Deutsche Bank fund managers are working on a way of filling a potential void in wheat exposure left by the withdrawal of consent to break federal position limits, as traders fret over the possibility of a mass sell-off.

The bank declined to comment on the details of how it would maintain the funds' index tracking credentials after October 31, when they will be forced by the Commodity Futures Trading Commission to stick to position limits of 6,500 contracts in wheat.

However, a Deutsche spokesperson told Agrimoney.com that the bank would "continue to operate both funds" affected, the PowerShares DB Commodity Index Tracking Fund and the PowerShares DB Agriculture Fund.

She added that said the bank had a "plan to manage" the reworking of the funds to meet the CFTC restrictions. The funds currently hold large wheat positions.  

"We will release details about our strategy prior to the deadline of Oct 31," she said.

'Very bearish impact'

Concerns that Deutsche Bank would dump positions on the market, and be followed by other index funds under the CFTC microscope, continued to worry traders on Thursday.

The CFTC is withdrawing its so-called "no-action letters" from Deutsche, written three years ago, which grant consent to breach position limits.

A further 20 or so index funds have been granted no-action letters.

"The two [Deutsche] index funds will now have to liquidate any long positions over the limit over coming weeks," Vic Lespinasse, the GrainAnalyst.com marketwatcher, said

"The market fears that the CFTC will soon move to withdraw the exemption of other index funds, which could have a very bearish impact on prices."

Huge positions

Index funds were holders of 190,000 long wheat contracts in Chicago, equivalent to nearly half of open lots, and 32,100 in Kansas as of August 11, CFTC data show.

Using current market prices, these positions are worth more than $1.4bn.

The PowerShares DB Commodity Index Tracking Fund, which is worth about $3.5bn, has a 9.8% weighting on wheat.

The other fund, the PowerShares DB Agriculture Fund, worth $2.3bn, is 20.2% invested in wheat, through December 2009 and, in the main, July 2010 contracts in Chicago, Kansas and Minneapolis.