Sam Patel for TheStreet reports that the top ETF performers for the third quarter were the inverse, or short, ETFs. These funds are designed to go up whenever the markets go down.

As with any investment, it’s wise to be aware of the risks. While these funds do present opportunities in down markets, investors need to use them with caution. While market whipsaws in a negative direction can bring good news, those in a positive direction can cause quick losses.

Some of the top short ETFs for the third quarter and their performance numbers include:

• UltraShort Basic Materials (SMN), up 85.3%
• PowerShares DB Oil 2X Short (DTO), up 76.5%
• PowerShares DB Commodity Double Short (DEE), up 70.4%
• PowerShares DB AGR Double Short (AGA), up 67.9%

Wall Street’s most recent week has also seen some stunning losses that have benefitted these funds. Among the top short ETFs this week, shown with a one-week performance chart, include:

• Rydex Inverse 2x S&P Select Sector Energy (REC), up 69.2% (black line)
• ProShares UltraShort Telecommunications (TLL), up 79% (green line)

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

These types of funds are merely two years old, and the timing of their market debut was perfect.

ProFunds originated these funds back in 1997, when bear market index funds were created for investment professionals, reports Billy Fisher for TheStreet. The first short ETFs were launched in the summer of 2006, and those funds were:

• Short QQQ ProShares Fund (PSQ)
• Short S&P 500 ProShares Fund (SH)
• Short Dow 30 ProShares Fund (DOG)
• Short Midcap 400 ProShares Fund (MYY)

Since then, the number of not only these ETFs, but providers offering them and asset classes they cover, has expanded to include such funds as:

• PowerShares DB Agriculture Double Short (AGA)
• PowerShares DB Gold Short (DGZ)
  
• Rydex Inverse 2x Russell 2000 (RRZ)
• Rydex Inverse 2x S&P Select Sector Financial (RFN)
• Market Vectors Double Short Euro (DRR)

ETF investors no longer have to wait out on the sidelines while market turbulence dominates. Instead, they can benefit from both the ups and downs of markets while hedging their short-term risk. By subtracting the short-term risk, inverse ETFs have given investors the option to expand one’s holding period in a long position quite comfortably.

We caution investors, however, to be aware of the risks of these funds and to understand what they’re getting into. Because they can be especially susceptible to whipsaws in the marketplace, sticking to your sell strategy is key.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

After a 27-year break, the country has started buying our wheat again. It’s a sign of the limited options for importers who want high-quality grain, say Tom Polansek and Louise Radnofsky for the Wall Street Journal. Their timing is good, too: wheat production is expected to be slightly higher after good weather followed up damaging flooding in the Midwest.

Since June 1, Iran has purchased more than one million tons of hard red winter wheat, and it’s described as a “very large amount.” The size of the purchases mean the 3% to 4% of U.S. wheat exports are going to a country we haven’t done business with in more than a quarter-century.

Iran has been hit hard by drought, slashing their own production by one-third this year. The fact that they came to the United States to buy their wheat shows how dire the situation is, since the two countries are locked in a battle over their nuclear program.

Iran had been a major wheat importer as recently as 2001-02. The last time it come from us was in 1981-82.

The United States is the largest exporter of wheat for the market years 2008-09. Canada, the European Union, Australia and Russia round out the top five.

• iPath DJ AIG Agriculture Total Return Sub-Index (JJA), up 6.6% year-to-date
• DB Agriculture Double Long (DAG), down 12.1% since April 15 launch
• DB Agriculture Double Short (AGA), up 0.3% since April 15 launch
• E-TRACS UBS Bloomberg CMCI Food (FUD), up 7.3% since April 4 launch
• ELEMENTS MCLX Grains Index (GRU), down 2.3% since Feb. 15 launch

Timothy R.  Homan and Courtney Schlisserman of Bloomberg report that in the last month, gasoline is down 6%, copper is down 14% and corn 26%.  These lower prices helped diminish some of the threat to the economy.   But consumers may not be ready to jump right in and spend, as unemployment is still rising and property values falling.  The survey did find a drop in consumers’ expectation of inflation for the next 12 months. 

Motor vehicles and parts helped manufacturing as The Federal Reserve reported that industrial production was up 0.2% in July, according to Martin Crutsinger of AP.  The increased auto activity was due to the resolution of a three-month strike at GM’s largest axle supplier.  Industrial production also did well due to exports.

Oil and other commodity prices continue to decline today, easing investor concerns that high energy prices would mean consumers would keep cutting their discretionary spending.

Some ETFs that are reacting to the new include:

• PowerShares DB Agriculture Double Short ETN (AGA), up 6.5% in intra-day trading; down 5.3% for past 3-months
• Rydex S&P Equal Weight Consumer Discretionary (RCD), up 6.4% in intra-day trading; down 11.2% year-to-date
• ProShares UltraShort Oil & Gas (DUG), up 3.5% in intra-day trading; down 26.7% year-to-date

 Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

After flooding this summer, farmers in the Midwest staged a nice rally. They’re now on pace to produce the second largest corn crop and fourth largest soybean crop in history, says the Associated Press. Corn hit a record $8 a bushel earlier this year, and is now at $5 a bushel. It’s still higher than the 2006 prices, which stood at $2 a bushel.

The soybean crop is forecast to fall slightly, but the prices are still expected to drop. Wheat production is predicted to be slightly higher, also causing prices to dip a little.

Falling prices could deliver a dose of relief to farmers who rely on corn and soybeans for feed. High prices for grains have almost eliminated profits for chicken and beef companies this year.

It hasn’t been the best of times for commodity ETFs these last few weeks, and it has some asking if it’s time to stick a fork in them. One advisor tells investors not to panic, because much of the losses are reflective of a stronger dollar. But even with a strengthening dollar, there could still be room for commodities to resume the uptick.

Some commodity ETFs are off their highs into the double digits. The PowerShares DB Agriculture (DBA) has dropped off by 21.3%, although it’s up 1.4% year-to-date. The fund holds futures in soybeans, wheat, corn and sugar.

Just because commodities are falling here doesn’t mean that it’s the same everywhere, though. In many developing countries, inhabitants are looking for ways to boost their own production and make some money.

Honduras is one country that has taken matters into its own hands and has become a cross-section view of the global food situation, according to Morning Edition on NPR. On the one hand, there are fields of lush and green genetically engineered corn. On the other are low-income families that joke (we hope) that they’ll have to eat one another if they become too hungry.

After farmers endured years of neglect by the government, the country is now trying to reverse the food shortage and feed its people by putting more money into food production.

Agriculture ETFs that could be affected:

• iPath DJ AIG Agriculture Total Return Sub-Index (JJA), down 4.1% year-to-date
• DB Agriculture Double Long (DAG), down 31.6% since April 15 launch
• DB Agriculture Double Short (AGA), up 24% since April 15 launch
• E-TRACS UBS Bloomberg CMCI Food (FUD), down 2.8% since April 4 launch
• ELEMENTS MCLX Grains Index (GRU), down 15.1% since Feb. 15 launch