In what has generally been a good year for commodities exchange traded products, some members of the group are struggling. For example, the PowerShares DB Agriculture Fund (NYSEArca: DBA) is off more than 10% over the past quarter.
The PowerShares DB Agriculture Fund tries to reflect the performance of the Diversified Agriculture Index Excess Return, which is comprised of futures contracts on the most liquid and widely tracked agriculture commodities.
Institutional owners of DBA recently included Harvard’s endowment and a retirement plan for Canadian doctors, according to the FT.
Supporting the commodities outlook, the China, the world’s top consumer of metals, grains and energy, is seeing its economy stabilize. Moreover, the depreciating U.S. dollar has helped support demand for commodities as an alternative hard asset or a better store of wealth. However, bearish views on agriculture commodities linger.[related_stories]
Looking at DBA’s chart, “you can see that a well-defined head-and-shoulders pattern has taken shape. Active traders would use this common price pattern to suggest that the prices of many agriculture commodities are gearing up for another move lower. Traders will keep a close eye on the neckline of the pattern, which is shown by the dotted trendline because the recent close below followed by the failed attempt to move back above suggests that the momentum is still in favor of the bears. Bearish traders will likely look to protect their short positions by placing a stop-loss above either the trendline or the previous high of $21.06,” according to Investopedia.
Still, DBA could offer some near-term upside if the Federal Reserve holds off on raising interest rates later this month, a move that would likely lead to more dollar weakness. That would be a boon for dollar-denominated commodities. For the moment, the Fed appears openly dividend on raising rates later this month and many traders believe only one rate hike at the most will come to pass this year.
Commodities have outperformed bonds, currencies and equities this year on speculation over supply disruptions and production cuts that slowly diminished multi-year surpluses, which contributed to the largest price collapse in a generation. Meanwhile, we are also seeing demand improving.
For more news and strategy on the Agriculture market, visit our Agriculture category.
PowerShares DB Agriculture Fund