Remember the Ag's

For the last several months when there is discussion about commodities, it has been about copper, gold and oil.  All three have been strong and seem to be leading the commodity move off the recent bottom.  While most of the commentary has been focused on these commodities, I'd like to suggest that conditions for the grains and softs look constructive.  Corn, wheat, soybeans as well as coffee and sugar could be setting up for a significant move to the upside.  Drought conditions in some parts of the US farm-belt and flooding in others have hindered early plant development or have delayed planting altogether.  There are some significant supply issues in the coffee market as well, mostly the result of crop rotation into soybeans when the price of biofuels was skyrocketing last year.  Coffee trees take approximately 4 years to develop fruit.

So how can one play a move in grains. There is an exchange traded fund sponsored by Powershares that tracks the Deutsche Bank Liquid Agricultural Commodity Index.  The symbol is DBA.  It is roughly equal weight in corn, wheat, soybeans and sugar.  From the chart below, DBA has been in a bottoming channel since late September.  A close above $27.50 could suggest a break-out of the channel.  Additionally, a close above $27.50 would be a meaningful move above the 200 day moving average as indicated by the dotted red line.  If this represents a true break-out, I would look for a near-term target of $32.50, which represents a 50% re-tracement of the downward move from June 2008 to September 2008. The upward move to $32.50 would also close the series of gaps that were made during this downdraft.