The trade deficit unexpectedly narrowed in August as exports notched a slight gain and imports plummeted on declining demand for foreign oil. The deficit rose 3.5%, which surprised economists who expected that higher oil prices would raise the deficit, reports Martin Crutsinger for the Associated Press. Economists still expect the deficit to rise in coming months.

The U.S. dollar his risen to session highs this morning against the yen. The rally was set off by comments made by Federal Reserve Chairman Ben Bernanke, indicating that monetary policy would tighten as the recovery takes place. PowerShares DB US Dollar Bullish (NYSEArca: UUP) is up 0.6% this morning.

Corn and soybean crops are being forecast for record harvests, even though there were concerns earlier that a cold growing season would shrink the crops, the Associated Press reports. Corn production is predicted to be up 8% from 2008, and soybeans are forecast to be up 10% from 2008. PowerShares DB Agriculture (NYSEArca: DBA) is up about 0.6% this morning. The fund holds corn and soybean futures. (DBA is going through changes. Read about them here).

No major earnings are in the pipeline for today, but next week should be a busy one. Reports are scheduled from Intel (NasdaqGS: INTC), Johnson & Johnson (NYSE: JNJ), Citigroup (NYSE: C), Google (NasdaqGS: GOOG), Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE).

United States Natural Gas (NYSEArca: UNG) rolled its October contracts and bought November contracts on Sept. 14. The roll will wrap up today, reports Asjylyn Loder for Bloomberg. John Hyland, chief investment officer for the fund, said that the speculators had “only a random chance of being right.”

Meanwhile, it was widely expected that the Commodity Futures Trading Commission (CFTC) would move in on the energy sector first, but the CFTC revoked position limit exemptions in wheat and corn for two Deutsche Bank AG PowerShares commodity funds: PowerShares DB Commodity Index Tracking (NYSEArca: DBC) and PowerShares DB Agriculture (NYSEArca: DBA), effective at the end of October, writes Nevil C. Speer for Cattle Network.

As these new regulations are discussed, many wonder what the implications could ultimately be.

Commodity related ETFs are usually “long-only” positions that focus on the buy side in the market. It is the long position that has many believing these types ETFs are helping to artificially drive up market prices. Others argue that market prices have little to do with ETFs but with fundamentals – supply and demand are seen as the real drivers of commodity prices.

If the CFTC begins regulating the industry, some believe that restrictions added could divert funds to less regulated exchanges and cause hedging business overseas to move to other markets with different regulations. In the meantime, other funds may limit issuance of new shares in the coming months, which would reduce liquidity in the markets.

The regulations imposed by the CFTC could eventually distort prices in the markets and risk management could become more difficult to handle.

Some commodities have performed a bit better than others in recent months.  Now that inflation fears have been put on the back burner by the Federal Reserve, will the commodities that outperformed this year resume their uptrends anytime soon, or simply hold steady for the time being? No one knows, so watch the trend lines for signals.

If the prices continue to decline from this point, have an exit strategy in place to protect yourself. We watch for positions to decline 8% off their recent high or below their 200-day moving average.

TraderMark has identified the ten hottest commodities for the year and their corresponding ETFs (although in some cases, be aware that there’s more than one way to play these commodities). Be sure to understand which commodities hold what – some hold physical commodities, some hold futures and others hold the stock of companies involved in their production.

• Unleaded Gas, represented by the United States Gasoline Fund (UGA), up 68.3% year-to-date.
• Copper, which can be accessed through the PowerShares DB Base Metals Fund (DBB), 32.3% year-to-date
• Crude Oil, represented by the PowerShares Dynamic Oil Services (PXJ), up 23.2% year-to-date
• Orange Juice, which can be exposed through the Market Vectors Agribusiness (MOO), up 24.5% year-to-date
• Silver, which is represented by the iShares Silver Trust (SLV), up 23.3% year-to-date
• Sugar, which is seen in the  iPath DJ AIG Sugar (SGG) up 32% year-to-date
• Coffee which can be accessed through the iPath DJ AIG Coffee (JO), up 6.4% year-to-date
• Soybeans, which comprises 25% of the assets of the  PowerShares DB Agriculture (DBA) is down 0.4% year-to-date; exposure to both corn and wheat, two of the nation’s largest commodities can be accessed through DBA as well
• Heating Oil, which can be exposed through the United States Heating Oil Fund (UHN), up 22.2% year-to-date
• Nickel, which is represented through the iPath DJ AIG Nikel (JJN) up 31.5% year-to-date.

For more stories on commodities, visit our commodities category.

Kevin Grewal contributed to this article.

The refiners seem to be saying if you can’t beat ‘em, join ‘em. Ethanol, made chiefly from corn, now represents about 9% of the country’s market for liquid fuels, explains Clifford Krause for The New York Times.

Federal mandates are only going to further push the nation’s need for ethanol. The gasoline we use in our daily lives even uses the corn-based liquid mixed within it.

So, the oil refinery interest seems to have arrived at the perfect time, as the smaller companies that need capital cannot find it these days in the private sector.

While oil minster Ali Naimi says crude demand is picking up, analysts are feeling less bullish toward crude, reports Stephen Beard for Marketplace. Inventories are reportedly on the rise, and if storage for inventory of crude runs out, the price could drop dramatically.

Oil prices today are at a six-month high of around $65 a barrel.

• PowerShares DB Agriculture (DBA): up 5.8% year-to-date; corn 25%

• iShares S&P Global Energy (IXC): up 8.2% year-to-date; BP Plc 7.1%;

Bob Dinneen, president of the Renewable Fuels Association, calculates that 2 billion of the total 12.5 billion gallons of ethanol has been cut from the annual production capacity after 24 of 180 plants were shut down in the last three months, reports Clifford Krauss for The New York Times.

As oil and gasoline prices nose-dived, corn, a major component of ethanol, has remained at its high prices. Refiners are now limiting their ethanol purchases and it looks like the Congressional production mandates that start next year will not be meet.

Congress had mandated a doubling of corn ethanol use to 15 billion gallons a year by 2015 in an attempt mitigate environmental and foreign oil concerns. By 2022, there would also be an additional 21 billion gallons of ethanol and other biofuels produced from biomass, an amalgamation of corn stubble, wood chips, and straw.

Energy experts think gasoline consumption in the following years will be 6% or more below 2007 levels, and since regulations set a 10% blend limit for gasoline, the ethanol industry may not see much potential for growth.

• PowerShares DB Agriculture (DBA): up 2.6% in the last week; down 6.7% in the last month; holdings of 25% in corn futures
  

There are more than two dozen commodity ETFs to choose from, most of them being introduced to the market in the past couple of years.  The interest and appeal of these ETFs can be accounted for because of both the appealing characteristics of ETFs and the overall spike in commodity prices, states the Associated Press. 

Crude oil doubled its value in twelve months, only to see itself down 70% from its historic high, gold flirted with the $1,000 mark, now trading around $800, and corn reached $8/barrel, now at $3.30/barrel.  These all-time highs made the industry lucrative, but now that they have bottomed out and the industry may not be so attractive.

This dramatic decline in prices hinders ETFs, in that the ETFs may fail to gain enough assets to generate the sustained momentum needed to stay alive.  It appears that the future prospects of these ETFs will be determined by whether the commodities market rebounds.    

Some, like Jim Rogers, believe that a bounceback may be in sight and the industry may be prosperous once again.  Invesco PowerShares Capital Management launched four new commodity ETFs in September, and ProShares introduced eight new commodity-based ETFs recently.

Commodities are known for their volatility, ability to offer a hedge against inflation, and their trend to move against the overall market enabling wise investors to stabilize their returns over time.  The industry has been slaughtered and a rebound is a future possibility, as the demand will always be there for these goods.

• iShares S&P GSCI Commodity-Indexed Trust (GSG): is down 46.1% year-to-date

• ELEMENTS Rogers International Commodity Agriculture ETN (RJA): is down 40.1% year-to-date

Let’s face it, everyone has to eat, regardless of economic conditions.  With population growths in emerging market countries, extended life expectancies and an overall desire for more food by consumers, the demand for food will continue to increase, which in turn, will cause an increase in demand for staple commodities such as corn, soybeans, wheat and sugar.  This domino effect could lead to an increase in value for related ETFs, such as agricultural ETFs.

Michael Kahn of Barrons states that all four of these staple commodities have lost a significant amount of value this year. This decline in value, along with other factors, has Kahn making a bullish case.

Does this suggest that agricultural ETFs are bullish? Only time can really answer this question. After all, one must keep in mind that although this demand for commodities will most likely continue to increase, there are other factors, a rising value in the dollar, just to name one, that could curtail this demand effect on the price of commodities.

Our strategy is to use the moving average to determine when we should be in. Right now, this fund is below both its 50-day and 200-day moving averages. When it crosses those points, it might be worth considering whether it’s right for your portfolio.

PowerShares DB Agriculture (DBA) is an index of corn, soybeans, sugar and wheat futures. It’s down 16.8% year-to-date.

The commodity bull market of the past seven years has ended its run, as the financial panic sweeps across the globe and has filtered its way into consumers pockets and wallets.

Clifford Krause for The New York Times reports that the prices for many commodities peaked amid fears of permanent shortage that goes along with surging global demand. Staples such as wheat and corn have since dropped more than 40%.

Oil has also fallen 44%, and metals such as aluminum, copper, iron and nickel have tumbled by one-third or more.

The trend seems to be downward as traders weigh the prospect that the global economic crisis will lead to sharp drops in demand.

The main concern is whether prices will drop all the way to long-term norms or whether Asia’s continuing economic expansion will create a floor and we’ll see a repeat of events in the first half of this year.

The good news for consumers is that gasoline prices have eased, and the timing could not have been better, as prices for most commodities still remain elevated in comparison to past standards. Although, in looking at the chart to the left, we’re nowhere near the spikes seen in corn and copper in the 1970s.

Times are tight, though. With the holidays coming up and unemployment growing, consumers need the extra cash wherever they can get it.

The iShares S&P GSCI Commodity-Indexed Trust (GSG) is down 17.5% year-to-date, and 43% off its July 2 high.

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

This brings the Spider line to include 80 ETFs, with 31 of those focused on global access to international markets. The new offerings enter a market space that WisdomTree had been cornering.

Why would you choose one or the other? As Gary Gordon for ETF Expert says: it’s a matter of preference. State Street’s funds have a traditional market-cap weighted methodology. WisdomTree’s funds have a dividend-weighted index methodology. Dividends in the WisdomTree funds will come annually, while State Street’s will be quarterly.

The expense ratio for the State Street funds is set at 0.5%, while the WisdomTree funds come in at 0.58%.

The 10 new ETFs are are international sector SPDRs and they give access to investments outside the U.S. benchmarked to a series of S&P World ex-US Broad Market Indices. The following ETFs are market-cap weighted, include only non-U.S. holdings, and use the Global Industry Classification Standard, or GICS.

The ETFs are:

• SPDR S&P International Consumer Discretionary Sector (IPD)
• SPDR S&P International Consumer Staples (IPS)
• SPDR S&P International Financial Sector (IPF)
• SPDR S&P International Health Care Sector (IRY)
• SPDR S&P International Industrial Sector (IPN)
• SPDR S&P International Materials Sector (IRV)
• SPDR S&P International Technology Sector (IPK)
• SPDR S&P International Telecommunications Sector (IST)
• SPDR S&P International Utilities Sector (IPU)
• SPDR S&P International Energy Sector (IPW)

WisdomTree’s funds launched Oct. 13, 2006 and they are:

• WisdomTree International Basic Materials Sector (DBN)
• WisdomTree International Communications Sector (DGG)
• WisdomTree International Consumer Discretionary Sector (DPC)
• WisdomTree International Consumer Staples Sector (DPN)
• WisdomTree International Energy Sector (DKA)
• WisdomTree International Financial Sector (DRF)
• WisdomTree International Health Care Sector (DBR)
• WisdomTree International Industrial Sector (DDI)
• WisdomTree International Technology Sector (DBT)
• WisdomTree International Utilities Sector (DBU)