Episode #433: Dwight Anderson, Ospraie – A Tiger Cub’s Take on The Chaotic Commodity Markets – Meb Faber Research

Episode #433: Dwight Anderson, Ospraie – A Tiger Cub’s Take on The Chaotic Commodity Markets

Guest: Dwight Anderson launched Ospraie Management in 1999 in partnership with Tudor Investment Corporation before establishing Ospraie as an independent firm in 2004. Ospraie is an asset management firm that actively invests in commodity markets and basic industries worldwide. Prior to joining Tudor, Dwight was Managing Director at Tiger Management in charge of the Basic Industries and Commodities Group.

Date Recorded: 7/20/2022     |     Run-Time: 1:09:07

Summary: In today’s episode, we’re talking with one of, if not the best investor to hear from about the chaotic year commodities have had so far. Dwight shares his macro view of the world today and then the micro picture for different commodities across energy, metals, and agriculture. He touches on a few stocks he likes today and then we get into his choice to get into the ag tech space and where he sees opportunities today.

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Links from the Episode:

• 0:38 – Intro
• 1:33 – Welcome to our guest, Dwight Anderson
• 3:46 – How he became “The Manufacturing Guy”
• 7:28 – Dwight on his time at Tiger
• 8:46 – Dwight’s take on the commodity space today
• 10:07 – Dead highs and lows of retail broker pits (Hilary Clinton story)
• 10:17 – An overview of Ospraie and the focus on commodities and agtech
• 18:20 – His expectations for various commodity markets going forward
• 28:02 – Dwight’s take on the European energy crisis
• 30:33 – Are institutions more interested in the commodity space now?
• 34:04 – Ospraie’s investments in the agtech space
• 36:18 – Companies Dwight is bullish on; AGRO, BIOX
• 39:18 – What Ospraie is looking for in private markets; Teays River
• 50:42 – Why he’s excited about the company, AgroSpheres
• 57:03 – What’s on his mind as he looks out to the horizon
• 1:03:56 – Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets by Steve Drobny 
• 1:04:01 – His most memorable investments; Mosaic MOS, GrafTech EAF, CoinShares
• 1:06:14 – Learn more about Dwight; ospraieagscience.com

Transcript: 

Welcome Message: Welcome to the “Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the Cofounder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: What’s up, my friends. We’ve got a killer show for you today. Our guest is Dwight Anderson, Founder of Ospraie Management, a firm that actively invests in commodity markets and basic industries worldwide. Dwight previously worked at fame shops like Tudor and Tiger management in charge of basic industries and commodities. In today’s episode, we’re talking with one of the best investors, to hear about the chaotic year commodities have had so far. Dwight shares his macro view of the world and then the micro picture for different commodities across energy, metals and agriculture. He touches on a few stocks he likes today. And then we get into his choice to get into the ag-tech venture space and where he sees opportunities there. Please enjoy this episode with Ospraie Management’s Dwight Anderson.

Meb: Dwight, welcome to the show.

Dwight: Appreciate being here, Meb. Thank you very much.

Meb: Where do we find you today?

Dwight: You found me in sweltering Manhattan.

Meb: I’m finally going to be there in the Fall. I miss it. I used to get to New York, like, once a quarter and it’s been many years at this point…two, three, pre-pandemic. I’m excited to get back. What’s the vibe like? Things happening?

Dwight: Well, the vibe’s not fully back. There’s definitely still some sort of nervousness, insecurity here based on…a friend of mine’s big in sandwich shops and sort of chopped chains and you’re still at 50% of pre-COVID levels for sort of business meals and lunches, in terms of that. And so, we want you back. We need the tourist tax dollars to help, you know, sort of balance it. So please come. But again, still a little bit emptier than before.

Meb: All right. I look forward to getting back. We’re going to talk about a lot of stuff. First, I thought we would start with expectations. I love tweeting out surveys and asking surveys on Twitter to get a feel for people’s expectations. But one that was kind of triggering me over the last couple of years, because it kept getting higher and higher, was investor expectations on…this was just for broad based equities and it kept going for, you know, years. It was at 10% and then it went to 12%, 14%. And most of the surveys ended last year around 17%. But doing my research, I found there’s at least one investor who had even higher expectations and this may have been when you originally started your firm a while back and that was your mom, right. Like, there was that one point where your mom wasn’t even impressed with 30% returns.

Is that an accurate story?

Dwight: I think that’s no longer an accurate story but I think in that…she was a firm aggressive retail trader in the dotcom days. And so, my mom and dad are both in their 80s and thankfully, still alive. And I think they focus much more on sort of a balanced portfolio return now.

Meb: Yeah. I like it. Well, it was a fun time. I like to say a lot on this podcast that was my favorite bubble, the ’90s. I was graduating school but had everything from professors pausing class to trade stocks to everything you probably…and everyone else saw last year. But maybe we’ll start. I wanted to hear a little bit about kind of your origins because we can go through a little bit of the progression of commodity markets and resources and everything you’re doing now. But, you know, you were a Tar Heel from business school and not a lot of people back then were really career path of kind of where you focused. Would that be an accurate statement? I don’t know. I’m trying to think of how someone ends up in the world that you did. Give us a little insight.

Dwight: Well, it’s an ill spent youth, is probably the main cause. But you’re 100% correct. I was…you could just…I’ve had the benefit of having had very simple monikers my whole life. First off, not many people know Dwight’s. So generally, you know…and then the other aspect is I was known as the manufacturing guy. And the fact that you could call someone the manufacturing guy and they’d know who you’re talking about tells you that there weren’t too many in my peer group or related.

Meb: Well, right. I feel like that almost is, like, you, like, sit down a banking class or MBA group and, like…it’s like you weren’t there that day. They assign, okay. First pick gets tech, second pick gets whatever. And, like, all the way down the industries they’re like, “All right, manufacturing. All right, Dwight’s not here today. We’re picking him.”

Dwight: Well, to be honest, it’s actually a little bit not too far off of that. I’d gone to school as a liberal arts major. I was a military history major. And I’d always assumed that it was a wasted major to be able to get a job. And so therefore, I’d have to go into graduate school. And so, I was focused upon athletics and social life and all the other immature focuses of an 18- to 21-year-old when I was in college. And I just assumed I was going to go to law school. So took the LSAT, applied, got into law school. And then I woke up one morning in my dorm room bed, February of my senior year and panicked because I realized I didn’t want to go become a lawyer. And so, I applied for every single company that was still coming to campus, you know, relative to all those I’d missed, including one in sales and trading up in New York.

And actually, the person who I was competing for that with is actually my cofounder of Ospraie, Jason Mraz. But and along the way I also got a job offer from Microsoft and my parents showed up at my dorm room. They both worked for IBM and they begged me not to take that job because they were going to be launching OS2 and this is 1989 and Microsoft will be bankrupt in a year and so please don’t throw away everything that they had sacrificed and I had sacrificed for. And so, when I sat in my paper mill in the ’90s looking at how Microsoft had done and the opportunity, it did cause some second-guessing.

Meb: I mean, look, you had…it’s not, like, you’d probably own the Clippers by now. You would’ve ascended the ranks and just had money to spare.

Dwight: But then it would be the Clippers. So, I mean, I’m better off.

Meb: Totally fair, totally fair.

Dwight: Okay. But I got a range of job offers and I had done custom programming in south in the summers to help pay for college some of them being software programming jobs. And I called one company and I turned them down and it’s a company that did manufacturing software and consulting. And they made the offer to switch my job from software over to consulting on the spot because their manufacturing consulting business was going at such gangbuster levels, they were goanna be short of people. So, I joined 19 industrial engineers and myself in a training program in Chicago because I sort of liked the idea of trying to do something tangible and real. Like, if I could keep one job in America, raise the standard of living .001%, just something that actually had real benefit to the economy, industry, people and doing some tangible…you know, something that really resonated with me.

And that’s how I ended up there.

Meb: So, business school and then you decide to do the fun world? I mean, what was the first stop? Was it Tiger or was it Tudor or was it something before that?

Dwight: So, the answer is when I was working, you know, running a paper and printing mill, you know, in upstate New York, I had time to actually…which is not normal. Sort of self-reflect. And I looked at what I thought I might be good at and would like to do. And the idea of proprietary investing and trading. But it’s really awful hard to go from a printing mill in upstate New York to that. And so, the reason I went back to business school was to make myself acceptable for the investment banking, trading and investment world. So, after incredibly brief stints in Goldman Sachs and JPMorgan and their commodities group with the idea that I’d need to go 5 to 10 years of prop trading, build up a track record, or fail in which case I’d go back to consulting, is fortunately enough…

I had gone to business school on a Tiger fellowship. Julian wanted to do more in commodities and his rolodex was scarily empty except for mine, and for someone who knew commodities and basic industries. And so, they reached out to me to join that group at Tiger. And so, it really was via sort of J. Aron and JPMorgan and their commodity groups. But in a way briefer stint that allowed me to transition to Tiger.

Meb: Taking us back, like, what was the investment universe mindset towards commodities at that point? Was it seen as something that was really, like, a business operational focus or something you just hedged as, like, a risk management or was it something that, you know, was gaining traction at that point for investment side? Like, I’m trying to remember if it felt like it didn’t really happen until mid-2000s or…what was the…?

Dwight: Yeah. So, Goldman Sachs had literally just created their commodity index and had about one investor, some Swedish Institution. So, nothing in terms of investor acceptance. It was still the Wild West, you know. It was the Hillary Clinton cattle trading, you know. It was what drove…bankrupt. And there used to be much more aggressive prop trading by companies and/or trading and massive leverage and speculation. And so, it was literally viewed as, you know, some insanely risky, volatile segment off to one side.

Meb: I did an old post on the blog many years ago about how much Hillary Clinton would be worth if she continued compounding her money the same way she did with the futures trading. She’d be a vigintilionaire. I had to look that up. I don’t even know which one that comes after, quadrillions or what but it was a high compound rate, listeners.

Dwight: Yeah, Meb. Not all of us are lucky enough to get the dead high and the dead low as a retail broker in the old pits.

Meb: Listeners, you can go google that. We’ll put it in the show notes. All right. So, you do some stops with some pretty top name shops and then you started your firm. Man, not to date you and I both but we’ve now been around for a while. We’ve seen a few cycles. We’ve seen the GFC, we’ve seen the pandemic, whatever we’re in now. Tell us what Ospraie looks like today, investment philosophy and kind of what is y’all’s main focus? And then we’ll dance around the macro picture and all that stuff.

Dwight: Yeah, I actually even saw the Asian crisis. And so yeah, a few different cycles. So Ospraie is a combination of public and private investment as well as venture capital. Main focus in terms of external capital is a long, short commodity fund as we’ve been involved in since the start of the firm 23 years ago now. And so that’s sort of, you know, when you started at 5:00 in the morning till…you know, most of the markets effectively close around 2:30 in the afternoon, that’s the primary focus of your minute-to-minute time. But along the way we’ve still made a lot of material investments with our own partners, capital related, in primarily these days, metals and mining and related logistics as well as agricultural and ag-tech.

We have some legacy energy. We’re energy storage investments. But sort of the scale of capital, time and concern over the multiple the market would give them gave us pause. And so, it’s been fun. I mean, actually working to build businesses with great management teams or working to find them for businesses that need improvement. And so that’s really what Ospraie is these days.

Meb: We’ve touched and danced around sort of natural resources, farming, ecosystem over the years. We actually did a podcast today that just published with some of the old Gold Core era guys on the mining side, Frank Giustra which was a fun one.

Dwight: Frank would definitely be fun, speaking of the Clintons.

Meb: Yeah, yeah. And he has an olive oil company, you know. All sorts of stuff they’re involved in. But there’s no greater sector, industry in my mind that…I’m not sure if harder is the right word but for people who don’t know what they’re doing to get in as much trouble as this. I would say, you know, trading forex at 50 to 1 or 100 to 1 could be similar but not knowing your ways around sort of this world. Why don’t we start with the macro and then we can kind of split off into some sub pieces? But this has been a crazy year. I feel like a lot of people have kind of forgotten about commodities. And then last year happens, last two years happen. Walk us through kind of what’s the setup, what’s the macro last few years, look like for commodities and kind of what’s your thoughts today.

Dwight: Sure, Meb. A couple things. I’ll just take back to your point in terms of why it’s hard. It’s something that people, you know, institutions I don’t think properly analyzed over why they’ve struggled to make money structurally in the sector. It’s just a simple matter of fact, as you know, in the futures market where even ignoring commission’s expenses, no one net makes money because you’ve got to have a dollar loss for every dollar gained. So as opposed to equities where you could put in someone’s margin that long, you get the positive drift to the equity market, okay. There is none just outright, in terms of futures, let alone the aspect…then you combine all the expenses, commission, prime brokerage, whatever else. You start off where you’re 60-40 against odds of making money in this space, okay.

And then you throw in tail events and volatility and you allow people to put leverage on top of all of that at multiples of the equity market. That’s the aspect that the combination of net people, NPV, should lose money and leverage. It’s a space that…there’s a reason I have a lot of grey hair and less of it actually. I have less hair and mainly it’s grey. In terms of the macro backdrop and as you speak about cycles, we have been in one of the most amazing setups that you possibly could have for the last two and a quarter years in that you put yourself in April of 2020 and you couldn’t have had a more bullish outlook and setup for commodities. You had a nine-year bear market. Coming into 2020, there were a number of markets that were moving into a deficit before the COVID shock.

Now you collapse prices, right, and all of a sudden, you had companies who were already cutting capex and cutting forward supply and moving a deficit. Those got slashed even further. You had a complete price collapse and you had a bunch of production shut-ins. So, less supply, less production, less future supply and capacity. You have every central bank in the world liquefying as fast as possible and you have fiscal stimulus that was rolling out immediately, effectively in China or elsewhere around the rest of the world. And it was utterly unique in terms of price collapse and depressions in that normally you end up with a massive surplus of inventory and surplus capacity, because it was the end of a nine-year bear market. As opposed to what happened coming out of ’08, ’09, we had all this capacity that was created by the prior year surplus, you had nothing. And you had people overspending on materials because they’re sitting home redoing…like you did, renovating their homes, getting the new fridge for extra storage, inventory. So, people were purchasing goods because they could no longer purchase experiences, okay. And because of those production closures, mines in South Africa, South America, you came out of a downturn with record low supply growth, record low inventory and a lot of times, less inventory than you had going into the downturn. Let’s hold energy to one side because that was transportation ability driven and you had the brief market share war between Saudi Arabia and Russia to start. So other than energy in all the other markets, you had phenomenal bull markets that you then experience for the next 15 months, okay.

You roll forward to the end of July. You’ve had grain prices explode, coffee prices explode, metal prices have had phenomenal movement whether it’s gold, silver or copper. You go through everything. And effectively, as of about a year ago, you moved into a market that was either going to be some sort of supply shock or weather driven like you had sort of in South America, in Brazil really, or it was going to be energy driven. Either push or pull. Cost push, you know, because of…it’s a large raw material for things like fertilizer or like or pull because it’s a component of…like, ethanol is a demand for corn or sugar or bean oil. And so, you move from an overall massive commodity bull market to an energy driven bull market. Again, push or pull.

And that’s really what we’ve been in exacerbated by certain geopolitical events all the way until you get to, let’s say, June of this year. And this is finally now that point where, you know, if you have certain cracks and it got to such a level and an extreme that you have a very different macro backdrop as opposed to April of 2020. Now central banks are raising interest rates, they’re pulling back monetary liquidity. You’ve lost the cumulative effects of all that fiscal stimulus. You have energy taking up a massive share of people’s wallet and so you’re losing the marginal purchase power. But the purchase power people who buy in volume, okay. So, in other words is you had a huge surge of wealth that went to lower income that went to goods and commodities are driven by volume purchases and number of people.

So, the wealthy might buy the same whether it’s good times or bad but that change in the purchasing patterns of the large part of the population for the world and they’re the ones most effected by the energy squeeze. So, you’re in a market right now where there are individual supply stories, okay, and you might be so short you have to ration demand in some of these commodities but it isn’t that uniform macro and micro driven story that we wonderfully had.

Meb: Yeah. It’s starting to…I don’t know if “settle” is the right word because it’s commodities. I don’t know if it’s ever that quiet. But so, as you kind of look to the horizon now, what are sort of your expectations going forward? I mean, I know a lot of people are concerned, particularly in the ag space about, you know, the geopolitical impact that has going forward with prices. But as you kind of look at the various commodity markets, is it something that you think it just kind of settles down over the next year or two or is, you know…this is asking you to put on the forecasting hat which is of course impossible but any guesses, any thoughts?

Dwight: So, you had a relatively uniform selloff across almost all of the commodity markets here over the last two months where you’ve had energy come off and agricultures across the board and industrial metals and precious metals. And we think that that is actually something that is too uniform, and you’re going to get, actually, some interesting segmentation, some good long short going forward. Basically, the way in which certain commodities are priced, whether it’s corn, soybean oil, cocoa, you have to have a recession, almost a depression to justify these prices. The balance sheets are so tight and/or in deficit that if demand doesn’t collapse, those prices have to materially move up whether it’s 20% or 50%. On the other side, given the slowdown…you’ve seen sort of what’s happened in iron ore or a number of the base metals or even something like nickel.

Those are markets that are moving towards balance or surplus. And so those are correctly priced and a number of them are going to continue to fall. The most dynamic market for us really probably is energy in that we do believe that unless we enter a recession dramatically, you know, quickly, like, within 2022, we’re short of capacity. Like, if you pull out the volumes that are being reached from the SPR, we’re still drawing inventories and crude materially. For normal economic movement for China in the Atlantic Basin, we’re short, refined product, especially in a world where there’s going to be increasing constraints on Russian exports. We depend for three and a half million barrels of Russian product exports per day.

And so, when I take a look at the incremental bans on shipment and insurance and use of Russian crude oil and products post October going into the end of fourth quarter assuming some normal return of movement for China is unless we’ve hit a massive recession by now, energy prices driven by crude and refined products have to be materially higher. So, the only question is how quick, how hard the recession that is uniformly expected comes. If it doesn’t come now, both the majority of the agricultural commodities and energy will first be materially higher.

Meb: I know this is a multifactor, very complicated world but as you look at sort of, like, the main drivers…so, you know, global economy, like you mentioned, recession, China, enduring pandemic, Russia, Ukraine, what is, like, the biggest driver, you think at this point, of commodities or is that solely commodity specific? Like, is that too just basic of a question?

Dwight: Majority of the time and for a majority of influence it’s too large a question because we don’t really view commodities as an asset class barring extreme economic shocks or massive currency devaluations. Because if you look at something like cocoa that goes into chocolate or other related food products, you’re looking at almost 70% of the production comes from two countries in West Africa, Ivory Coast and Ghana. Sort of unique weather patterns and issues in supply dynamic. The demand is very economic and income inelastic. You know, it’s your cheap luxury good in a recession. You know, barring an Asian crisis and a currency collapse, you don’t tend to see major moves in demand. And so, I then take a look at something like copper which is the most industrial production sensitive commodity. Relatively widespread production but, you know, whether it’s Chile, Peru, U.S., China, you know, it’s…you know, there are a number of countries. But then you are tied to the IP cycle.

And so, you can get copper in a bull market and cocoa in a bear market or vice versa. There is no inherent correction. Now don’t get me wrong. When you have the size and scale of the moves that the dollar has had overall, it’s all commodities and in the dollar index. That is a weight upon all commodity prices. So, commodities would be higher than they are now across the board if you hadn’t had the scale of the dollar move. But that sort of retards the price rather than, you know, being the single biggest driver for each one. It’s some aspect of, for a time period, economic demand, you know, and your sensitivity to it, so copper most and then something like diesel after that and other metals are the drivers and they’re the ones that we worry and focus on.

So, you know, cocoa is something that you focus on a supply because demand doesn’t change that much whereas copper, the supply in aggregate doesn’t change that much. It’s the demand and the stocking de-psyching cycle. So, each commodity, we focus a little bit differently on the drivers.

Meb: So, as you kind of think about putting together…and this is just kind of still on the commodity side. Would you kind of characterize y’all as a pure fundamental, like, discretionary sort of commodity manager and then of that, how do you think about how much of that could be long only, totally short only, long short, hedged exposure?

Dwight: The answer also comes in depending on the era, you know, in that post 2008 we’ve had a sort of lower risk, lower vol approach. What we’ve learned is where we tend to be able to outperform and add advantage and generate return over time is the microeconomics, understanding and knowing it best. Where we tend to get impacted is the four, five, six standard deviation events that might occur in an area, you know, once a decade. So, whether it’s the GFC, whether it’s COVID, would’ve been the Asian crisis. And so, as such, the scale of risk, especially on the grow side, that I took when I was younger and sort of more rampant and always knew I was correct, okay, was larger than today.

And so, we start with a macro backdrop. So, when we take a look and say, “Are central banks, most importantly the U.S. in a loosening or tightening mode, you know, whether it comes to interest rates, money supply and also fiscal for governments?” And we…U.S. and China are two fixations. We’re dollar denominated so U.S. matters most but from a demand perspective for a lot of our commodities, China can matter most. And so, the amount that will be sort of net long will be more in an environment like April 2020 when it’s all green versus today. Today our max net long would be below average because you’re in such a slowing and tightening macro environment. So, you start with that backdrop and then it really comes into sort of the risk return of the individual commodities.

And so I can be, you know, 50% net short, I can be 50% long or I don’t…we’re not even capturing that. That’s just sort of a general plus, minus gains and we’ve been longer than that. The max net short will be, is less than our max net long. And we drive that into VAR and worst week and worst examples and build up from there because a lot of it also comes from the volatility of the commodity and where we are in the curve because if I’m involved in natural gas two years forward versus spot, very different volatility. And if you’re involved…not to belabor the market, cocoa, okay, versus natural gas, massively different volatility. And so, we size our positions based on curve, commodity and also where you really are on the cost curve in inventory.

So, if you’re in an area where you’re below the marginal cost for a commodity and there’s a huge amount of inventory, you will have below average exhibited volatility and a lot less of a skew in terms of that.

Meb: I was just thinking as you were talking, we come from a… on my dad’s side, a farming background in Kansas and Nebraska and always thinking about all the various inputs and what can go wrong. And I remember a few years ago…there’s a picture on the blog, listeners, of one of the risks I’d never considered was I got a phone call…I actually saw it, I think, on Instagram or Facebook first but then eventually I got a phone call where we had a combine catch fire and burn down the entire beautiful field of wheat that was already, you know, done, a beautiful crop. And I… like, that’s not even something that I even considered on the bingo card of possibilities. And I always…thinking about markets in general, it’s always…you have to be very imaginative to think of all the possible outcomes.

Dwight: But we saw fires in Russia in their wheat fields in 2011 in terms of that and they actually are trying, because it’s dry in the Ukraine right now…shelling. They’ve gone and done patterns across wheat fields trying to start fires in the Ukrainian aspect of their wheat fields.

Meb: We actually…it hasn’t published yet but we just did a podcast with an author that has a book out on wheat and it’s called “Oceans of Grain”. Listeners, you probably will have heard about it by the time this one drops but it’s a really fun book on the history of how kind of wheat is a… University of Georgia professor kind of traces the arc of wheat’s impact on history. It’s actually really fun episode. While we’re here, we may as well talk a little bit about Europe, their energy policies, Russia and Ukraine, the ag situation. You can kind of pick and choose but as far as geopolitical events going on, how do you think these resolve, play out? And, like, what is the…just kind of looking at the rest of the year, the next six months of 2022 or even in the beginning of ’23, what’s kind of your expectations here?

Dwight: Well, so we do a bunch of different scenario analyses. And so, you know, our modal scenario, unfortunately, is that the scale of energy prices…pressure that we’ve seen in Europe, you know, creates a recession that they’re in, we think, currently and that it exacerbates from here. It seems to be the logical path for Russia relative to the gas supplies that as you start to enter their crucial time period, to take advantage of that to get their maximum negotiating leverage. And so, our modal plan and assessment and outlook is that Europe is in an effective recession here for the balance of this year caused by a number of the different economic ramifications, a large number of them driven by the geopolitical events.

So, we continue to expect to see things like their aluminum industry quite possibly further curtailing production. We expect to see…like, Yara just announced they’re further curtailing nitrogen fertilizer production. They’re actually going through a horrible drought in terms of heat driven weather issues and so we’re cutting our crop estimates. So, their domestic food supply and production is going to take a hit. And that’s an exogenously driven issue. And so, the combination of countries like Germany…one of their largest export markets was Ukraine and Russia combined. They’ve lost that. They have the energy pressure. And so that energy cost push, where sort of the unfortunate poster child is energy, is Europe and what they’re going to, you know, be dealing with for that and how it most likely will get worse over the next six months is our modal situation for there.

And so, a lot of the base industrial stuff that’s happened there in metal side, fabrication, smelting, refining, we think will have to be moved to other countries and areas. And the U.S. will benefit from that in part.

Meb: How are institutions thinking about this? You know, you mentioned starting out all the way from the Goldman commodity index to I feel like institutions loving commodities, then hating them and, you know, oil going negative and all sorts of weird stuff. How are they kind of thinking about and how should investors think about incorporating commodities and sort of resources into a portfolio?

Dwight: So, the answer to your question is, especially for commodity futures but generally for real assets, the problem is most institutions get involved after you’ve had a period of great returns and just outright flat price and where returns are unsustainably high and then they get involved. So, a number of them were burned in sort of that ’08 through ’14 time period where you had commodities briefly peak again in May of ’11 and then come off. And so basically the time period from ’11 through ’20 was the utter elimination of almost all discretionary commodity managers. So, it’s…the volumes in the commodity markets these days are driven by algorithms and systems and everything else. The scale of capital discretionary is fractional and that actually, I think, creates a unique opportunity set for a period of time.

Institutions came to believe there’s no structural alpha in commodities, okay. And so, all these phenomenal investors like Andy Hall, and whatever else, left, okay. And, you know, he’s one of the peers I respect a lot for his knowledge in crude oil. You look at Pierre. You know, he had…he closed his fund the first time and has been able to come back, you know, well, you know, this time. But across the board discretion managers left the space. And institutions had no interest. They had too many iterations where they’d lost money being involved in it. In the past 18 months you’ve had renewed interest and some renewed allocations. There’s still enough institutional memory to be hesitant to really move a large amount of scale cap and a lot of people have therefore missed, you know, the best time period that there ever was which is really the last two and a quarter years.

And I can even see it with my incoming calls. I had all sorts of peers and former colleagues and friends, like, from Tiger who didn’t call me for five, six, seven years and all of a sudden, in the past 12 months, they phone and say, “Oh, Dwight, how have you been? I miss you. Just want to catch up. Hey, what are your thoughts on crude? What are your thoughts on fertilizer, okay?” And so that aspect where if you just correlate sort of inbound calls from people wanting to talk to you again about that and it’s…I would sort of correlate investor interest. So, people are still I’d say effectively underweight, the sector, especially from a discretionary basis but there is renewed interest and has been some renewed flows. In terms of how I think they should do it, I don’t love commodity indices, okay.

It’s a very inefficient way to do it. You know, especially relative to how you normally have negative carries. There’s about two years a decade where you should opportunistically have that exposure, okay. At the end of a bear market and with the right macro backdrop. Other than that, people need to be involved with active and discretionary managers or ELN. So, I think it’s only by being involved with the right assets such as the right farmland as opposed to commodity futures to actually pick up the cash rent, like, or individual assets that you could structurally be invested 5, 10, 15 years. From a commodity future how people think about a long only, it’s too brief a window.

Meb: Yeah. That seems like a perfect segue because you’re, you know, well-known for kind of investing in the entire ecosystem and so companies as well. I know there’s a lot of VC and private as well. What’s the…if you kind of chopped it up as far as the pie, as far as public versus private, is majority of the focus private, early stage? Is it majority public? What’s the kind of split for you guys?

Dwight: Majority capital for our partners these days is private with a large amount of it in sort of agricultural venture capital. But material and metals and mining, fabrication and there’s a great management team at a company called Concord which is involved in sort of logistics movement but also has backed into owning the only alumina refinery in North America where Mark Hansen and his team have just done an exceptional job and it’s become the second largest mover and trader of aluminum in the world. And so, you know, a breadth of different…and so I would start with…rather than public or private, you know, is we look at a combination of great management teams and also sort of an underlying industry in the assets and is there a fit between the two?

Meb: We talk a lot about this. We say, you know, for the public, global market portfolio of all assets, one of the biggest missing kind of pieces being farmland, you know. I mean, talk to Bill Gates for this. But a lot of it is hard to…it’s either that they’re private or it’s through other means but it’s largely…or individually held but hard to access through…I had somebody email me today. It was like, “Meb, why isn’t there any good farmland ETFs?” And I said, “Well, that’s, you know, a long discussion.” But it’s just not necessarily a great fit.

Dwight: Well, one of the things on that, Meb, just is one of the companies that we were co-founding, Capital Four, is one of the largest farming companies in South America who went public on the New York Stock Exchange 11 years ago now, 11 and a half, called Adecoagro. That’s the cheapest farmland you can buy in the world and it’s public so relatively liquid. I mean, it’s trading three and a half times EBIT, EBITDA generating, you know, effectively 30% of free cashflow yields. Like, if people really want to be involved in farming at some of the lowest cost and best run, like, that’s easy. Like, someone could pick up a phone and buy it tomorrow.

Meb: Do you think the low multiple is because it just happens to be in Latin American sort of indices and they’ve been out of favor or, like, why is that opportunity kind of so cheap?

Dwight: So, the starting point is I don’t know why it’s so cheap, okay. It was a $7 and $7.50 stock in December. They’ve had a phenomenal six months. They’ve paid down debt, generated a huge amount of earnings and it went to $13. And we’re back to $7, $7.50 here in the past week. So yes, it’s a fact that it’s not that, you know…you’re talking a little over a billion-dollar market cap. You know, company actually at today’s price…a billion-dollar market cap company. It is something that is…also there are a few material holders so it’s not that liquid, okay. So, you’re right. You are prey to some of sort of the greater volatility that comes from a less liquid stock, you know, that’s tied to both agricultural indices but then South American indices. And so, it’s had an exaggerated effect.

But that’s the opportunity.

Meb: And you said this is Adecoagro?

Dwight: Yeah, its symbol on the New York Stock Exchange is AGRO, A-G-R-O.

Meb: That’s an amazing ticker. I’m a huge fan of good tickers. That’s as good as it gets, AGRO. Yeah, I mean, like, this is an area that I think is ripe for opportunity on an individual name basis. It’s hard on a fund level because I don’t know if the market cap size on trying to put together a good portfolio…you end up just with, like, John Deere and some giant companies that are sort of, you know, tangential to what’s…you really want exposure to. But I could be convinced. Who knows?

Dwight: Well, I think you can back into…so, like, there’s a company out there. Again, South American focus is probably what’s created the opportunity, called Bioceres. Its symbol is BIOX, B-I-O-X. I think that this is the next very large up and coming agricultural input company. Like, you know, what Monsanto was 30 plus years ago. You mentioned wheat and the fires earlier. We’re having huge problems with drought around the world. They just got drought resistant wheat and soybean resistant wheat seeds approved from Brazil to United States to China to Australia. And so, they have unique products, they have a phenomenal footprint within South America. They’ve got great partnerships with Corteva and Syngenta. You look at their pace of growth, you know, is…there are companies out there that are generating 50%, 60% top line growth numbers, okay, that are incredibly affordably different that are out there because they are less than a billion market cap or, to be honest, these days, less than five billion where you can actually build a portfolio in agriculture that is, I think, you know…because of the less liquidity, you know, just something forgotten but it can create massive inefficiencies.

Meb: Good. Well, listeners, by the end of this podcast, we’re going to convince Dwight to launch an ETF. And we’ll get it out there. Think of a good ticker for OSPR. Okay, so, you know, so farmland, you can get some exposure to. Obviously, the metals and mining is kind of well represented in a lot of the public markets. But let’s spend a little time on just kind of ag-tech in general, you know, or your focus on VC. I don’t know that it was ag-tech specific. So, when you’re looking at the private side, is there a general focus and if so, what are you guys looking for?

Dwight: So, the answer is we do private equity investments in metals and mining and related logistics and ag or ag-tech. But where we’ve put together, like, a material amount of our personal capital but also a whole separate investment team is on agricultural technology, Ospraie Ag Science. And it’s really trying to take advantage of sort of what we’ve done our whole lives and what we, you know, know best, which is farming, okay. Most venture capital are sort of incredibly wide, you know, sort of, you know, mile wide and inch thick and they get…you know, they’re looking for a few different call options. And they’ll therefore cast a wide net like farm to table.

We mentioned Adecoagro. We started another farming company in the United States called Teays River which has become one of…it’s private, but one of the biggest farming companies in the United States. And we…all of us, a number of us, own farmland personally or privately. And so that aspect of having built some of the biggest farming companies, we’re also one of the biggest users of these inputs. And seeing the need, you know, for a whole bunch of institutional, environmental reasons to improve what is being done both for the safety of the farmers and the consumers in the world and how that needs to be just as economic. Because as you said, farming is darn hard, okay.

It is incredibly difficult, low margin business. And so, we need to give them something that is just as easy to use, just as economic but is better for the world. And so Ospraie Ag Science is a set of ag-tech investments we’ve made purely tied to farm production, okay. And so, it’s, you know, doing more with less is really the theme. And so, we focus on investing either in sustainable inputs…how do you cut the use of synthetic chemicals, fertilizers and the like or other cleaner forms of production like controlled environment, indoor agriculture? And so, the former CFO of Monsanto who became the CEO of CHS, Carl Casale, you know, sort of leads that group along with Jason Mraz, my co-worker.

Yogesh Magar, who’s an equity analyst who joined with us about 17 years ago, is there. There’s a brother and sister, John and Julie Overbeck who created the biggest seed company in the world who work with us. Tom Wiltrout who ran … seed division and strategy group. And that whole group and related analysts … do nothing but focus on our investments purely in the ag-tech, but on the farm input side.

Meb: So, as we kind of look…you know, and it’s exciting to see but what are kind of the main opportunities? I mean, there’s a lot. I mean, and I imagine someone uninitiated who’s thinking about, “Okay. Farmland.” Is it in seed improvement? Is it in robotics on sort of the automation and kind of removing a lot of the human input? Is it on analytics? Like, is…there seems to be so much going on here. What are the kind of areas you guys are most excited about? It seems like there’s a whole host of possible ideas and areas.

Dwight: Yeah. And the aspect we get is you need to focus, you need to know what you can say no to and where can you compete because some of the things you talked about, we’re going to have phenomenal innovations on. But the individual small start-up companies generally don’t have the ability to compete there. So seed, seed genetics, everything, that’s owned by a couple different companies. Like, you really can’t invest in the area and believe you have the probability of succeeding. You might but it’s not a good bet. And sort of the real massive scale of hardware. I don’t want to compete with Deere, okay, and with their ability to bundle, the scale of research that they can do.

And so, you have to get into the whole paradigm whether it was the craft beer industry and how they go for individual niche brands but then you get…use the distribution of the…if you look at biotech and now pharma and they interact…like, those are the paradigms you can sort of use. And so, for us, the way we take a look at it is that aspect of the input side and the focus on either using cleaner, better or something that allows you to use less in terms of inputs, it’s merely that people haven’t…it’s not in the interest of the fertilizer companies historically or the ag-chem companies. And how do you actually do something that also as their product portfolios age as they move to where they lose patent protection, you know…? And how do you give them products they can wrap together that actually are in their economic interest or don’t compete directly, unique products of a lifetime that are better for the farm and the farmer?

And so really those aspects of unique products to cut the intensity of use. And then the other aspect is a complete reimagination of the farm for where it’s economic, okay, in that over 90% of all our lettuce is grown, you know, in one valley, in two states in America and then just shipped from there, okay. And so, I… what we have done is we’ve taken a look at how do you do indoor farming in a way that actually is economically competing for a return on capital as opposed to just purely operating margin and for water and carbon and everything? And so, where we believe indoor agriculture’s going to go is yes, there’s going to be a place for greenhouses as you’ve discovered from the Netherlands and you’ll have an aspect.

Majority of money that’s going into indoor agriculture has gone for the Arrows, the Boweries, the…you know, you take a look at all of those…the Plenties. They’re doing these massive warehouse-plus size buildings. Very fixed in terms of what they can produce. Not that flexible. Massive capital cost. But also, they need huge amounts of volume and they’re dealing therefore with the most competitive customer base like Walmart, Kroger, Food Lion, you know. Those people are horrible to deal with in commodity products, okay. And so, what we found is there’s a group of very small-scale controlled environment…so whether it’s Freight Farms, Intelligent Growth Systems, people who are the last mile, okay, where you can actually put it into a neighborhood in Long Island or in South Dakota or Jackson Hall, okay, or the center of Indianapolis.

And because transportation logistics costs are so expensive because of the flexibility operation that costs you $140,000 to buy a container farm, okay, is you can actually…because it’s darn expensive to get through Manhattan, to get onto Long Island through the traffic and all the labor and the union and stuff that falls off a truck, okay, to actually get it to the end mile. So that end margin…like, if you’re up in the Upper Midwest, basil and… like, it could be $55 a pound for 10 months of the year. Putting something where you can grow it 12 months of the year or even just 10 when it’s, you know, at the highest price gives you a phenomenal return, sort of an 18-month to 36-month payback because you’re disseminating logistics, okay.

What are the logistics and efficiencies that create a high price at the end market? That also therefore means you’re probably disseminating carbon because I’m growing it in the most inefficient places, the hardest to get to. All of the truck-rail, truck-truck, you know, movements that you have are no longer needed because they’re at the end point and you can deal directly with the customer. So, the most flexible production system at the very last mile, okay, is you’re sort of…is you’re putting the Uber car with different sort of…you know, Uber understands this, there for the customer to actually pull at the end point as opposed to being at the airport, you know, with some sort of a centralized system.

And so that’s really how we think the food system will revolutionize. We’re always going to have the outdoor ag to some degree, you know, in terms of production. You’ll have greenhouses. But niche products, you know, at very high-cost locations, those areas that you’ll be able to produce less water, less input, less carbon and so…and better quality for the end customer because the thing that people don’t appreciate is take something like spinach. When you cut spinach, within 24 hours, you’ve lost 90% of the vitamin C, okay. It’s more than two weeks from usually when it’s cut to when it gets on your Whole Foods shelf, okay. If you have that farm right in your neighborhood, the whole aspect of what we can do for nutritional deserts and food deserts, okay, and food equality is massive and it can be done with these smaller scale footprints at a very logical capital cost and flexibility.

Sorry. I’ll get off my soapbox.

Meb: No, I mean, it’s fascinating. I mean, because I think a lot about the future of farming and every time I’m out at my farm, I’m like, “Why are any humans even here whatsoever?” And you have the dystopian “Idiocracy” outcome where you’re watering the crops with, you know, Gatorade and electrolytes and we destroy our food system. But then the utopian side, which is, like, you figure out a much better for the environment, a much more thoughtful, less wasteful way to go about this. And the obvious entry use case is some of the specialty high margin crops. Is this something you kind of see a handful of companies coming to dominate? Is it…are there even any category leaders at this point? Is there a way to invest in that theme or is it more of a trend that’s hard to invest in?

I know you mentioned Freight Farms.

Dwight: And Intelligent Growth Systems, IGS. So those companies are still private. One of the things that’s really missing at the moment in the public market is, you know, I’d say midcap agricultural tech input related companies. You have the behemoths, you have a few small caps but nothing really in between. And so, the aspect of helping to close that gap by taking some of these private companies public at the right time in their development, management and market is going to be there to create it. There’s also a gap to be honest in the agriculture venture capital space. Like, there are a lot of people who can write a $500,000 or $5 million check. There’s a good number out there who can write sort of $100 million plus. But those $15, $20, $40, $50 million as the companies are evolving, is a complete gap actually in the ag-tech VC space.

And so how to invest in it? I’d say at the moment sort of put a pin in it in terms of that aspect. You have a number of small cap companies out there, a few, like I mentioned Bioceres and the like or Plant Health Care which exist and are out there but they’re few and far between and they’re not that large or liquid yet. Most of these are private companies that are in their sort of early hypergrowth and development stage and are building the scale and management needed to take them public. So, they’ll get there and the people will have access to it and they should be looking for it. But you did mention one other thing and that I forgot to touch on, that we are…is we’re in a world of collapsing low-cost labor availability.

China’s facing it, Japan, South Korea, ourselves, whatever else. The other theme that…within sustainable crop inputs but especially controlled environment is how…and that people like Deere are really focused on correctly is how do we eliminate labor cost? It’s just labor purely because of lack of availability. Like, we let berries rot in the field now because we don’t have enough people to pick them, okay. Is one of the number one themes you’re going to see in agriculture is different aspects of automation because we have to. Like, it’s one of those things. Like, it’s not ESG driven, whatever else, is it’s mandatory because of the fall of labor availability. And that’s going to be massively fruitful that people should put on their radar.

Meb: Any other companies that you guys have funded or invested in in the last handful of years on the private side, you think are doing particularly interesting, impactful work that you think have some bright prospects or just cool to talk about?

Dwight: Well, there’s one I would love to touch on despite the fact that people came from the safety school of University of Virginia. And so, it’s a company based on Charlottesville called AgroSpheres, okay. And it’s two young gentlemen from…whose parents themselves came over from Iran and Pakistan, okay. And they were doing lab work, you know, both for undergrad and for one on the master’s level, okay, for something called an AgroCell. It’s a lipid-based coating, okay, that you could, you know, custom create to put around individual biologic products, ag-chemical products or even something more at the molecular level as you get down to sort of RNAI. These are some of the most intelligent people we’ve ever met, scientific and business wise.

Like, mature beyond their years. Like, I’m not as mature and competent as these gentlemen and the company they’re building are, in terms of how thoughtful and organized they are. And so, it is potentially transformational. There’s been billion dollars spent and wasted for people trying to figure out how do you get RNAI to be used and be able to implement it actually in a way in agriculture? And their technology from AgroSpheres might actually be able to do it. And we’re seeing it work over on the ag-chem side as well. So not as transformational or not to total scale but that is a company that despite its origin, okay, in terms of…from Virginia. It is possibly the most exciting team and company and product and one of the most transformational that’s out there.

Meb: And so, you know, I know of like, Apeel and some of these that do, like, coatings. Is this coating based? Or this more of an actual genetic level?

Dwight: So, Apeel, run by Jim Rogers who’s also a good Pittsburgh Stealers fan is great in terms of trying to eliminate food waste and sort of you know, prolong the shelf life and be able to control that. This is for the input side in the farming or into crops, okay. So as opposed to the actual produce side. You know, so they focused upon avocados to start at Apeel, and then moved into bananas. This actually goes into the plant. And how do you use dramatically fewer chemicals and get them brought into a plant in a much more effective, efficient way so that there’s a…? And so AgroSpheres is designed to help farming whereas Apeel is designed to sort of help minimize the waste that goes on in logistics distribution.

Meb: How often…and I assume the answer is often. But do the sort of various parts of your business inform each other? Like, how many folks do you guys have at this point, you know, across the various parts of this business and how often is it sort of meshing where, you know, the commodity side informs the VC side, informs everything going on?

Dwight: I’d love to be able to give you a quantitative answer in terms…I could give you the answer in terms of people. So, in terms of sort of direct or directly affiliated or controlled sort of research investment, sort of trading professionals, okay, you know, we have over 30 people who are just focused on sort of the individual companies’ positions, research, analyses of the markets and companies therein. The answer in terms of how one plays to another and how often, is I don’t know whether I’d call it a mosaic or a skyscraper where you’re actually building the incremental floor at a time. And so, all we do is meet with companies in our space whether consumers, producers, service input providers. And so, with any individual meeting whether you learn something about a competitor or a competitor company, about a commodity, it’s something that is constantly building. It is a huge amount of time and effort and investment, Meb, and you have to constantly reinvest into your network in terms of the people and in terms of that knowledge in terms of what’s going on.

And so the luxury we sort of have, is all we do is basic industries, okay. So, every company that we do is relevant to our space. It might or not be relevant, any individual meeting to private equity or commodity or a public equity or private equity but it helps increase your understanding of the possibility or the reality, okay. And so, it is a constant feedback loop that helps you sanity check, you know, we might be wrong or what things could be. And so, since we don’t do tech, telecom, healthcare, finance, retailing, all we do is different aspects of basic industry, you might go into an energy meeting and all of a sudden figure out something that’s going to drive the aluminum market or zinc smelting or fertilizer and what that’s then going to do to the cost of production for corn.

And so, the answer is it’s not as granular where I could go, “Well, it’s 60% this, 40% that.” It’s in aspect that everything reinforces each other. And there is an aspect that we learned over time and that one of the things that we thought would be hugely beneficial was actually owning physical assets and owning physical assets in scale in that we invested in ConAgra’s green elevator and trading network that became Gavilon that Greg Heckman and John Neppl and the team created a phenomenal company. So, it became the second biggest mover, storer of grains and oil seeds in the U.S., second only to ADM, bigger than Cargill. And so, I used to think that owning that network would be a phenomenal information advantage for us.

The reality is it’s good to have done, to learn but while you actually own that, we were a massive competitor to Cargill so Cargill would no longer talk to us, okay. If we were just an investor in the space in commodities or futures, we were a material customer of Cargill, you had great dialogue. And so, the advantage I picked up from owning and knowing the assets and being deeply integrated, I lost some of it because one of the biggest companies in the space now viewed me as a competitor. So, the aspect of being deeply involved in the space so that people know that you understand it, you develop a knowledge but where you’re not definitively a consistent competitor actually is a great mix because having owned the assets, we understand what they are…no longer owning them, I’m not a direct competitor, okay.

And so, it’s an interesting aspect of whether something is a plus or a minus. And people market, “Oh, we own the physical assets. We have better information on this.” You know, like I said, it’s a plus minus.

Meb: So, as we look out to the horizon…it’s summer 2022. Like, what have we not talked about that’s on your brain? This could be hey, look, I’ve always wanted to fund this ag-tech idea. It just…we haven’t found the right team or, you know, I’m thinking about something that, you know, others are not thinking about or I’m worried or hey, it’s just summer sabbatical and that’s that. What’s on Dwight’s brain this summer?

Dwight: Let me give you a few different things. One of the things out there is generally almost every basic industry equity whether it’s economically sensitive or not is priced for depression. You look at something like Mosaic that’s trading, you know, three and a half, you know, times PE earnings with effectively no net debt and the structural changes in the fertilizer industry and the margins and you go, “Why is that?” You take a look at something like cocoa or as we spoke, corn, and how they’ve sold off across the board…is a number of securities, commodity and equities are priced where you have to have a recession for where they’re priced. There’s no other justification for their price on their…there’s none of it you’re seeing in the demand or the balance sheets today.

And so, if we don’t move into depression quickly or recession quickly, then you’re going to see a large number of the publicly traded base that gives you equities and a number of the commodities move 20%, 50% from here because everyone you know out there, the consensus is people are worried about a recession. They expect a recession. It’s baked in. If you don’t have one, if you don’t have recession demand for each one, anything where that doesn’t occur is going to be a material mover. And so that’s a little bit out of consensus when everyone I know is expecting a recession, okay. So that’s one thought.

Meb: And you think in particular the big beneficiaries are the cheap stuff or the natural resources, metals and mining, all the above, ag?

Dwight: So, I don’t do tech, telecom, healthcare. So, I don’t know if they’re cheap or not, okay. I also understand the risk and concern about a recession, okay. And so I go, “Okay. It’s hard in metals and mining, okay, to say okay, is…” That’s something that you’re comfortable with the next 12 months of earnings because there is real risk to that recession we spoke about. I think that if you have real long duration capital where you care about value today and what it’ll be worth over three years, there are some real opportunities in metals and mining. Like, we take a look at the structural deficit that’ll occur in copper if you just have a mediocre world for the next three years.

And the companies in that space are incredibly cheap. But will copper be $1,500 a ton cheaper first? That I’m less confident on, especially, you know, going out to the public and recommending it. Is I take a look at companies like…random companies. There’s a company called GrafTech, okay. It does graphite and carbon anodes that go into mini mills. And so, where we’re going to grow steel capacity in the world to replace blast furnaces because…that are carbon footprint for us, are mini mills. You need their anodes for that. They make a synthetic graphite that we’re going to need for electrical vehicles for the batteries outside of China. They make that material.

And you’re talking about a company that’s trading, like, under five times earnings, okay, with … no net debt. It’s just way too cheap, a $2 billion market cap company with good float. And so that’s something that almost regardless of how we go, is too cheap. We talked about Mosaic, what are the inputs? You know, those companies are just structurally, you know, sort of, you know, too cheap. Like, when I look at something where the public, you know, traded EMPs, you know, is at one and a half to three times EBIT, EBITDA or even depending upon your carbon conscience, the coal companies. You’re looking at, you know, 20% to 80% free cashflow yields in these spaces.

Some of those will fall but I only know our space and the number of our names in our space are just too cheap regardless of the economic cycle.

Meb: Well, you’re speaking to a quant so half the time I don’t even know what’s in our portfolios but if you look at our traditional value cashflow based strategies not just in the U.S. but in foreign and EM energy and materials across the board is, like, 30% to 40% of the portfolio. It’s showing a lot of opportunity there. We’ll see how it plays out. But I feel like the value crowd I’m friends with has been singing that tune for a while. And so hopefully we’ll have our day in the sun at some point. It’s been doing better but a lot of the foreign and emerging has just been getting absolutely pummeled. Part of that’s probably a dollar story too.

Dwight: Meb, you look at fintech and crypto. There’s a publicly traded company called CoinShares out there, okay. As of their last quarter, they had effectively 50 Swedish krona per share net cash and are generating free cash, okay. The company’s trading 36 krona. It’s 14 krona below net cash and a company’s generating with good crypto beta, you know, to the upside, you know. And so, there’s these entities out there. If you’re willing to go to small cap aspect where…is the valuations are ludicrous. And so is…whether it’s something like CoinShares in the crypto world, okay, where you’ve got around, I’ll use round numbers…50% to get to cash, okay, or the things we talked about in the fertilizer ENP, you know, there’s phenomenal value out there in these spaces, even the ones that we touch and know.

Meb: It was a good biotech bud PM I was hanging out with recently and he had sent me over a chart and so even in the biotech space which has gotten pummeled, you know, the amount of companies trading at or below cash is a record or it’s right at a record going back to couple of other periods in the last 20 years. And biotech usually does this every four years. It kind of has a big run and goes through dark times and, you know, resettles but it’s up there with some cheap stuff. I imagine we could do an entire podcast or entire series. Maybe you need your own podcast just to do these series but essentially Dwight telling stories about due diligence and company and farming trips all around the world for the past 20 plus years where…I don’t know how many stamps you have on your passport but I’m guessing it’s a lot.

In these far-flung locales and hopefully you get to do more of it on Zoom at this point. I’m not sure but…

Dwight: Meb, what I would love to do at some point is for us to get together in person over dinner because there’s a lot of stories that I would love to share with you that I will not put into a podcast.

Meb: I promise I won’t record it. Well, you had a great profile in our local buddy’s Steve Drobny’s book. Listeners, we’ll add a link to that. But as you look back…this is going to be hard because it’s been probably thousands if not tens of thousands of investments at this point. What’s been the most memorable? Is there one that sticks out? Good, bad, in between?

Dwight: Yeah. The first private investment that I was ever party to and helped lead was an investment into a company called Clark Refining and Marketing. It’s when I was at Tiger. And Chevron was selling a complex refinery and I had developed a thesis that there was going to be a material expansion of complex refining margins. And so, we…there’s a gentleman named Peter Monk who was materially in real-estate but created American Barrick, now Barrick Gold and we knew and he had gotten involved in refining and marketing via a company called Clark Refining and Marketing. And so, we agreed to put the capital into Clark Refining and Marketing to buy that Port Author complex refinery. So, we put, you know, roughly $130 million in.

Clark Refining and Marketing was a refining company also with gas stations. It had old, small, higher cost refineries inland, in the middle of nowhere, port logistics. Their gas stations were in bad demographic areas and they weren’t on the corner of the street. They were in the middle of some random street. And we had an inexperienced management team and we had a bunch of high yield debt which at the time was truly high yield and expensive. And you then subsequently also had, you know, the Asian crisis and then eventually, complex refining margins exploded and Port Arthur became one of the most profitable assets in the world. Unfortunately, Clark Refining and Marketing went bankrupt before then, okay.

We were able to get out a little bit earlier where we sold our investment for about $98 million and change. So, we lost a little over $30 million. And I still…it’s one of the few corporate mementos that I keep. And I keep it from my checklist as a starting point of what not to do for the investments we make going forward. So, to this day, it’s probably one of my most memorable.

Meb: Dwight, this has been really super fun. I would love to do it again sometime. If we have some of those midsized checks, right, the $15 million ones, not the $100 million you guys…not the $100,000 but the ones you say aren’t in the ag space, where do people go if they want to find more information on you guys, what you’re up to? What’s the best place?

Dwight: Best place is reaching out to us via the Ospraie Ag Science website. And so, there’s, you know, investor communication or, you know, how to reach us there.

Meb: Thanks so much for joining us today.

Dwight: And Meb, I really appreciate it. Look forward to catching up again.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at the mebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.