DBA ETF: A Diversified Agriculture Investment Approach (NYSEARCA:DBA)

Agricultural commodities feed, clothe, and increasingly power the world. The weather conditions and crop diseases in the leading growing areas are the primary factors for the path of least resistance of prices. However, any events that impact logistics can cause price volatility.

Agricultural commodities include grains and oilseeds, animal proteins, and soft commodities. The Invesco DB Agriculture Fund ETF (NYSEARCA:DBA) is a diversified product exposed to the three agricultural sectors.

In 2023, the grain sector composite fell, while animal proteins edged higher, and soft commodities led the commodities asset class on the upside. DBA closed 2022 at $20.15 per share and edged 2.9% higher to $20.74 at the end of 2023. DBA is higher in early 2024, with the crop year on the horizon.

Grains under pressure – The February WASDE was bearish

The leading grain futures markets have been trending lower.

The chart shows that March soybean futures have made lower highs and lower lows since mid-November 2023.

March corn futures have been in a bearish trend since late October 2023.

March CBOT soft red winter wheat futures have been trending lower since early December 2023.

The USDA’s latest February World Agricultural Supply and Demand Estimates Report was primarily bearish for prices, as supplies and inventories are more than adequate to meet the global demand. The full text of the February WASDE report is available through this link.

I reached out to Sal Gilberte, the founder of the Teucrium family of agricultural ETF products, including CORN, SOYB, and WEAT, that track the CBOT corn, soybean, and wheat futures. Sal has been a friend for many years. On February 9, Sal emailed me his take on the latest WASDE report:

Today’s WASDE validates the ongoing long, slow bear market in grains with adequate global supplies of all grains projected. There are two things of note in this report: first, the USDA’s South American corn and soybean production estimates are significantly higher than official and private production estimates from South American sources and, second, the world will once again use more wheat than it produces in the new crop year. Both of these factors, over time, could result in some pressure on the current large speculative open short positions in U.S. grain futures, but for now downward momentum and healthy global grain inventory levels seem to be enough to keep grain prices from rallying in any meaningful way. We would expect grain prices to remain in a sideways to bearish pattern until a change in fundamentals occurs.

Meanwhile, the most significant factor for the path of least resistance of the grain prices each year is the weather across the worldwide growing regions. The 2024 crop year begins in spring, so we are moving into a highly uncertain period as Mother Nature will determine the weather conditions during planting, growing, and harvest.

Animal proteins have been bullish

The February WASDE report was primarily bullish for cattle and hog prices, increasing beef and pork prices from the January report. While the meat markets tend to peak during the annual grilling season, running from May through September, cattle prices have been in a bullish trend for the past years, while hog futures have been choppy, only recently turning higher.

The ten-year chart highlights the bullish trend of higher lows and higher highs in live or fat cattle since the April 2020 pandemic-inspired low.

Feeder cattle futures display a similar bullish trend. Cattle prices remain close to highs in late February 2023.

Lean hog futures have been choppy but have turned higher in February 2024 as the market looks toward the 2024 grilling season.

Soft commodities lead on the upside

Soft commodities trading on the Intercontinental Exchange includes world sugar, Arabica coffee, cocoa, cotton, and frozen concentrated orange juice futures. Soft commodities were the top-performing commodity market sector in 2023, with the composite of five softs posting a gain of over 24%.

As of February 21, 2024, March world sugar and coffee prices were slightly higher since the end of 2023. Cotton and frozen concentrated orange juice futures have posted significant gains in 2024, and ICE cocoa exploded higher to a new record $6,311 per ton peak. At the $6,198 level, cocoa was over 47.5% higher since the end of last year.

DBA holds members of the three sectors

The top holdings of the diversified Invesco DB Agriculture ETF include:

As the chart shows, DBA had a 10.91% exposure to corn and soybean futures, a 19.32% exposure to world sugar, coffee, and cocoa futures, and a 10.63% exposure to live cattle and lean hog futures.

At $22.15 per share, DBA had over $710 million in assets under management. DBA trades an average of 359,520 shares daily and charges a 0.85% management fee.

Higher in 2024 as DBA benefits from softs and meats

In 2023, the soft commodity composite rose 24.04%, meats were 1.74% higher, and grains fell 13.04%. The diversified DBA ETF posted a 2.9% gain.

The chart shows at $22.15 on February 21, 2024, DBA was 6.8% higher than the 2023 $20.74 closing level. While lower grain prices have weighed on DBA, higher soft commodity and animal protein futures prices support the ETF.

DBA is a diversified ETF providing agricultural commodity exposure. The commodities that feed and, in some cases, increasingly power the world can be highly volatile. Grains have reached levels with limited downside, and meats and soft commodities remain bullish. DBA has consolidated between $19.29 and $23.01 since May 2022, which are the technical support and resistance levels. At the $22.15 level, DBA is above the midpoint of its trading range.

I expect higher prices for DBA in 2024 as the ETF has been in a bullish trend since the June 2020 $13.15 bottom.