Russian Food Import Ban Takes A Bite Out Of Agricultural ETFs [PowerShares DB Agriculture Fund]

Agriculture ETFAs Russia appears in no mood to end its military move or support to pro-Russian separatists in eastern Ukraine, the situation turned even worse with the U.S. and European Union imposing harsher sanctions against the country. The U.S. and the European Union (EU) had already imposed minor bans on some Russian diplomats at the beginning of the year in response to Russia’s Crimea annexation.

This time, the U.S. aimed at Russia’s all-important energy, banking and defense sectors with European Union and Canada also introducing similar types of sanctions. However, the EU sanctions were not as sweeping as the ones enforced by the U.S. and were basically moderate in nature.

Russian Response

All these sanctions led to intensified tensions between Russia and the West. As a result, almost after six months of animosity, Russia counteracted by imposing restrictions on a good number  of food imports from the West on August 7.  While this has raised the possibility of Russia being trapped in recession this year and facing a serious food crisis, the move will likely hurt the agricultural sector of North America, Europe and Australia.

How Costly is the Move? 

As per the Associated Press, a one-year restriction has been imposed on all imports of meat, fish, fruits, vegetables, milk and milk products from the U.S., the European Union, Australia, Canada and Norway. Switzerland was off the hook as the country did not join the bandwagon of Western nations planning to cut economic ties with Russia.

Associated Press indicated that Russia’s big cities count heavily on foods that are mainly sourced from Europe. Foreign-grown foods satisfy 60% to 70% of total demand in the big cities.  In 2013, the EU sold agricultural goods worth 11.8 billion euros ($15.8 billion) to Russia, while the U.S. exported $1.3 billion in food items.

While the step will do no good to Russia as this will only aggravate inflation (as feared by some analysts) – an economic drag the nation is already grappling with – Moscow seems less bothered about this likely pitfall and is busy turning the tables on the West instead.

Are Agricultural Products at Risk?

While this escalating geopolitical tension could be a bane for many investing avenues, as of now, agricultural products look to be hit. Following the news of the ban, most of the agricultural exchange traded products traded in the red on August 7 (read: 3 Commodity ETFs Surging on Russia Sanctions).

In any case, trading in most agricultural products has been sluggish lately due to supply glut concerns. We have highlighted a few agriculture-related ETF/ETNs that investors need to watch carefully in the coming days, given the food ban from Russia.

PowerShares DB Agriculture ETF (DBA)

DBA uses futures contracts on some of the widely traded agricultural commodities. This fund has $1.23 billion in AUM and charges 1.01% in expenses.

Top futures holdings in the index are live cattle, soybeans and sugar—with a respective 14.1%, 10.9% and 10.7% weight. DBA has lost only about 1.45% following the ban announcement. DBA currently has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

Pages: 1 2

Leave a Reply

Your email address will not be published. Required fields are marked *