Soaring Wheat Prices Fuel ETF Rally

The trend behind the rise in wheat is expected to continue, which should help DBA's forward momentum (wheat makes up 12.5% of DBA's index). Supply reductions from Canada, as well as a continuation of bad weather in Europe, most notably a severe drought in Russia, will hurt the supply of wheat and could continue to drive prices higher.

The drought's severity has incited talk of a Russian ban on grain exports, in order to allow suppliers to prioritize domestic contracts over international demand.

The drought has helped fuel a tremendous jump in wheat prices, the largest monthly gain (of more than 40 percent) since 1959. Worse still, the drought looks to continue well into the season, threatening winter wheat production. All in all, this climatic anomaly may have an effect on prices further down the line, as the drought cripples future yields as seed-planting periods for future harvests fast approach.

Over the short term, corn is also in low supply and strong demand, a situation that may provide DBA with long-term support as well. Ethanol continues to receive government support and since corn is the main ingredient in the production of this fuel, an increase in its usage could drive up the long-term prices of corn.

Investors should be aware that the performance of agricultural commodities can change at a lightning pace, such as when a weather report for a region changes. For investors that don't want to get burned by a shift in the weather or market conditions in a single crop, DBA is a safer way to play the generally positive outlook for agricultural commodity prices.

-- Written by Don Dion in Williamstown, Mass.

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