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Hello and welcome to another episode of the OddLotss podcast. I'm Joe Wisenthal

and I'm Tracy Aloway.

Tracy, you know I've never had Nutella before.

I know that. I think we were talking about this the other day and I said, and I mean this 100% and I don't mean it to come off badly, but I genuinely feel really sorry for you for never having Nutella. I feel like you are missing out on one of the the best things in life.

And you know, I've never had uh the Dubai chocolate before either.

I know. Again, my sympathy for you just continues to expand.

So, as everyone knows, you know, I'm just like a real ahead of the curve guy on most things. I was really ahead of the curve on having nut allergies because now like all kids basically have nut allergies it seems like or like half the kids in any uh my kids class. But I was like really early on in the 19

You were having nut allergies before it was cool.

I was having nut allergies before it was cool. I'm aware that people love Nutella. I'm aware that people love Dubai chocolate or some people do or they at least like posting about it on Instagram and all things pistachios etc. And yes, but I I I take it it's all good stuff.

It's so good. Oh my god. Um, it's I mean there is nothing better than eating Nutella out of a spoon or sorry eating Nutella out of a jar with a spoon. Preferably with a glass of milk. Like it is so good.

It looks good.

Do you buy chocolate?

Have you had it?

I have, but I'm not that enamored with it.

Interesting. I remember like I it was probably like a year and a half ago and I just started seeing like signs like we have the Dubai chocolate.

Oh, they're everywhere now. But the I the other day I went to my uh the local deli on my block and they had five just on the counter. They had five different version five different companies selling it. Five different products that you could buy which I take is just some sort of you know chocolate with some sort of creamy pistachio in the middle and if you break it open it looks good on social media.

That's pretty much it. I do find it kind of funny that this like viral chocolate has come out of Dubai of all places which doesn't necessarily have a strong confectionary history but uh it has certainly tapped into various luxury markets. So I think that's what's going on. I was looking through uh the uh conference call transcripts uh on the Bloomberg a few weeks ago and I was looking like what companies have talked about this and there's one big Swiss publicly traded chocolateier and they talked about it and they talked about I guess it was a woman in Dubai just started making it then they called it the Dubai chocolate anyway they were talking about how fast they adapted to Tik Tok trends etc. But I guess the business of nuts and uh how it works not something that we discuss much maybe because of my own you know I'm I'm allergic to talk about these topics.

Well there is one nut that you can eat.

That's right. Almonds.

Almonds. And I still managed to poison you once with almonds. I feel really bad about that.

Yeah. How did that happen?

I don't know. I So for listeners, I didn't do it on purpose. I bought him some of those Korean nuts that we'd been talking about in the snack food episode and they were almonds so we thought they were okay

but like laced with something else. There were I didn't die.

Yeah. So, that's always a plus. I didn't kill my co-host.

Anyway, despite my own because I'm a journalist dedicated to learning about the truth about the world, I will get over my personal biases against nuts in pursuit of journalistic truth and learning more about how all these businesses work, the chocolate business and all these work, how these work, just because I I I want to learn more about the world even when I cannot partake of its goodness. Um I think that is a very worthy cause. The one thing I would say is this is really interesting from just a investment and business perspective because you have heard every once in a while people do get really excited about nuts as an investment. And the example I'm thinking of is remember Michael Bur 10 years ago. Yeah. His whole thing was invest in almonds because they're so water intensive. It's basically a play on water shortages.

I don't think it worked out that well. So either I'm kind of curious. Uh yeah, that was like at the end of the big short that very cryptic ending where they're like and after betting against the collapse of the US housing market, he has now shifted his attention to almonds.

No, no, no. They said water. They didn't even say almonds would

very strange. It was Anyway,

yes. What can we learn through the medium of uh of nuts? Anyway, very excited to say that we have a couple of guests today who have been doing a lot of work on nuts. someone uh a couple of guests. I think we talked to them about 5 years ago during the pandemic. Uh they're interested in frontier markets. They go all around the world looking for interesting opportunities that are off the beaten path. They've been doing some research on the hazelnut industry and they're based in Dubai. We're going to be speaking with Burton Flynn and Ivan Neunev. They are managing partners at Terteranova Capital. They scour the world for interesting stories. They're based in Dubai. Burton and Ivan, thank you so much for coming back on OddLots.

Thank you so much for having us.

Yeah, thanks for having us.

I just have like a really simple question. In Dubai, is it just called chocolate? Like cuz it's or do they also specify that it's Dubai chocolate even when it's in Dubai?

Well, you know, the the original Dubai chocolate is is called fix. Um and and so in Dubai there's fix chocolate and then there's the knockoff, you know, other kinds of chocolates. And uh the fixed chocolate, I didn't know this when I received it as a gift once actually about 6 months ago when the first time I had it.

Uhhuh.

Somebody brought it to my house. They brought me five bars and and uh as a gift and we ate them that week and then later I found out that these bars go for like $25 a piece.

Oh, that was a good gift.

So I I did Yeah, it was

Wait, how much of that is the um the cocoa price versus the pistachio price? Because we've seen both of those kind of go up recently. Oh, well I mean this this was before any of that went up, right? So So this is this is all just margin based on uh marketing, I think, branding.

So why don't you tell us generally speaking besides the fact that you're in Dubai actually tell us about the work that you do? We we sort of covered it in when we talked to you in 2020, but presumably we have a lot of listeners who haven't listened to that episode. Why don't both of you tell us like how you approach your work discovering new thing interesting things around the world?

First of all, what we look for our objective is to find stocks that can double in 12 months. And the way that we do that is we look for basically you you guys know growth uh GARP investing, right? Growth at at a reasonable price. We are not GARP investors. Uh we are growth at an unreasonable price investors. We go out and we we look for uh really huge uh earnings growth that is being completely mis mis uh misunderstood or completely overlooked because you know what we believe that a good stock you know it has to be a good business plus something that's fundamentally misunderstood. So the the way that we do this is we approach it from se several different angles. One is that on a daily basis we're looking at insider transactions. Basically CEOs buying shares of their own companies. We find that to be a really strong signal. We also look for companies that have very good leading indicators to their earnings and and we try to monitor those. And then also periodically we like to reach out to all of the companies we've met. And at this point we uh together Ivan and I have met over 2,000 companies. We've conducted 2600 meetings in the past six years um with both of us in in all of those meetings. Most of those were with CEOs. And so, uh, we like to reach out periodically and just ask about topical situations that are happening. Uh, the most recent one was the Trump tariffs, you know, and and understand how it's affecting their business. So, we get kind of a a global view based on a a bottomup perspective.

So, how did nuts actually get on your radar other than, you know, a friend gave you 25 bars of overpriced luxury chocolate?

Well, you know, it's an interesting story because we are based in Dubai. So just by definition we are right in the center of this Dubai chocolate hysteria. Like you see Dubai chocolate bars everywhere in the grocery stores. Then you see them when you order food online. You see them on the billboards and uh you know sometimes you hear from people that haven't been in touch for like 10 years and then they message you and all they want is not not not actually even ask how are you doing but they just want you to ship some Dubai chocolate to them by some express uh you know courier delivery. And you know it it's fun. A lot of media has written about um the Dubai chocolate phenomenon and I think there was also a claim that uh Dubai chocolate led to some severe shortages of pistachios and skyrocketing prices of pistachios which is debatable. Um but one day we were in the office and we were just just joking around and we were saying look you know pistachios are such a kind of a hot niche commodity now let let's let's have a look at something else. What about hazelnuts? Cuz you know they're also used in chocolates and so on, even in some of the variations of the Dubai chocolate, the knockoff ones. Uh, and we checked kind of the recent news about hazelnuts just to see what's going on with the hazelnuts. And u, and what we found was actually quite, you know, it was really, really, really interesting.

Well, before we actually get to the hazelnuts, I'm curious. You mentioned there were these media reports of pistachio shortages or skyrocketing uh skyrocketing prices and then you said but that's debatable. What actually is happening? You know I don't know. I don't know. I don't think we have like a pistachio index on the terminal although I've never actually looked.

I think a lot of them come from um Iran which might also

right which might also but like actually what like how do you what is happening in the pistachio market? What has been the effect so far as you can tell from the Dubai chocolate craze to the actual trade in pistachios?

Yeah, actually quite a lot has to do simply with weather. It's not only it's not only the Dubai chocolate demand uh but a lot of that has to do with the weather and just the weather was not favorable enough uh and the the crop was not good enough. So as simple as that. So because I remember there was one expert on pistachio supply chain and he was saying that basically there's now so much talk and a lot of media articles claiming that it's all about Dubai chocolate but in reality Dubai chocolate doesn't use the raw uh pistachios you know it's a paste and a paste is very very diluted so you don't really need like all the pistachios in the world to produce Dubai chocolate but you know if the weather events affect uh the crop then of course the price of the commodity will go up. And this is something that also happened uh to the hazelnuts this year.

So it's a supply story more than a demand story for pistachios at least.

It could be both. Could be both. But without the supply shortage, there would not be such a severe price appreciation.

How did Turkey get into the hazelnut business? Because they seem to have made a conscious decision to actually, you know, nurse this particular type of agriculture.

Yeah, it's it's a long story uh which goes back thousands of years and u the situation is that uh Turkish Black Sea region is naturally the best region in the world uh to grow hazelnuts because hazelnuts need a cool winter. They also need sunny warm spring and also need a rainy summer and this is exactly what the Turkish Black Sea region gives them and they've been cultivated in Turkey for thousands of years. So today there are 600,000 farmers that grow hazelnuts in Turkey and there are over 5 million people in Turkey who are in some way involved in the hazelnut farming or trading business. So it's it's a very very long history. It just came naturally. It's just where the hazelnuts grow. In a given year, Turkey produces about 70% of all the hazelnuts in the world. So the the concentration in this industry is huge. It's like 70% of all hazelnuts. So if something happens to the Turkish hazelnut crop, you know, the consequences to the supply can be severe.

What is the market structure of the Turkish hazelnut industry? How fragmented are those 600,000 farmers? Is it huge aggra businesses uh that dominate the trade? And then what is the exchange process like? I don't know. I assume there's not hazelnut futures, but talk to us about like that process by which the uh the nuts get to the processors and then f into an finished product.

Yeah, so there's 600,000 farmers. They're quite fragmented. It's basically some artisan mom and pop farmer shops and then there are some wholesalers uh who buy hazelnuts from the farmers uh when the harvest time comes around which is actually next week and then the wholesalers uh they might sell their hazelnuts to the exporters and then the exporters sell them abroad or some of these wholesalers they also act as exporters. So, so basically if you compare the hazelnut industry in Turkey to the one in Chile, then the Turkish one is much more old school. It's very small orchards, it's family businesses, it's some standalone farms. Uh whereas for example in in Chile, it's kind of industrial scale. So, so and then once a year this all gets consolidated. Uh the farmers sell their hazelnuts to wholesalers and then the entire kind of chain starts. It's quite fragmented and and you know the the quality of the entire hazelnut production in Turkey is lower than in some other parts of the world because also it's not only the history, it's also kind of the terrain. It's a bit hilly. Uh it's much harder to have this huge fields of hazelnut plantations. It's a long-standing tradition and it's very very hard to bring any innovation into the Turkish hazelnut farming.

Okay. So you have a traditional business that's resistant to innovation in an emerging market that is very very fragmented and also pretty untransparent because it's not like you can look up a single benchmark for hazelnut prices. How do you deal with I guess the opakeness of a niche commodity like this when you're evaluating an investment?

Well, this is this is exactly the kind of situation we love actually is is opakeness because it means that it's difficult for others to kind of access, you know, access the information. And so the the way we approach it is we try to find primary sources, right? And so in this in this case, we have had the opportunity to talk to the world's largest hazelnut processing company and basically understand the the market situation from them, you know, and then kind of collaborate this with other sources that we find and and you know, continue to to ask them questions to to understand the the market situation. But uh you know it it's possible that we might be the you know some of the world's best best experts on hazelnuts uh even though we didn't know anything about them two months ago.

There is pricing. It's not something you can pull up on Bloomberg. So basically when we were talking to the the COO of of this Hazelnut operating uh operator um he said that uh you know it's it's it's basically a price that um is called on the phone. I mean it's this is like old school trading you know practices.

There are no hazelnut futures. It's nearly impossible to trade hazelnuts you know through any agricultural exchanges and it makes this market so inaccessible that it's it's very hard it's very hard for a regular investor to play it. I mean, I think the only way to play the hazelnut market is probably through this only listed public uh like the only publicly listed hazelnut processing company in the world and it's listed in Turkey, which also is not so easy to access. But when it comes to hazelnuts themselves, it looks like you just need to to find the party that can sell this hazelnuts and you just buy the bags, the tones of hazelnuts, but you also need to find a transportation. You need to find the storage and then then you need to find a buyer when you want to sell. So it's a it's a very very difficult one to access.

something I'm interested in, you know, this idea of there not having been much productivity gains in the actual farming of hazelnuts. And I'm sort of fascinated by the degree to which different commodities inherently lend themselves to varying levels of mechanization in production. Right? And so, you know, you could have competitively priced wheat in that's grown in America, competitively priced wheat that's grown in Russia, competitively priced wheat or corn that's grown in Brazil, all because there's very little labor involved. You have like one one uh combine out there on a giant field. And then you have other commodities that are inherently labor intensive because not so easy to automate. What have you seen you know as you've gone around the world to frontier various frontier markets the sort of range by which some commodities lend themselves to productivity gains and some don't.

You know for example in this hazeland industry right we can look at Turkey which we discussed it's artisanal

and then we can look at something like Chile. So by nature, Chile is not necessarily the best place for growing hazelnuts because it doesn't have enough moisture. However, if you manage to provide enough irrigation, then you solve that issue. So in Chile for example, uh you can grow hazelnuts with a much much higher yield uh than in Turkey. You can have huge plantations of hazelnuts. you provide irrigation and then you can get probably five six times more hazelnuts per hectare of land than in Turkey. And this is all this is something that started happening in the last several years. Uh and um the projection is that Chile will become the number two producer of hazelnuts in the world in about 7 to 10 years with a production capacity of 200,000 tons a year which still compared to the Turkish supply capacity of 800,000 tons a year is quite small you know and and this just um kind of uh underlines the the sheer importance of the Turkish market for hazelnut business.

Um, do you have any idea why Chile decided to go in on hazelnuts? I'm just very curious about how they make these decisions because, you know, it's not necessarily a completely natural crop. As you pointed out, Chile doesn't have, you know, that much rainfall and so they have to do something in order to foster this industry. Why did they decide on hazelnuts in particular?

The initiative comes from um from the bottom up. So for example, this largest hazelnut processor that's based in Turkey, they decided to expand in Chile, right? So it it wasn't kind of Chilean government initiative. It was kind of the com the corporate initiative because they looked at many different countries. They looked at New Zealand uh where it's more hilly which would be more difficult. They looked at Latin America and in Chile there is this great culture of um basic of growing agricultural commodities right it's industrialized it's uh possible to make it large scale uh and they just needed to add irrigation and that would be it. The other thing is that it provides a very nice diversification for them, right? Because as we're talking about, there was a huge weather event that disrupted the supply in Turkey. Turkey is the vast vast majority of of the production. So for them to have, you know, the crop in an entire different hemisphere, um, you know, with with different conditions provides, you know, provides some sort of diversification.

What do you tell us about that weather event specifically since this seems to be central to your interest? How big of a deal is it? Is it a one-off? And second of all, like give us the overall sort of supply demand imbalance that you analyze right now for the hazelnut market.

Every about 10 years, uh there's a big frost that happens in Turkey. So the previous ones happened in 2004 and 2014 and this year there was a very very major frost in April which destroyed onethird of all Turkish hazelnuts. Basically in a few days one third of the entire crop was destroyed and uh frost like this as I said they happen once every 10 years they are quite oneoff but the thing is that this year Turkey had a very very warm spring so the hazelnut trees started developing much earlier and then when the frost happened they were exposed to this huge risk and they got damaged really badly. Now this is one thing. So the frost destroyed onethird of the Turkish hazelnut crop. The second thing is there's another kind of small little creature uh named the marmmorated brown the brown marmmorated stink bug which only settled in Turkey in 2017 but it has become so widespread that in a given year it can destroy from 10 to 20% of the entire hazelnut crop in Turkey. So we read some academic research about it. It was fascinating. So on top of the frost, you also have the stinking bug. But then that's not the entire story. Then there's also the heat. And in the western Black Sea region in Turkey this year, the summer was the worst summer in the last 65 years. The hottest, the driest summer. And um what does it mean? It means that the hazelnuts that did survive the frost, that did survive the stink bug, they will not develop as well as they should have because they need moisture. The nuts, the kernels, they need the moisture. But without the moisture, without the water, with this huge like dry hot weather, they will be damaged. They will be underdeveloped. Some of them won't develop at all at all. So just to give you some numbers, so the expectation for this year's crop was 768,000 tons of inshell hazelnuts in Turkey. Now after the frost, after the stink bug impact, and after the heat, the Ministry of Agriculture in Turkey now estimates this year's crop to be at around 450 460,000 tons, which is about 40% lower supply than expected. This is for the inshell hazelnuts. Now kind of going back to this heat uh if you look at the kernels then the kernels will be impacted even more. So last year for example the yield which is measured as the proportion of the weight of the kernel to the weight to the weight of the entire hazelnut was 48%. This year it will be much lower. So the actual hazelnut kernels which is what's important will probably be in shortage by about 45 up to 50% this year. So now the entire Turkish crop might suffer by 45 50% this year which means the entire global crop of hazelnuts might suffer by 35%.

And the demand the demand for Turkish hazelnuts is 320,000 tons for the export and 70,000 tons for the domestic use. So 390,000 tons of kernels. This is kernels. And the production of kernels this year in Turkey will probably be half that. So we're looking basically at a supply which will be half of the demand.

Joe, I have to say that I am unfortunately very familiar with marmorated brown stink bugs because they've made their way to New England, too. Oh, really? Yeah. They're invasive there, too. And in the winter, they really like to crawl into old houses and just

And they really smell. Huh.

They if you scare them, they smell. Okay.

Or if you kill them.

Um and they just sort of fly around and make a lot of noise. Anyway, okay. The thing I don't quite get about this particular investment, I guess I I understand there's a shortage, a potential shortage of hazelnuts, and that could translate into higher wholesale prices, but how does that actually feed into higher prices or profits for the hazelnut processor, who I assume, you know, has to pay the higher prices on the wholesale end, and then maybe they can charge higher prices for it at the retail end, but you know, it's not guaranteed that that margins going to go up?

Well, first of all, they have some inventory uh which they have built over the past season and the thing is the processor applies mathematical models and weather weather pattern prediction models to uh manage their inventories. So this year when there was a very very warm winter and early spring, they knew that if some kind of frost happens, it doesn't have to be a severe frost because the hazelnuts already developed quite a bit. So if something happens, then the damage will be severe. So they managed to increase their inventory, right? This is one thing. The price in the market of course will go up a lot. We looked at the previous frosts in 2004 and 2014. So the prices for hazelnuts went up about three and a half 4x from just before the frost to about one year later. Right? So if you have inventory and if you hold on to it and then you kind of sell it later, you make some profits. But also uh even when you buy from the farmers and when there's this shortage of hazelnuts in in the world you can kind of command higher margin and the buyers will have to pay it you know because they have no other option.

The inventory uh reported on their Q1 financial report was $164 million which is I think something like a third of of their market cap. Um and that's you know that's before the increase in in prices.

What is the structural demand story for hazelnuts? So again, we're t, you know, with the pistachio question, we know that whether whether it's the demand that's driving the price or the supply, we know that demand has been booming. Maybe the Dubai chocolate trend will fizzle out at some point. But for we don't know, but uh for hazelnuts, what is the long-term structural demand outlook look like? Because we already have hazelnut chocolate which is already

right and it's already been huge and Nutella has been a staple of the internet and people talking about it the culture for a long time. Is it rapidly growing still? Has it plateaued? What's happening there?

It's not growing rapidly but it's still growing. For example, from 2014 until now the demand for hazelnuts went up more than 30% overall. So I would say it's probably like a 2 3% a year growth which which is still there. So it's it's slow but uh it's it's going up. And you mentioned Nutella. Just wanted to mention very interesting fact. Um so Ferrerero Ferrero buys a quarter of the entire uh global hazelnut supply every year. So so it sounds really fascinating you know that one single kind of entity just buys the quarter of the entire supply. So, one of the really interesting things I think that's been happening in the world certainly since 2020 is this idea of overlapping emergencies. That's Isabella Vber's term, but this idea that, you know, something dramatic always seems to be going on and it always seems to be sparking some sort of shortage. And we've certainly seen that in the world of commodities. And I can rattle off a bunch of, you know, pretty like niche ones that have had some sort of supply squeeze. So cocoa, obviously, orange juice, wheat during Ukraine, Russia, hazelnuts, now maybe pistachios earlier. Would you expect as more of these happen to for those markets to become maybe more financialized or maybe more easy for investors such as yourselves to invest in?

Well, I I don't know about um it making it easier to invest in, but I think that these kinds of events create huge opportunities. you know that you you mentioned Coco. Um, Coco's really interesting because uh this is actually something that we studied last year and we came across a a stock uh which is one of the only stocks that you can sort of play Coco and it's it's um listed in Malaysia and it's you know it doesn't have massive liquidity but it has it has sufficient liquidity and uh we we had noticed last year of course there was a weather event that caused the cocoa you know cocoa supply to to drop by about 14% you This is because in West Africa they they produce 70% of of the global cocoa supply. You know, we we started looking at potential plays on on cocoa. By the time we found this stock that we looked at, uh it it had already played out. But what we did was we created a case study to understand kind of how how this timing worked out. What we found is actually that the cocoa prices um increased several months before the stock price had increased. So again, it's it's another case of kind of an obscure company that u that people weren't really watching even though there's there's sort of an obvious play. The other really interesting thing that we noticed about this company is we looked at the insider buying disclosures and the CEO and and the the management were buying like crazy. The the the stock leading up to or you know kind of as as the weather event um and the the glo cocoa supply situation was was developing. So I I'm not sure about uh you know providing better access but I think that these sorts of uh global events you know can provide really huge opportunities if you you know if you kind of do the work right

but for Coco I mean you could just go out and buy a future right or I think there's even a Coco ETF now why not just do that is that because your expertise is sort of in single stock businesses or you don't want to become a commodity player and

we're we're not top down investors we're very much bottomup investors And so you know so so when something like this is happening of course you can play the trend of the you know the the cocoa price itself but that you know that's obviously going to also depend on kind of the market dynamics. What we find is that there's bigger opportunities in in sort of a second order which is you know a a cocoa company that's going to benefit you know from these prices. their their earnings, but the earnings lag, you know, a quarter, two quarters, and this the stock really gets rewarded when, you know, when they start producing the earnings, uh, at least in in these sorts of markets, you know, that's why we see this as as a more interesting way to play it than than just writing the, you know, the trend of the the futures prices.

Can you talk, you know, you mentioned finding a random cocoa company in Malaysia and the due diligence work you have to do, reaching out to management? Can you talk about the state of essentially IR uh in frontier markets? Right. We go to a website like an American big company like a Pepsi or something and they have this incredibly full IR page that has you know their presentations and the number of the uh you know the main person and all their earnings etc. How varied is the quality of IR in the markets that you look at?

Hugely varied. Um and uh so so in the case you know in the case of this hazelnut processor uh they only have investor relations uh materials basically in Turkish um which is you know of course you can you know if you do the work you can you can translate this stuff easily uh these days but but you know what we found over the years is that some companies have very good investor relations practices and and some don't and we've uh selectively taken opportunity to basically uh teach companies how to improve their investor relations practices. Basically, we we give them free consulting, you know, after they've become portfolio companies on on basically best practices on investor relations. What we've seen is that uh some companies have been highly willing to engage with us to improve their their investor relations practices. Uh other companies have have kind of shied away from it. And you know, we we actually looked at the the uh the results of companies that we engaged with. And we found that the companies that were willing to engage with us were three times as likely to see their stock prices double in the 12 months following our engagement than other stocks uh that we had bought in our portfolio. So, so it could be on the one hand that these recommendations are very valuable that uh companies now, you know, are going out to the market and sharing how great their their business is and and investors are are learning about that. Another, you know, another uh explanation could be that it's a feedback loop and that, you know, companies that have really great things to tell are the companies that, you know, are are happy to go out and talk to the market. Whereas, you know, if they really don't have great things coming down the pipeline, they don't really want to go out and and make a lot of noise.

Yeah, Tracy, I had a friend of mine, this was like 20 years ago, etc., but he was engaged in some forms of like frontier market investing, and he thought there was like a pretty big alpha opportunity in essentially doing exactly what Burton just described. I think he once told me about I don't know a chain some company that owned a lot of gas stations in Laos or something like that and the opportunities that it's like here can I just like help you build out your IR page because your financials are really compelling and almost nobody almost nobody even knows about them or could figure it out even if they wanted to.

Did it work?

Uh I don't know but it see but it it seems like an interesting idea. Um, okay. So, if we look at the past uh 2014 frost, the past president, how long did that actually have an impact on prices or how long did it take for hazelnut prices to normalize?

So, what happened in 2014? Uh, the price started going up in March 2014, right after the frost when the degree of destruction became clear and then it reached its peak at the end of April, early May 2015. So the following year and then by that time usually it's quite clear if the new crop of the new year will be substantial or not. So in that case it was quite a good crop and the prices started going down quite uh quickly. So uh the price went up over 3 and a halfx from March 2014 to May 2015 and then it dropped uh I would say about 50% in just one one and a half months.

So I still have time to buy Nutella before the big price spike.

Yeah, you know when we looked at it, so first there is like a 30% spike uh from the time of the frost uh till August when the harvest starts. Uh and then from August to late April there is kind of the the the mo most of the price increase uh happens uh in that time frame. I just have one last question and it's inspired by a tweet I saw yesterday from the Chinese embassy in the US and they're talking about um the des deesertification that they're doing in China essentially turning desert into arable land and I'm curious uh what you're seeing if that's something that you're thinking about. I mean, we're so used to talking about disruption coming from China from a manufactured standpoint, but in terms of its own, I mean, it has a lot of land. Much of it historically has not been arable. They're trying to reverse that, which you can obviously do if you have sufficient access to irrigation technology and electricity, etc. When you look out in the long-term hazelnut uh supply story, you mentioned Chile growing. uh is this is going to be a big story and more is this a story that you're thinking about in a markets whether hazelnut or general China turning itself into a a sort of a man-made bread basket

everything is possible um but it it's a very very long-term top- down trend so our job is we are emerging markets uh investors traveling the world in search of hidden gems through bottom up opportunities so I mean it's possible but again it's a very long-term top- down sort of trend. And as I mentioned, Chile might produce double the number of hazelnuts they do today uh in 10 years. But then who knows what's going to happen to the weather patterns in Turkey in 10 years because it looks like, you know, the winters are becoming warmer and the summers sometimes are becoming drier and hotter and uh I think the predictability is getting uh worse.

Burton and Ivan, thank you so much for uh coming back on OddLots. I've learned a lot about uh hazelnuts, which I didn't know about. And I hear they're good, but I still don't know. But now I have to take our word for I can't taste them, but at least I know something about them now.

To us, hazelnuts taste much better than Dubai chocolate. At least it's much healthier.

All right. Well,

yeah. Thank you.

Tracy, I think your uh invocation of overlapping emergencies is really apt. Like we're going to be doing a lot of these episodes in the future about all kinds of niche commodities over the years.

It does feel like that. And there are some technological solutions that I guess can help at the margins. But even in that conversation, Burton and Ivan were talking about, you know, this Turkish processor. They have weather technology. So they had an early sign that the hazelnuts had grown, you know, big early, which made them susceptible to a potential frost. And so they started building up their inventory and then lo and behold, the frost hit and they're in a relatively good position. That's good for them, but it doesn't expand the absolute supply of hazelnuts, right?

Yeah. I feel like a tech is like a really interesting story. You know, we did that episode with the lentil king of Saskatchewan uh several months ago, and I feel like there are sort of two different things because farmers in any country, as he noted, are always going to be among the politically most protected class. Politicians feel some sort of obligation to protect farmers almost always. On the other hand, like any other good, you know, there's going to at least in theory be opportunities for genuine productivity gains. and if Chile is stronger at irrigation etc. It'll be interesting to watch the sort of like interplay between like technology that gets applied to growing anything cultivating anything including in Chile and maybe in the future in China versus the political desire and sort of legacy producers to um you know protect the the small artisan farmer on the hillside.

Yeah, that's right. There is that tension and it becomes more prominent the more overlapping emergencies that we see.

I think the problem for hazelnuts is that they're brown and they could it's just never going to go viral the same way because it just does not that green if the pistachio whether in chocolate or now you know you see them a lot more like um on top of a croissant shredded up etc.

Like that's just made for 2025 in a way that a hazelnut isn't. Also, sorry, but hazelnut chocolate is already a classic.

No, like it's already it's mature.

Maybe someone can come up with uh green hazelnuts.

Yeah, genetic engineering.

Yeah. Yeah,

that's the next frontier of viral chocolate making. Genetically engineered nuts,

better looking produce. I mean, that really is going to be the key, right? I I unironically any piece of produce that photographs well, etc. is going to be big. I mean, this is why people drink matcha.

Glitter infused hazelnuts. What's going to happen?

Shall we leave it there?

Let's leave it there.

This has been another episode of the All Thoughts Podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway.

And I'm Jill Weisenthal. You can follow me at the stalwart. Follow our producers Carmen Rodriguez at Carmen Dashel Bennett at Dashbot and Kalebrooks at Kalebrooks. For more OddLots content, go to bloomberg.com/odlots.

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