Bumper Soy Yields May Damp Agri ETFs and ETNs

An above-average rainy season has Brazilian soybean growers predicting higher-than-expected production next year. Investors holding agriculture ETFs and ETNs, such as PowerShares DB Agriculture Fund (DBA - commentary - Trade Now), iPath Dow Jones-UBS Grains Subindex Total Return ETN (JJG - commentary - Trade Now) and ELEMENTS Linked to the Rogers International Commodity Index - Agriculture Total Return (RJA - commentary - Trade Now) will want to pay attention to this development, as strong harvests will likely drive down the prices of soybean futures contracts.

Soybean farmers are expected to produce between 62.5 million metric tons and 63.6 million metric tons next year, Bloomberg News cites Brazil's Agriculture Ministry's Conab crop-forecasting agency as saying. This number is up from October, when predictions ranged from 62.3 million metric tons to 63.3 million metric tons. Aside from soybeans, forecasters in Brazil are optimistic about this year's corn, cotton and rice crop yields as well.

While the growers' good fortune will help both consumers and energy producers, investors will not be so lucky. The higher supplies could drive down the prices of futures contracts making up DBA, JJG and RJA. Of the three funds, JJG, with 45% weighting in soybeans, will likely take the biggest hit. DBA and RJA have 12.5% and close to 6% weightings, respectively.

Year to date (as of yesterday's close), DBA has remained flat, losing nearly 1%. The ETNs, JJG and RJA, are down 7% and up 1.5%, respectively.

At the time of publication, Dion held no positions in the ETFs mentioned.

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At the time of publication, Dion held no positions in the ETFs mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.