Agriculture ETF

When looking at Agriculture ETFs there are two basic types:

The Agricultural Stock ETF – Example: MOO

The Agricultural Commodity ETF

This post deals with the second type which are ETF products designed to track the price of Agricultural Commodities. There are more options available but we are just going to cover the three of most active ETFs in this comparison.

DBA

The first ETF we are going to talk about is the Powershares DB Agriculture ETF which tracks the Deutsche Bank Liquid Commodity Index. It uses a rules based approach and invests in commodity futures collateralized by 3 month treasury bills. In the chart below you can see that it invests in the U.S. new crop contracts for grains which are July for Chicago Wheat, November for Soybeans and December for Corn.

DBA is a broad Ag Commodity ETF which is invested in Cocoa, Sugar, Cattle, Hogs and Cotton in addition to the grains.

Current Weightings Of Index Holdings Include:

Feeder Cattle – 3/31/2011 – 4.43%
Cocoa – 3/16/2011 – 11.14%
Coffee – 3/21/2011 – 11.61%
Corn – 12/14/2011 – 12.12%
Cotton #2 – 3/9/2011 – 2.60%
Lean Hogs – 4/14/2011 – 8.51%
Live Cattle – 4/29/2011 – 12.55%
Soybeans – 11/14/2011 – 12.78%
Sugar #11 – 6/30/2011 – 12.00%
Chicago Wheat – 7/14/2011 – 5.99%
Kansas Wheat – 7/14/2011 – 6.26%

*Actual Weightings as of 1/14/2011 – Vary slightly over time.

DBA began trading January 5th 2007 and has been a very successful ETF with over $2 Billion in assets and trading over 2 million shares per day at the time of this writing.

The annual expense ratio is .95% (95 basis points)

DBA is not a Leveraged ETF

You can see by this chart going back to the first trading day that DBA has been a good proxy for the rise and fall of commodity prices.

DAG

The second Ag Commodity ETF is DAG – The PowerShares DB Agriculture Double Long ETN. This fund is more concentrated with approximately 1/4 of the fund invested in Wheat, Corn, Soybeans and Sugar. Like DBA it also uses new crop futures contracts to hold the positions, which means that futures only need to be rolled once per year.

Current Weightings of Index Holdings Include:

Corn – 12/14/2011 – 24.79%
Soybeans – 11/14/2011 – 26.14%
Sugar #11 – 6/30/2011 – 24.55%
Wheat – 7/14/2011 – 24.51%

*Actual Weightings as of 1/14/2011 – Vary slightly over time.

In addition to being more concentrated this fund is also a 2X or 200% Leveraged ETF. Therefore it holds twice the concentration of futures contracts compared to it’s net asset value.

It has traded since 4/14/2008 and trades about 1/4 the daily volume of DBA but is still very liquid.

Due to the 2X leverage, it has dramatically underperformed DBA since it’s inception date as you can see by the chart below:

Since DAG is a Double Leveraged Ag ETF it isn’t designed to be a long term holding, it’s designed to be a trading tool. If you purchased DAG last July before the wheat market began to rally you can see that DAG has dramatically out performed DBA over the last 6 months.

JJG

JJG is the iPath Dow Jones-AIG Grains Total Return Sub-Index ETN. This exchange traded note is solely focused on the 3 primary grains Wheat, Corn and Soybeans. It uses futures contracts to establish the positions in these 3 grains the same approach as the PowerShares ETFs. Here is the allocation at the present time:

JJG began trading on 10/23/2007 and has almost $100 million in net assets and solid trading volume which has been supported by the strong upward moves in the 3 underlying grains.

Looking at the following chart which is from the inception date of JJG until 1/18/2011 you can see that JJG performed inline with DBA during the boom and bust but underperformed in late 2009 and early 2010. This is due to the fact that grains didn’t take off until Russian Wheat problems emerged in the summer of 2010. JJG has since caught up to DBA on a performance basis.

Summary Of AG ETF Comparisons

JJG is the best choice if you want unleveraged exposure to just Corn, Beans and Wheat.

DBA is the best choice if you want unleveraged exposure to a broader variety of Agricultural commodities including Cotton, Coffee, Sugar and Cocoa.

DAG is the best choice if you want to participate in the grains + sugar if you want to employ 200% leverage. Since this is a leveraged ETF this one should be used for trading, not long term investing.

All 3 ETFs have plenty of liquidity for traders or investors at the present time, but make sure you do some current research before investing. Since all of these funds are futures based funds it will be interesting to see how they are affected by the new CFTC position limits.