Last year was a tough one for the commodities complex and most agriculture commodities were not spared punishment.
The PowerShares DB Agriculture Fund (DBA) was among the punished, faltering 13.2%, but the found has bounced to gain 4% in 2014. The $1.24 billion DBA does not hold physical commodities. Rather, it tracks the DBIQ Diversified Agriculture Index, giving the fund exposure to multiple farm-based commodities. [Spotlight on Agriculture ETFs]
DBA’s rebound has taken the fund back above its 50- and 200-day moving averages and it now faces a stiff technical test in the $26 area.
“DBA is too far extended for a low-risk entry point, but we will continue to monitor the action as we wait for a 4-5 base to form above the 40-week moving average. We’d also like to see the 10-week moving average climb above the 40-week moving average, and for the 40-week moving average to turn up, according to Deron Wagner of Morpheus Trading Group.
“The longer-term monthly chart below shows that DBA could possibly stall out above $26, as there is resistance from a prior swing low and a weekly downtrend line. The ideal price action over the next several weeks is for DBA to break the downtrend line on heavy volume, then base out for several weeks above $26,” added Wagner.
Pivotal to DBA’s near- to medium-term fortunes are three commodities that, in consumption terms, often go together: Coffee, cocoa and sugar. The combined base weight to those commodities in DBA is about 35%.
Amid shortages in the Ivory Coast, cocoa was one of the few commodities to notch an impressive 2013 performance and the iPath Dow Jones-UBS Cocoa Total Return Sub-Index ETN (NIB) is up another 7% this year.
The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (JO) entered Thursday’s trading as 2013 top-performing non leveraged exchange traded product, but even with a 6% loss, likely driven by profit taking, JO is still up more than 25% this year. [Brazil Boosts Coffee ETNs]
Investors interested in DBA should monitor weather news out of Brazil, one of the world’s largest coffee and sugar products.
PowerShares DB Agriculture Fund
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.