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Commodity Volatility & ETF changes

The continued fallout from the CFTC review of position limits is driving changes to Commodity ETFs as outlined by Matt Hougan's article on yahoo.
http://finance.yahoo.com/news/DBC-DBA-To-Diversify-indexuniverse-230311872.html?x=0&.v=3


ETFs have interplayed with the market price determination mechanism to use real, expected and perceived shortages to drive considerable volatility in the prices of these commodities.  These changes have the potential to drive the inflation expectations for input prices in a variety of industries and consumers.  The future effects on margins and stock prices need to be considered.

Old DBC
New DBC
Commodity
Weight
Commodity
Weight
WTI Crude
35.00%
WTI Crude
12.38%
Heating Oil
20.00%
Brent Crude
12.38%
Gold
10.00%
Heating Oil
12.38%
Aluminum
12.50%
RBOB Gasoline
12.38%
Corn
11.25%
Natural Gas
5.50%
Wheat
11.25%
Gold
8.00%
 
Silver
2.00%
Aluminum
4.17%
Zinc
4.17%
Copper Grade A
4.17%
Corn
5.63%
Wheat
5.63%
Soybeans
5.63%
Sugar
5.63%
 
Old DBA
New DBA
Commodity
Weight
Commodity
Weight
Corn
25.00%
Corn
12.50%
Wheat
25.00%
Soybeans
12.50%
Soybeans
25.00%
Wheat
6.25%
Sugar
25.00 %
Kansas Wheat
6.25%
 
Sugar
12.50%
Cocoa
11.11%
Coffee
11.11%
Cotton
2.78%
Live Cattle
12.50%
Feeder Cattle
4.17%
Lean Hogs
8.33%

Some of action has been to diversify the specific future used. For example, DBC went from 35% West Texas Intermediate Crude, 20% Heating Oil to 12.38% WTI, 12.38% Brent Crude, 12.38% RBOB Gasoline, 12.38% Heating Oil, 5.5% Natural Gas.  This may result in a more broad movement in prices and/or subdued movement.

These concentrated positions in Crude had driven the WTI prices and now that effect maybe muted unless there is a broader consensus among more market participants on the futures outlook.

This also suggests that some commodities that were less volatile may indeed increase in volatility i.e. Retail Gasoline may become more volatile catching up with topsy turvy crude prices.

This does dampen some of the market momentum for gold and spread it a little to Silver as well.  This may affect the largely downward bias in the US dollar and bring risk assets back into the dollar.

From the broader economy and stocks, the effect on Metals and Agriculture maybe more important, given the ability to affect general input prices for manufacturing companies.  The shift in DBC from 11.25% Wheat, 11.25% Corn to 5.63% Corn, 5.63% Wheat, 5.63% Soybeans, 5.63% Sugar may shift pricing volatility away from Wheat and towards Sugar given some of supply problems in India especially.

Overall this may shift volatility from specific future spikes to general spikes that may happen in commodities with historically lower volatility and challenge companies ability to manage production costs for Consumer Staples companies.