Montreal, Canada

Deutsche Bank, one of the biggest sponsors of commodity exchange-traded-funds, has announced changes to two of its multi-billion dollar products. One of these, the PowerShares DB Multi-sector Commodity Trust Agricultural Fund, or DBA, remains an open position in the TSI Portfolio (Sovereign Society).

Earlier in August, the CFTC, or the Commodity Futures Trading Commission, began to scrutinize various commodity sponsors or exchange-traded-fund platforms. It revoked an exemption previously granted to Deutsche Bank allowing its two giant commodity funds to exceed position limits on agricultural products. Earlier in September, Deutsche Bank closed an oil exchange-traded-fund.

The United States government basically wants to reduce speculation in commodities trading. Some officials blame speculators, including ETFs, for exacerbating the food crisis and soaring energy prices prior to their peak in July 2008. Whether these changes will actually reduce commodity volatility and speculation is hard to say but it is definitely a trend facing retail investors as sponsors scramble to reduce their position sizes and appease regulators.

What this means is that investors will increasingly find it harder to bet on single commodities using ETFs, which, in turn, trade and rollover nearby futures contracts. Essentially, new rules now forbid any single commodity fund to bet too heavily on any important commodity deemed fundamental to the food chain or energy supplies. The era of big commodity funds holding huge positions in a single resource or raw material is almost over in late 2009.

DBA, which previously invested in four agricultural commodities that we like – including sugar, soybeans, wheat and corn – will shortly halve these positions and will add livestock (live cattle and hogs), cocoa and coffee futures in order to satisfy new CFTC rules.

Though I would prefer to simply hold just the grains at this stage I continue to advise holding DBA because with the exception of cocoa and sugar – the best-performing soft commodities over the last 12 months – others remain extremely cheap, especially on an inflation-adjusted basis since 1980.

There is another way to ride the grains – now in a bear market. Corn and wheat prices have crashed over the last several months on bullish weather and larger than expected crop yields.

The iPath Dow Jones-UBS Grains Total Return Sub-Index ETN is the last way to play this theme. The problem here is that average trading volume is way too small (20-day average volume is just 9,300 shares) and the Fund might be at the cusp of revamping its commodity mix under new CFTC guidelines.

I'm not sure if the CFTC will impose new limits on JJG because it remains relatively small at just $43 million in assets. UBS of Switzerland recently acquired the iPath commodity fund range from AIG.

For now, we're still holding DBA. I see no reason to abandon this trade at a time when most soft commodities are still attractively valued and the grains down in the gutter. Hold DBA.