The Investors Who Think Hazelnuts Will Be the Next Pistachios

We're in an age where shocks can occur on both the supply side and the demand side. On the supply side, the causes are well known. Pandemics, trade wars, and climate disruption have exposed the frailty of supply chains in goods too numerous to list. On the demand side, the tendency for certain goods to suddenly go "viral" among consumers can be impossible to predict. Take Dubai chocolate. The craze for pistachio-filled candy came out of nowhere, in part thanks to social media. Our guests on this episode are super bullish on a different nut. Burton Flynn and Ivan Nechunaev are managing partners at Terra Nova Capital Advisors, where they look for unusual investments in frontier markets all around the world. On this episode, they tell us about their bull case for hazelnuts, including where they're grown, the economics of hazelnut agriculture, and the limited ways of playing this popular nut. Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

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• 3:00Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 3:16Tracy Alloway?

  And I'm Tracy Alloway.

• 3:17Joe Weisenthal?

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

• 3:19Tracy Alloway?

  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 best things in life.

• 3:35Joe Weisenthal?

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

• 3:38Tracy Alloway?

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

• 3:42Joe Weisenthal?

  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. Cause now like all kids basically have nut allergies, it seems like, or like half the kids in any of my kids' class. But I was like really early on in the 1980s.

• 3:58Tracy Alloway?

  You were having nut allergies before it was cool?

• 4:00Joe Weisenthal?

  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, et cetera. And yes, but I take it it's all good stuff.

• 4:14Tracy Alloway?

  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.

• 4:28Joe Weisenthal?

  It looks good.

• 4:29Tracy Alloway?

  Dubai chocolate.

• 4:30Joe Weisenthal?

  Have you had it?

• 4:31Tracy Alloway?

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

• 4:34Joe Weisenthal?

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

• 4:41Tracy Alloway?

  Oh, they're everywhere now.

• 4:43Joe Weisenthal?

  But the other day I went to my, the local deli on my block and they had five, just on the counter, they had five different versions, five different companies selling it, five different products that you could buy, which I take as 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.

• 5:03Tracy Alloway?

  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 confectionery history, but it has certainly tapped into various luxury markets. So I think that's what's going on.

• 5:19Joe Weisenthal?

  I was looking through the conference call transcripts 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 chocolatier 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 TikTok trends, et cetera. But I guess the business of nuts and how it works, not something that we discuss much, maybe because of my own, you know, I'm allergic to talk about these topics.

• 5:53Tracy Alloway?

  Well, there is one nut that you can eat.

• 5:55Joe Weisenthal?

  That's right, almonds.

• 5:56Tracy Alloway?

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

• 6:00Joe Weisenthal?

  How did that happen?

• 6:01Tracy Alloway?

  I don't know. 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.

• 6:10Joe Weisenthal?

  But like laced with something else. They were almonds. I didn't die.

• 6:14Tracy Alloway?

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

• 6:17Joe Weisenthal?

  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 and the chocolate business and all these work, how these work. Just because I want to learn more about the world, even when I cannot partake of its goodness.

• 6:39Tracy Alloway?

  Um, I think that is a very worthy cause. The one thing I would say is this is really interesting from just an 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 Burry?

• 6:56Joe Weisenthal?

  Almonds and water.

• 6:57Tracy Alloway?

  Like 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.

• 7:07Joe Weisenthal?

  I don't think 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.

• 7:20Tracy Alloway?

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

• 7:23Joe Weisenthal?

  It was 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, a couple of guests, I think we talked to them about five 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 Nechunaev. They are managing partners at Terra Nova Capital. They scour the world for interesting stories. They're based in Dubai. Burton and Ivan, thank you so much for coming back on Odd Lots.

• 8:04Speaker 07

  Thank you so much for having us. Yeah, thanks for having us.

• 8:09Joe Weisenthal?

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

• 8:19Speaker 07

  Well, you know, the, the original Dubai chocolate is, is called Fix. Um, and, and so in Dubai, there's fixed 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, uh, about six months ago, when the first time I had it, 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.

• 8:49Joe Weisenthal?

  Oh, that was a good gift.

• 8:50Speaker 07

  So I, I did, yeah, it was.

• 8:53Tracy Alloway?

  How much of that is the cocoa price versus the pistachio price? Because we've seen both of those kind of go up recently.

• 9:00Speaker 07

  Well, I mean, this was before any of that went up, right? So this is all just margin based on marketing, I think, branding.

• 9:09Joe Weisenthal?

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

• 9:30Speaker 07

  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 guys know growth, GARP investing, right? Growth at a reasonable price. We are not GARP investors. We are growth at an unreasonable price investors. We go out and we look for really huge earnings growth that is being completely misunderstood or completely overlooked. Because, you know, we believe that a good stock, you know, it has to be a good business plus something that's fundamentally misunderstood. So the way that we do this is we approach it from several different angles.

• 10:13Speaker 07

  One is that on a daily basis, we're looking at insider transactions. Basically, CEOs buying theirs 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 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, together, Ivan and I have met over 2,000 companies. We've conducted 2,600 meetings in the past six years with both of us in all of those meetings. Most of those were with CEOs. And so we like to reach out periodically and just ask about topical situations that are happening.

• 10:55Speaker 07

  The most recent one was the Trump tariffs, you know, and understand how it's affecting their business. So we get kind of a global view based on a bottom-up perspective.

• 11:04Tracy Alloway?

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

• 11:11Speaker 08

  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 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, not actually even ask how are you doing? But they just want you to ship some Dubai chocolate to them by some express, you know, courier delivery. And you know, it's, it's fun. A lot of media has written about Dubai chocolate phenomenon.

• 11:50Speaker 08

  And I think there was also a claim that Dubai chocolate led to some severe shortages of pistachios and skyrocketing prices of pistachios, which is debatable. Uh, 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's, let's, let's have a look at something else. What about hazelnuts? Cause 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, and what we found was actually quite, you know, it was really, really, really interesting.

• 12:33Joe Weisenthal?

  Well, before we actually get to the hazelnuts, I'm curious. You mentioned there were these meteor 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.

• 12:55Tracy Alloway?

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

• 12:58Joe Weisenthal?

  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?

• 13:12Speaker 08

  Yeah, actually quite, 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 is 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 pistachios. You know, it's a paste and the paste is very, very diluted. So you don't really need like all the pistachios in the world to produce Dubai chocolate.

• 13:56Speaker 08

  But you know, if the weather events affect the crop, then of course the price of the commodity will go up. And this is something that also happened to the hazelnuts this year.

• 14:08Tracy Alloway?

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

• 14:13Speaker 08

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

• 14:20Tracy Alloway?

  Well, 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.

• 14:29Speaker 08

  Yeah, it's a long story, which goes back thousands of years. And the situation is that Turkish Black Sea region is naturally the best region in the world 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 a very, very long history. It just came naturally.

• 15:14Speaker 08

  It's just where the hazelnuts grow. In a given year, Turkey produces about 70% of all the hazelnuts in the world. So 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.

• 15:50Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 16:06Speaker 09

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.

• 16:15Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 16:23Speaker 10

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 16:42Speaker 00

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• 16:52Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 17:34Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at chatgpt.com.

• 18:15Speaker 02

  Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, they provide products and guidance built to help you thrive. Right now, earn $500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires January 21, 2027. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence. Learn more at chase.com/podcastbizoffer. Chase: Make more of what's yours. Fees may apply to Chase Business Complete Checking accounts. The $500 offer is available

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• 19:15Joe Weisenthal?

  What is the market structure of the Turkish hazelnut industry? How fragmented are those 600,000 farmers? Is it huge agribusinesses 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 nuts get to the processors and then into a finished product.

• 19:39Speaker 08

  Yeah, so there's 600,000 farmers. They are quite fragmented. It's basically some artisan mom-and-pop farmer shops. And then there are some wholesalers who buy hazelnuts from the farmers when the harvest time comes around, which is actually next week. And then as wholesalers, 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. Whereas, for example, in Chile, it's kind of industrial scale.

• 20:24Speaker 08

  So, so and then once a year, this all gets consolidated. 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. It's much harder to have these huge fields of hazelnut plantations. It's a longstanding tradition and it's very, very hard to bring any innovation into the Turkish hazelnut farming.

• 21:00Tracy Alloway?

  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 opaqueness of a niche commodity like this when you're evaluating an investment?

• 21:25Speaker 07

  Well, this is, this is exactly the kind of situation we love, actually, is, is opaqueness. 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 hazel.

• 22:08Speaker 07

  That's, uh, even though we didn't know anything about them two months ago, so.

• 22:12Tracy Alloway?

  What do you look at in terms of just pricing?

• 22:14Speaker 07

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

• 22:36Speaker 08

  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 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, 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 find the party that can sell these hazelnuts. And you just buy the bags, the tons of hazelnuts, but you also need to find a transportation.

• 23:19Speaker 08

  You need to find the storage and then you need to find a buyer when you want to sell. So it's a very, very difficult one to access.

• 23:45Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 24:29Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 25:08Speaker 02

  Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, they provide products and guidance built to help you thrive. Right now, earn $500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires January 21, 2027. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence. Learn more at chase.com/podcastbizoffer. Chase, make more of what's yours. Fees may apply to Chase Business Complete Checking accounts. The $500 offer is available

• 25:52Speaker 02

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• 26:08Speaker 11

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• 27:06Joe Weisenthal?

  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 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 combine out there on a giant field. And then you have other commodities that are inherently labor intensive because it's not so easy to automate.

• 27:49Joe Weisenthal?

  What have you seen, you know, as you have 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?

• 28:00Speaker 08

  You know, for example, in this hazelnut 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, you can grow hazelnuts with a much, much higher yield 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.

• 28:42Speaker 08

  And this is something that started happening in the last several years. And the projection is that Chile will become the number two producer of hazelnuts in the world in about seven 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 this just kind of underlines the sheer importance of the Turkish market for hazelnut business.

• 29:19Tracy Alloway?

  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?

• 29:40Speaker 08

  The initiative comes 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 wasn't a kind of Chilean government initiative. It was kind of the corporate initiative because they looked at many different countries. They looked at New Zealand, where it's more hilly, which would be more difficult. They looked at Latin America. And in Chile, there is this great culture of, basically of growing agricultural commodities. Right? It's industrialized. It's possible to make it large scale. And they just needed to add irrigation and that would be it.

• 30:24Speaker 07

  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 the production. So for them to have, you know, the crop in an entire different hemisphere, you know, with different conditions provides, you know, provides some sort of diversification.

• 30:47Joe Weisenthal?

  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.

• 31:04Speaker 08

  Every about 10 years, 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 one-third of all Turkish hazelnuts. Basically, in a few days, one-third of the entire crop was destroyed. And frost like this, as I said, they happen once every 10 years. They are quite one-off. But the thing is that this year, Turkey had a very, very warm spring. So the hazelnut trees started developing much earlier.

• 31:42Speaker 08

  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 one-third of the Turkish hazelnut crop. The second thing is, there's another kind of small little creature named the marmorated brown, the brown marmorated 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 stink bug. But then, that's not the entire story. Then there is also the heat.

• 32:27Speaker 08

  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 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. So just to give you some numbers, so the expectation for this year's crop was 768,000 tons of in-shell hazelnuts in Turkey.

• 33:12Speaker 08

  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 450,000, 460,000 tons, which is about 40% lower supply than expected. This is for the in-shell hazelnuts. Now, kind of going back to this heat, 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 way, to the weight of the entire hazelnut was 48%. This year, it will be much lower. So the actual hazelnut kernels...

• 33:54Speaker 08

  Which is what's important will probably be in shortage by about forty five up to fifty percent this year. So now the entire Turkish crop might suffer by forty five, fifty percent this year, which means the entire global crop of hazelnuts might suffer by thirty five percent. And the demand, the demand for Turkish hazelnuts is three hundred twenty thousand tons for the export and seventy thousand tons for the domestic use. So three hundred ninety thousand 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.

• 34:38Tracy Alloway?

  Joe, I have to say that I am unfortunately very familiar with marinated 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,

• 35:22Tracy Alloway?

  who I assume, you know, has to pay the higher prices on the wholesale end, and then maybe they can charge higher prices for the retail end, but you know, it's not guaranteed that that margin's going to go up?

• 35:33Speaker 08

  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 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.

• 36:16Speaker 08

  We looked at the previous frosts in 2004 and 2014. So the prices for hazelnuts went up about three and a half, four X 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, 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.

• 36:50Speaker 07

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

• 37:02Joe Weisenthal?

  What is the structural demand story for hazelnuts? So again, we're, 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 for hazelnuts, what is the long term structural demand outlook look like?

• 37:27Tracy Alloway?

  Because we already have hazelnut chocolate, which is already a staple of my diet.

• 37:31Joe Weisenthal?

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

• 37:41Speaker 08

  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 is still there. So it's it's slow, but it's going up. And you mentioned Nutella. Just wanted to mention a very interesting fact. So Ferrero, Ferrero buys a quarter of the entire global hazelnut supply every year.

• 38:11Speaker 08

  So it sounds really fascinating, you know, that one single kind of entity just buys the quarter of the entire supply.

• 38:19Tracy Alloway?

  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 Weber'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, for those markets to become maybe more financialized

• 39:01Tracy Alloway?

  or maybe more easy for investors such as yourselves to invest in?

• 39:06Speaker 07

  Well, I don't know about making it easier to invest in, but I think that these kinds of events create huge opportunities. You know, you mentioned cocoa. Cocoa is really interesting because this is actually something that we studied last year. We came across a stock, which is one of the only stocks that you can sort of play cocoa. And it's listed in Malaysia and it's, you know, it doesn't have massive liquidity, but it has sufficient liquidity. And we had noticed last year, of course, there was a weather event that caused the cocoa, you know, cocoa supply to drop by about 14%.

• 39:46Speaker 07

  You know, this is because in West Africa, they produce 70% of the global cocoa supply. You know, we started looking at potential plays on cocoa. By the time we found this stock that we looked at, it had already played out. But what we did was we created a case study to understand kind of how this timing worked out. What we found is actually that the cocoa prices Increased several months before the stock price had increased. So again, it's another case of kind of an obscure company that 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

• 40:28Speaker 07

  at the insider buying disclosures and the CEO and the management were buying like crazy the the stock leading up to or, you know, kind of as as the weather event and the cocoa supply situation was was developing. So I'm not sure about, you know, providing better access, but I think that these sorts of global events, you know, can provide really huge opportunities if you, you know, if you kind of do the work, right?

• 40:56Tracy Alloway?

  But for cocoa, I mean, you could just go out and buy a future, right? Or I think there's even a cocoa 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?

• 41:10Speaker 07

  And we're not top down investors. We're very much bottom up 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 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 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 the the stock really gets rewarded when, you know, when they start producing the earnings, 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

• 41:54Speaker 07

  riding the, you know, the trend of the the futures prices.

• 41:58Joe Weisenthal?

  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 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, you know, the main person and all their earnings, et cetera. How varied is the quality of IR in the markets that you look at?

• 42:33Speaker 07

  Hugely varied. And so in the case, you know, in the case of this hazelnut processor, they only have investor relations materials, basically in Turkish, which is, you know, of course, you can, you know, if you do the work, you can, you can translate this stuff easily these days. But, but we, you know, what we've found over the years is that some companies have very good investor relations practices and some don't. And we've selectively taken opportunity to basically teach companies how to improve their investor relations practices. Basically, we, we give them free consulting, you know, after they've become portfolio

• 43:16Speaker 07

  companies on, on basically best practices on investor relations. What we've seen is that some companies have been highly willing to engage with us to improve their, their investor relations practices. Other companies have, have kind of shied away from it. And, you know, we, we actually looked at the, the, 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 that we had bought in our portfolio. So, so it could be, on the one hand, that these recommendations are very valuable, that companies now, you know, are going out to the market and sharing how great their,

• 44:00Speaker 07

  their business is and, and investors are, are learning about that. Another, you know, another 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.

• 44:24Joe Weisenthal?

  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, can I just like help you build out your IR page because your financials are really compelling and almost nobody, nobody even knows about them or could figure it out even if they wanted to.

• 44:57Tracy Alloway?

  Did it work?

• 44:58Joe Weisenthal?

  Uh, I don't know, but it's, but it seems like an interesting idea.

• 45:01Tracy Alloway?

  Um, okay. So if we look at the past 2014 frost, the past precedent, how long did that actually have an impact on prices? Or how long did it take for hazelnut prices to normalize?

• 45:14Speaker 08

  So what happened in 2014, 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 quickly. So the price went up over three and a half X from March 2014 to May 2015, and then it dropped, I would say about 50% in just one, one and a half months.

• 45:57Tracy Alloway?

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

• 46:02Speaker 08

  Yeah, you know, when we looked at it, so first there is like a 30% spike from the time of the frost till August, when the harvest starts. And then from August to late April, there is kind of the The most of the price increase happens in that timeframe.

• 46:19Joe Weisenthal?

  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 the de-desertification that they're doing in China, essentially turning desert into arable land. And I'm curious 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, et cetera. When you look

• 46:59Joe Weisenthal?

  out in the long-term hazelnut supply story, you mentioned Chile growing, is this going to be a big story and more, is this a story that you're thinking about in ag markets, whether hazelnut or general China turning itself into a sort of a man-made breadbasket?

• 47:18Speaker 08

  Everything is possible, but it's a very, very long-term, top-down trend. So our job is, we are emerging markets, 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 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 I think the predictability is getting worse.

• 48:00Joe Weisenthal?

  Burton and Ivan, thank you so much for coming back on Odd Lots. I've learned a lot about hazelnuts, which I didn't know about. And I hear they're good, but I still don't know.

• 48:09Speaker 08

  You have to take our word for it.

• 48:10Joe Weisenthal?

  I can't taste them, but at least I know something about them now.

• 48:13Speaker 08

  To us, hazelnuts taste much better than Dubai chocolate.

• 48:17Joe Weisenthal?

  Okay.

• 48:18Speaker 08

  At least it's much healthier.

• 48:20Joe Weisenthal?

  Well.

• 48:20Speaker 08

  Yeah, thank you.

• 48:34Joe Weisenthal?

  Tracy, I think your 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.

• 48:44Tracy Alloway?

  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 low 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?

• 49:17Joe Weisenthal?

  Yeah, I feel like ag tech is like a really interesting story. You know, we did that episode with the Lentil King of Saskatchewan several months ago. And I feel like they're 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, et cetera, it'll be interesting to watch the sort of like interplay

• 49:56Joe Weisenthal?

  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, you know, protect the small artisan farmer on the hillside.

• 50:13Tracy Alloway?

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

• 50:19Joe Weisenthal?

  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, the pistachio, whether in chocolate or now, you know, you see them a lot more like on top of a croissant shredded up, et cetera. Like that's just made for 2025 in a way that a hazelnut isn't.

• 50:39Tracy Alloway?

  Also, sorry, but hazelnut chocolate is already a classic.

• 50:42Joe Weisenthal?

  No, yeah, that's true. Right. Like, it's already, it's mature.

• 50:45Tracy Alloway?

  Maybe someone can come up with, uh, green hazelnuts.

• 50:48Joe Weisenthal?

  Yeah, genetic engineering.

• 50:49Tracy Alloway?

  Yeah.

• 50:50Joe Weisenthal?

  Yeah.

• 50:50Tracy Alloway?

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

• 50:54Joe Weisenthal?

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

• 51:07Tracy Alloway?

  Glitter infused hazelnuts. Okay.

• 51:09Joe Weisenthal?

  It's gonna happen.

• 51:10Tracy Alloway?

  Shall we leave it there?

• 51:11Joe Weisenthal?

  Let's leave it there.

• 51:11Tracy Alloway?

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

• 51:17Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 51:38Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about niche commodity markets and short squeezes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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