you know, those are the classic Jesse Livermore stories. When you read Reminiscence of a Stock Operator, anyone listening, you know, buy it on audio taper. Read the book. If you haven't, if you're involved in commodities,

there's no way you haven't read that book. And it's the old school commodity trading. And uh, the futures markets are very They were very influential to the modern day stock market and very influential to the options market because they started trading options on futures before they started trading options on stocks, and that's how the Chicago Board of Options Exchange was started. But nonetheless, going to you original question, So I'm up in North Dakota where technology has changed.

They have beautiful, uh, fertile dirt in the Red River Valley, which anyone who is snapped familiar with. There there's a red there's a river called the Red River. It flows north. It's one of only two rivers I believe in the world to flow from south to north. Then it goes up to Winnipeg. And so when you're in North Dakota and it rains, your water actually goes up to Canada if you're along the Red River. But this soil along

the Red River Valley is so fertile. And technology changed over the last twenty years, and so did the climate. It started raining more up in the Dakotas. Not this year, but just in general it started raining more. And so you have this beautiful fertile soil, the seed that in the old days, Joe and Tracy you'd plan a corn seed and you needed about a hundred days for it to mature. They can have they have corn seed. Now

that's seventy day corn seeds. So you plan it in the ground, seventy days later, the plants mature and you're harvesting it. So a lot's change in technology. So the folks up and from the Chicago border tre to Fargo, North Dakota seven and fifty miles, and those folks up there couldn't feel more removed from the price action at the Border Trade, the Semi Group and the Minneapolis Screen Exchange.

And so I'm actually up there. I have a place up there now in office and a apartment, and I'm they're educating people like the old fashioned brokers used to do in the sixties and seventies and eighties and say, hey, this is a future. But what's neat is with these options they could actually manage your risk. And I'm not going to teach you guys anything about options. I know you know a lot about it. But the farmers felt

removed from the exchange. But as you know, futures are electronic now, so there's no difference if I'm sitting in my home in Valparaiso, Indiana, or my office at the Border Trade or my office in North Dakota. A matter of fact, no one even knows where I am. I have on the big fancy computers with eight screens and the Cisco voice over IP phone. No one knows where you are. And so I'm up there educating people, showing

them how to manage risks. Say, hey, I don't know why wheats going up a dollar a day, But did you know you could set the floor with a adoption? And so there's an education process no different than people who had to learn, you know, the stock market education with these options the last twenty years. Wait, temmy, I'm still thinking about you know, the classic story of the farmer who wants to kind of ensure his crop output. So when you come up with the futures contract for that,

how do you get two sides of the trade. Like, surely all the farmers back then we're looking at the same information and they were all thinking, well, you know, there might be a drought next year, and so I want the following protection. Who's taking the other side of that trade? And what are they looking at that the farmers aren't sure? That's a great question. Are you talking about years ago or modern day trading now? Or well, I guess I'm curious about both, Like what was it

like years ago and what's it like now? Well, it's much more fast paced now very hard with this electronic markets and high frequency trading. One thing the farmers missing is they see the market go up, and they always think they'll have time to sell it. The second thing is is the whole world super focused on the stock market? Because what the stock market do the recent a few weeks, or what's it do every day? When I watched Bloomberg, Dow Jones New highs, it just it's a NonStop machine.

Maybe someday it'll go down, and maybe it'll go down hard, But today then every other day it seems like the headlines are Dow Jones New High. Commodity markets are different. Again, anyone who's eating three times a day is affected by egg. But America is not set up. They have high egg prices. And if you don't believe me, look what happened when

corn went to eight dollars. It about put the dairy industry out of business, It about put the hog industry, the cattle industry, and and so America is set up to run on affordable food. Matter of fact, when you look at the farm bills, it's called the Affordable Food Act. So to your question, things move a lot different now. Fifty years ago they didn't have options. So as far as a bushel corn being four dollars and you being able to spend twenty cents on a corn, put that

didn't exist if years ago. Now for twenty cents one thousand dollars, you can set that floor. You don't know how many bushels you're producing, but you can set that floor, and you have something an insurance policy from four to zero. And in the old days, people were selling futures and that's where the big nasty story started about did you hear about so and so he got caught in the futures market, and so that's where the big margin calls come from, and all the other legendary stories that we

hear about. I think it's really interesting you mentioning technology, and I'm curious about how it changes the market in a couple of ways. So, I mean, I don't think people often think about that grands are sort of a product of technology, the idea that yields improve over time, the idea that, as you said, we can grow corn from seed to completion in a shorter period of time. That second aspect, the idea of being able to grow a crop more quickly, does that mean that supply becomes

more sensitive to prices? In other words, we see if we see a big spike and say corn and soybean prices or big drop, that farmers can switch their crop to respond to those price signals faster than they could have in the old days when the lead time was much longer. Absolutely, so, the seed companies are very accommodating that. The dot let's talk about that real quick. There's only a couple of seed companies left. I mean down Do Pontter trying to merge Bear in Monsano, are trying to

merge China Camp come in and bought some Jenna. I notice CRDA Dows spun off part of their seed group to a Chinese company. So there's big money in this

seed business. And if there's one thing that's hurting the American farmer, if any farmers are out there listening to this podcast, is they've underestimated how much technology has helped them, and they're still mentally marketing a crop like it's or oh five, and so they're they're thinking they're gonna grow a hundred and thirty five bushel corn, and they're on

a hundred bushell corn. And so the American farmer. If you go to a trade show, if you go to any egg show, there's the John Deer Tractors, There's this planter, there's this fertilizer, there's this seed company. Tens of thousands of farmers at these shows. You go to a marketing meeting, there's Tommy Grisafi up there on stage talking at eighteen farmers in nowhere, North Dakota. They don't want to talk marketing. They want Everyone loves production agg it's fun, it's exciting,

it's sexy, it's fun driving a tractor. If you ever haven't, give me a call and we'll set you up with one of the customers I have in Pennsylvania and you go out there and interview them, and it's fun. It's one of the best jobs you can have in America. It's not one of the most profitable anymore, but it's one of the best jobs you can have. And so technology, Uh, there's things like auto Stair. There's a tractor being developed by case. I h that's uh, what's the word anonym? Uh?

It drives itself? What do you You don't ask me to spell it. I could barely say that's going to ruin one of the best jobs in America. Well, yeah, there'll be a guy driving another tractor next to it, maybe planting the crop, and and that tractor will be tearing up the ground next to it. So there'll be someone around with a remote control, almost like flying a drone. So technology has changed agricultural agriculture in a big way. And so I'm a technology bolt when I do speeches.

I come from a stock trading background. Uh. But I started trading Imani smps when they started on Globex. I remember the first day I traded Emeny's the day they open the think they traded eighteen thousand contracts. And I had a Globe station at my office and a project day, and so I was always big on technology. What it hit me I went over to Germany and I saw that the Boon contract was trading electronic, that London had lost it. Joe, I don't even if you know, if

you're old enough to remember all this stuff. But the Boon used to trade in pits in London, and then it moved over to the u X Exchange. And uh, when I realized there were no pits anymore, it made me think when I went back to Chicago, when are the pits going to go away in Chicago? And most of them are gone now. And so I'm a big technology bull and I like to get out there and

and and educate the farmer. What's funny about the American farmer is if you ask them to see their iPhone or whatever smart device they use, they have every app. They can tell you how much it rained in every field. They can tell you how much fertilizer they need. They get text and emails to add more fertilizer. Too. Is it's almost like a recipe to grow this perfect crop. And so if you aren't improving through technology and better marketing, your neighbor is and they're gonna pass you up. And

I'll tell you one other thing. And this should scare people. Agriculture is not just an American thing. When I went to the John Deeer factory in Waterloo, Iowa, the John Deere tractors are going overseas. And so if you you know, follow Howard Buffett, follow Warren Buffett Son Howard. He's a farmer in central Illinois right next to one of my customers. He's going all over the world showing people how to grow crops. Technology and agger culture is a world market.

And although America is still a leader, if they don't watch themselves, they're going to get passed up. Tommy, you just reminded me that one of our coworkers, and actually a previous off Lots guest, Lorcan rosh Kelly, has a cow farm and he was telling us once he actually has a smartphone app that I think tells him when his cows are about to give birth. Uh So, technology and in all types of agriculture right now. But I'm

just wondering when we start to think about technology. Uh you know, when Joe and I talked about it every day, we usually talk about it in the context of companies like Apple or Amazon, and I'm wondering if a similar dynamic is present in agriculture where you get these big farming companies that essentially develop an edge because they have lots of money to spend on tech and that makes them more efficient, and then does that mean that they go on to become big, big players in the commodities

trading market as well. I think you're correct the American farmers getting bigger, not smaller. They're getting more efficient. It's really hard to run any business without adequate capital. I've met some incredibly large farmers, and if you're not getting with it, you're going behind one thing. You touched on something very important, and they want you. It's going to be.

What I talked about next year in my speaking season is that Amazon recently bought Whole Foods, and Amazon might single handedly be changing how we shop for food and how agriculture is and what products we grow in America. I think sometimes there's a pushback against non GMO or this thing or that thing, and the American farmer has to be listening to what the consumer wants. And Amazon knows what the consumer wants because no one has more data on what you like to purchase in Amazon. Would

you guys agree, No question. So watch out for Amazon Whole Foods and how that changes agriculture the next five years, ten years. The supermarket industry. There's a supermarket in my hometown called Stracking Me Until family store for fifty sixty years. They filed bankruptcy a week ago. You know, why is that happening? What's going on? How could this family mom and pop grocery store with change we filing bankruptcy. Things

are changing and agriculture is changing. But I no doubt my mind, the single reason I'm up in South Dakota, Minnesota, North Dakota is because technology changed and folks are able to grow way more bushels in a shorter time. And when that happens with your supply and demand, that makes the markets go down. We've talked about how the market works, We've talked about some of the big picture changes, the role of technology. Now let's get into you know we're

talking about it in the beginning. This market has been pretty volatile lately, if you like exciting markets grains or where it's at now. Just weat also some pretty shocking action and soybeans lately, which very quickly erased a big downturn. What's the big picture of why we're seeing such exciting swings right now? Is it all weather? Is it demand from overseas? What are the factors? I'll take choice see all the above. So China has an insatiable demand for

our soybeans. Every time the government tells you that we have a lot of soybeans, and that would make traders and speculators think the price is going to go down all of a sudden. At the end of the year, our ending stocks are lower. The story in wheat is uh, it's more of a world market problems in Australia, Europe, America. We had temperatures of degrees and thirty mile winds for three days in South Dakota and North Dakota and it

absolutely stunted the wheat crop. What's interesting about commodities is people kind of wait to buy them. So commodities have been so cheap for so long that they just go hand them out and they just buy them as they need them. And then once they start to go up and speculation starts, people start the panic. And I think we've seen a little bit in commodities and maybe it will straighten itself out. Maybe it was just a short

are and blip. But there was a point where I didn't think I really knew how to trade commodities anymore. And then after the last three months, I can say I didn't forget how to trade. They just weren't busy. This is the busiest we've been in years. Years and years, and it's a wonderful market to trade. It's very dynamic. There's a lot of people in there. Uh. One of the things Tracy had asked before was, so you got the farmer selling, who's buying? Well, look at Tyson chickens.

They need X amount of corn and meal every day, and so anyone who's feeding an animal needs to be buying corn and meal, and anyone who's growing the grain needs to be selling it. And then the consumers are there NonStop buying it, not only in the US but all over the world. And so it's a very dynamic market. It's probably a lost art. I have to say. I don't know how many humans are left trading these markets.

I don't know how many tim gersafies are left trading at seven o'clock at night, trading at six in the morning, watching the weather come out at four thirty. I wish I knew it's it's definitely changed and we've lost that human element to the market, and I don't know that we'll ever get it back. Yeah, Tracy, when I called Tommy this morning to sort of lock down the details for today's discussion, you know, I knew it was in Midwest time zone. So I said, are you up. He's like, oh, yeah,

I've been up for a while trading the corn. So I really I really enjoyed hearing that. You know, Tommy, you kind of touched. I wanted on what I wanted to ask you next, which is, you know, you mentioned speculation, so I guess how much of the trading that we've seen, for instance, in wheat, would come from speculation. And you also mentioned fewer human traders, So I want to ask as well, to what degree do you have sort of

technology driven momentum traders in the grains market? Nowadays? They're there, and so high frequency trading firm might not have been trading hard red spring wheat at the Minneapolis Exchange a few months ago, but when they see it start to move, they get the programmers together with the traders and then they go at it and they start making a market in it, and both the futures and options, and uh, they're very disciplined it and it creates large moves and volatility,

and anyone who trades knows volatility as your is your friend. But there's just just technologies change. Most of the traders I know from the border trade either retired because they made so much money, or they're driving for Uber now. So I do not know of many humans who are left trading markets. It's a it's a human working with a programmer and a kid who's great in math and there, and they have these programs running and they run all

night and all day, and they're very unemotional. Humans are emotional, and that's what makes markets move, and we're missing that. Which is interesting because sometimes grains have these many flash crashes, just like the stock market did seven years ago. You wonder, if there's so many people in line to buy, how did we just break x amount of pennies? Or you saw it happened in Amazon stock a few weeks ago.

How does a company like Amazon break ten a few minutes and you're seeing it markets all over the world. So Tommy kind of thinks in some ways that markets aren't as liquid as you think when they get a little nuts. When it's a nice, quiet day, there's plenty of bids and offers. But when the stuff hits the fan where all the people left to trade, that's why all the bids and offers disappear. It's a real problem.

It's a real problem in America. I don't know how we straighten it out, because I do think we're the the core of all trading in the world. But you want to do what's right by the customer, and you want to provide that deep liquid market. To sort of wrap things up here, one of the things that I really like about this conversation is not only our other markets have that hasn't really not been very much volatility, but it feels like they're all sort of the same story.

It feels like there's only one market. So whether it's gold, whether it's oil, whether it's US treasuries, German boons, the Japanese yen, U s tex s docs, everything feels hyper correlated. Everything is macro, everything is the FED. When talking to you about brains, it really feels like a different story. It really feels like a world where it's not all about the FED. It's not all about what a drog

you say today, and it just uh, it's very refreshing. Well, it's fun and I wish more people would get involved, and if anyone needs education, I'd always put a hand out to educate. One thing, Joe, is that when the FED says something, or when the Treasury releases bonds because I grew up in the thirty year treasury pit at the Chicago Border Trade one of the biggest, baddest pits in the world. But when a farmer sells grain, there's over twenty elevators they sell grain, so they don't get

to sell grain at the border trade price. You really sell grain in your backyard, and that's more important than people realize. So there's no central bank, there's just local grain elevators and little towns conducting business. And that's that's what's amazing about the grain industry. Well, I think that is a great place to leave it. And your offer to educate people about this space, I hope a lot of our listeners will take you up. Me Grossafi of

advanced Trading, thank you very much. I learned a ton in this conversation and Tracy my pleasure. So, Tracy, did that deliver on my promise that there is an exciting area of the markets that's not boring. Yeah, it absolutely did it. Also, it kind of warms my heart to think about trading in an actual physical commodity and one that's so I guess emotionally attached to our daily lives, right like we all sit down and eat cereal or bread on a daily basis. So it's fun to think

about the trading that goes on around those commodities. Yeah, there's just so much going on here in terms of the intersecting stories, and it just feels, you know, if you think about like buying a you know, a tenure treasury or future or even a share of stock, just like you look at a spreadsheet and you plug in a series of numbers. So the idea that there is still this market where Tommy is still traveling from his home in Indiana to his apartment in North Dakota explaining

to farmers how the market works. They're getting their bids from the local grain elevator. The grain elevator is obviously reacting to the demand from people who need to feed cows or perhaps not not so dis in future, the demands from Amazon and Whole Food for what kind of food they want to stock for obvious reasons. There's a

certain refreshing reality to it. Yeah, and the Amazon angle and the technology angle is really interesting too, because I think that's where it all starts to feed into the global economy in the sense that you know, when we think about inflation and the fact that we haven't had much of it um for the past almost a decade. Now, A lot of people tend to think about consumer goods and the idea that those are getting cheaper because technology is developing. Not many people, I don't think it just yet.

Think that there's a new tractor model out and that's making the growing of crops much more efficient, and so the price of flour is falling, and that's feeding into prices as well. So that's another important angle here. I think, yeah, so much, so much good stuff. You know this last few weeks if it's as super exciting from the grains market, But even when things quiet down, I think I'm gonna start paying attention in this world more because it just

feels that it just feels different than everything else. You need to buy yourself a little farm and do some some corn trading, you know what. Actually, when I retire, what I want my part time retirement job. I want to get like a job like at a radio station in Iowa doing the local grain report. I think retirement jobs. I think you'd be good at it. Joe. Thank you, Tracy. This has been another episode of the Odd Lots podcast. I'm Joe Wise, though. You can follow me on Twitter

at the Stalwart and I'm Tracy Alloway. I'm on Twitter at Tracy Alloway. And you can find Tommy on Twitter at Indiana Grainco. Remember to reach out to him and he'll teach you about the market. And our producer, Sarah Patterson follow her Sarah patt with two Teas. Thanks for listening.