ETF Spotlight on PowerShares DB Agriculture (NYSEARCA:DBA), part of a weekly series.
Assets: $2.1 billion
Objective: Tracks the Deutsche Bank Liquid Commodity Index Diversified Agriculture Excess Return
Holdings: Composed of futures contracts on agricultural commodities, including cattle, cocoa, coffee, corn, wheat sugar and soybeans.
What You Should Know
- Like most commodity ETFs that hold futures contracts, contango is a factor; when the spot price is lower than the futures price, funds can lose money when contracts are rolled forward to the more expensive contract.
- One of the most compelling reasons to invest in commodities is to participate in global growth. Developed economies show high demand for a variety of commodities, while newly-minted middle classes in emerging markets are increasing their demand.
- Commodities are also an effective hedge against inflation, though this isn’t an immediate concern.
- A basket of futures is one of the easiest ways for an investor to play commodities; managing a slate of futures contracts yourself and rolling them at the appropriate time is a time-consuming and expensive endeavor.
The Latest News
- Purchases of U.S. beef around the world have surged while U.S. herd numbers are down. The shortage has driven up the futures market for cattle by 11% since early July to nearly $1 a pound, just shy of the $1.04 record set in 2008.
- Poor crops in Russia and Eastern Europe have caused international wheat prices to jump more than 50% since June. Many are hoping that the United States will pick up the slack.
- There’s a coffee bean shortage right now. Fueling the price spike further is a weak harvest and a world growing increasingly full of coffee drinkers. Brazil’s harvest may be the savior and ease things, but the catch is that Brazil tends to keep a lot of its crop for itself an the crop is expected to be lower than in years past, anyway.