The spike in investor interest in funds like United States Natural Gas (NYSEArca: UNG), PowerShares DB Commodity Index Fund (NYSEArca: DBC), PowerShares DB Agriculture Fund (NYSEArca: DBA) has resulted in creation halts and strategy reconstruction as the Commodity Futures Trading Commision (CFTC) scrutinizes the industry, writes Don Dion for TheStreet. (More on the CFTC’s commodity limits).

The iPath Dow Jones AIG Platinum TR Sub Index (NYSEArca: PGM) recently had to halt creation in order to remain within position limits. (Regulation hits platinum ETN). And most recently, PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) had to rush to get  approval to create new shares as trading volume suddenly picked up. (Bullish dollar ETF granted new shares).

Traditional ETFs track underlying indexes, which is made possible through the share creation and redemption process. When the creation process is halted, it creates premiums to an ETF’s underlying value. The result is an environment good for shareholders but bad for investors chasing the trend.

As an investor, you should be aware of when an ETF’s share creation has been suspended and understand that if a futures-based ETF runs out of shares, this could happen. If you’re already holding such an ETF, monitor your funds to be sure that all is running smoothly. The risk of holding a fund with suspended share creation is that when normal trading resumes, losses could be incurred as the premium disappears.

For more information on ETF trading, visit our ETF 101 category.

Max Chen contributed to this article.

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).

In the short-term, the fourth quarter could be volatile for gold prices, and some analysts believe gold will be vulnerable to pullbacks if the dollar appreciates or liquidation occurs, writes Melinda Peer for Forbes. But physically-backed ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), are currently picking up on weaker dollar expectations.

ETF Securities is expanding its physically-backed investment products and recently launched ETFS SIVER TRUST (NYSEArca: SIVR) and ETFS GOLD TRUST (NYSEArca: SGOL). Both funds are 100% backed by the physical assets held in London and Switzerland, respectively.

Meanwhile, potential regulations coming forth from the Commodity Futures Trading Commission (CFTC) has some funds doing a little shuffling.

PowerShares is restructuring its funds in an attempt to take advantage of loopholes to meet the “safety position limits,” remarks Don Dion for TheStreet. The ETFs PowerShares DB Agriculture (NYSEArca: DBA) and PowerShares DB Commodity Index Tracking (NYSEArca: DBC) will reduce positions in corn and wheat futures by the end of October.

DBA and DBC invest in commodities futures to achieve their intended tracking strategies. In addition to reducing their current positions, DB will take positions in coffee, cocoa, live cattle, copper, natural gas and gasoline. This will allow the fund to continue to operate within limits.

DBC will start investing in oil futures contract traded in Europe – a loophole that allows the fund to reduce U.S. oil holdings while adding foreign holdings.

Managers of United States Natural Gas (NYSEArca: UNG) have already cut back on natural gas futures contracts listed in the United States in favor of swaps elsewhere.

The CFTC has noted its intent on increasing position limits placed on future-based commodity ETFs. ETF managers have already stoped creation of new shares, shut down funds and restructured underlying investment strategies.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

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.

Although there are various ways to diversify, Roger Nusbaum, a contributor at TheStreet, follows a Mohammed El-Erian type portfolio with allocations in equity, bonds and real assets. El-Erian is the CEO and co-CIO of PIMCO.

Nusbaum took a look at ETF choices that fit in with El-Erian’s concept:

In the equity portion, he suggests allocating 10% to the PowerShares S&P 500 Buy Write Portfolio (PBP) and 5% to the iShares S&P 600 Small Cap ETF (IJR) which enables investors to benefit from fact that small-cap stocks generally lead the way in the early stages of a stock market cycle.

Additionally, he suggests allocating 10% of a portfolio to the WisdomTree International Large Cap Dividend ETF (DOL) and 5% to the SPDR S&P International Small Cap Index Fund (GWX). In regard to gaining access to emerging markets, Nusbaum suggests looking at the PowerShares BLDRS Emerging Market 50 Index Fund (ADRE).

Next, he suggests adding fixed-income ETFs to a portfolio. In this portion, he states one should look at the iShares Barclays Agency Fund (AGZ) or iShares S&P/Citigroup 1-3 Year International Treas (SHY). PIMCO also offers a PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ).

To wrap up fixed income, he suggests the use of iShares S&P Citigroup International Treasury (IGOV).

In regard to real assets, Nusbaum suggests utilizing the WisdomTree International Real Estate ETF (DRW) the SPDR Gold Trust (GLD) and the PowerShares DB Agriculture Fund (DBA). Additionally, he suggests gaining exposure to infrastructure through the iShares S&P Global Infrastructure Fund (IGF).

Lastly, he states that one should allocate 8% to special opportunities like the PowerShares Water Portfolio (PHO).

In addition to this, we suggest that one utilize a strategy when investing, such as monitoring market trends using the 200-day moving average.  More on the trend following strategy can be found in our new book.

For more stories on portfolio construction and the use of ETFs, visit our ETF education category.

Kevin Grewal contributed to this article.

ETFs and exchange traded notes (ETNs) have long been considered low cost, liquid tools for trading to gain exposure to the commodities market. But now many worry that the  Commodity Futures Trading Commission (CFTC) has assumed that the large amounts of capital from retail investors pouring into such ETFs has led to a distorted marketplace, explains David Bogoslaw for BusinessWeek.

Thus far, most of the attention has been focused on certain energy and agricultural products that hold futures contracts. Several funds have stopped issuing new shares in anticipation of CFTC limits. That has been enough to cause the funds to drift from their net asset values (NAVs), putting a dent in their appeal.

Position limits are one of the major regulations involved, and they help support the integrity of the market, according to a CFTC spokesman. Many ETF investors who are in ETF products in the commodity realm say they are less inclined to use them if the limits are enforced. How this plays out remains to be seen.

Meanwhile, natural gas prices have plunged to a seven-year low, reports Liz Kay for the Baltimore Sun. The prices are being sent lower by vast supplies and a weak economy, but many believe that the prices will head up again as the economy recovers.

As of Wednesday, Barclays Global Investors announced they are not planning on scaling back their ETFs focused on precious metals, although U.S. regulators are planning on imposing limits. Frank Tang for Reuters reports that the precious metals trusts would not be affected by limits on futures trading because they own physical gold and silver bullion held by a custodian on behalf of the trusts.

• United States Natural Gas (UNG): down 52% year-to-date

• PowerShares DB Agriculture (DBA): down 0.8% year-to-date

• iShares S&P GSCI Commodity Indexed Trust (GSG): up 8% year-to-date

For more stories about commodities, visit our commodity category.

Mitchell Hartmen for Marketplace reports that a steep drop in energy prices and a drop in demand has edged food prices lower over the course of the recession. But if you’ve gotten comfortable, this trend could end as soon as the economy recovers, according to the U.S. Department of Agriculture.

Farmers will be paying more for fertilizer and fuel and it’s predicted that this increased cost will eventually make it onto shelves, taking food prices up 2%-3%. A few commodities that could be impacted include:

• Soybeans. Tight supply of these beans has the prices of futures edging up already, up 2.2%. Lisa Shumaker for Forbes explains that soybean futures rose 23-3/4 cents to close at $11.14-1/4 a bushel Thursday. The new-crop November contract slipped 1/2 cent to settle at $9.96 a bushel. Strength in the cash market sparked the rally in the nearby soybean contract.

• Corn. Corn is in a mixed situation; the supply is high, which has both the supplier and the buyer in a good position. Rick Plumlee for The Chicago Tribune reports that corn prices for December delivery are trading for less than $3.50 a bushel, much less than one year ago.

• Sugar. Mark J. Perry for Seeking Apha reports that sugar may be a great value for the producers, but the consumers may not like the taste of higher prices. As a result of trade restrictions on imported sugar coming into the United States at the world price, the U.S. sugar beet producers are benefiting. In the United States, buyers pay twice the amount, 26.6 cents for domestic sugar from beets vs. 13.1 cents for sugar from cane.

Just a few of your ETF options when it comes to playing the agriculture sector:

• PowerShares DB Agriculture (DBA): down 1.6% year-to-date; holds sugar, corn, soybean and wheat futures

For more stories about agriculture, visit our agriculture category.

iPath Dow Jones AIG Natural Gas ETN (GAZ) is the third commodity-focused exchange traded product to stop issuing new shares over the past few weeks. GAZ posted large inflows after United States Natural Gas (UNG) suspended any issuance of new shares. GAZ began the year with $20 million in assets, and by the time it decided to stop issuing new shares, it had amassed $187 million.

Yesterday, UNG entered into another natural gas-related total return swap yesterday (reported on their website at end of day) in order to reduce their holdings in listed futures contracts. The swap was for $500 million.

“This is an attempt by UNG to deal with whatever new regulations may be introduced by the CFTC and to allow us to permit creations of new units,” John Hyland, chief investment officer at United States Commodity Funds, said in an email.

UNG’s actions yesterday, and the natural gas-based swap the fund entered into a few weeks ago, Hyland said, are not enough by themselves to yet allow us to either meet what they think the CFTC limits may be. The provider feels that they are making progress, though.

Earlier in the week, PowerShares DB Crude Oil Double Long ETN (DXO) also stopped issuing shares, also in anticipation of new CFTC limits. The new regulations were imposed after the UNG fund, along with the commodity market in general, was accused of manipulating futures prices and market fluctuations.

The CFTC did rule yesterday that PowerShares DB Commodity Index Fund (DBC) and PowerShares DB Agriculture Fund (DBA) are no longer exempt from position limits in wheat and corn.

Meanwhile, we may be seeing other commodity-based notes and funds temporarily suspend trading while they wait for an official CFTC decision.

For more stories about ETNs, visit our ETN category.

Two funds issued by PowerShares will no longer be exempt from U.S. position limits in wheat and corn, forcing a shift in their holdings to comply with federal trading restrictions.

Asjylyn Loder and Tina Seeley for Bloomberg report that PowerShares DB Commodity Index Fund (DBC) and PowerShares DB Agriculture Fund (DBA) will have to comply with caps designed to keep a one investor from gaining too much control of the market, according to the CFTC. Together, the two ETFs are worth $5.8 billion.

Deutsche Bank says that the funds are going to continued to conduct business “in the normal course.” The Securities and Exchange Commission (SEC) filing said:

As of Oct. 31, the funds will be subject to federal limits of 13,500 Chicago Board of Trade corn contracts in any non-spot month, and 5,000 wheat contracts, and an all-months combined limit of 22,000 corn contracts and 6,500 wheat contracts.

The repeal of these exemptions are in response to suspicions that such ETFs could be having an undue influence on the prices of certain commodities. The imposition of these limits could be bad news for commodity funds, as these ETFs have been under the microscope lately.

In July and August, the CFTC conducted hearings in order to see whether they should crack down on speculation. The provider of United States Natural Gas (UNG) vigorously defended their funds and dismissed  accusations that they were affecting the markets.

CFTC Chairman Gary Gensler suggested that limits on oil and gas markets, as well as carbon trading, could be next, report Carolyn Cui and Sarah N. Lynch for The Wall Street Journal.

Timothy Gardner for Reuters reports that Congress is debating a bill that would set up an emissions market under which the government would set a cap on greenhouse gas pollution that declines over time and polluters and investors would buy and sell the rights to release greenhouse gases. Who would ultimately regulate this market is still a question mark.

For more stories about Commodities or ETF Trends in the press, visit our Commodity or In The Press categories.

The United States Department of Agriculture (USDA) released a new study indicating farmers and ranchers could potentially earn billions with the passage of the American Clean Energy & Security Act of 2009, According to Crookstone Daily Times.

Though farmers and ranchers may see a small increase in operational costs because of climate change legislation, the USDA calculated that farmers and ranchers could earn an additional $100 million annually by 2012. In the long term, the agriculture sector could generate an additional $20 billion from carbon reducing measures by 2040.

G8 leaders want a code of conduct for international agricultural investments in less developed nations, reports Stephen Johnston for Filing Service Canada. Proponents of foreign investment into agriculture say they are providing new seeds, technology and capital to an under-invested sector.

Since 2006, 15-20 million hectares of land were sold or are under negotiations for sale to foreign investors. Foreign direct investment in the sector was around $7.6 billion in 2006. Middle Eastern and Asian countries are worried about food security and have been purchasing farmland overseas in an attempt to protect themselves from high food prices.

• PowerShares DB Agriculture (DBA): down 4.5% year-to-date

• Market Vectors Agribusiness (MOO): up 34.7% year-to-date

For more information on agriculture, visit our agriculture category.

Max Chen contributed to this article.