(NEW YORK) Individual investors who have become blase trading gold and oil over their morning coffee have some new alternatives. They can even place bets on the future direction of the global coffee market.

In late June, Barclays rolled out a series of exchange-traded notes, or ETNs, intended to reflect prices on a handful of individual commodities, including coffee, cocoa and sugar. The notes are part of a wave of new financial products that allow go-it-alone investors to bet on specific commodities. Food, it seems, is being treated as the new oil, with many of these products tracking grain and livestock prices.

Financial advisers say they are hardly surprised by this trend, given the sharp recent climb in food prices, but they caution individual investors not to be swayed by the latest headlines.

'Unless you think that we're going back to the 16th-century spice trade, you should not be speculating on individual commodities,' said Gary Schatsky, a fee-only financial planner in New York. Mr Schatsky said that when clients were particularly worried about inflation, he might recommend putting a few percent of their assets into gold. But if investors were more interested in commodities for diversification purposes, he preferred low-cost natural resources funds.

'Not being a farmer or a miner myself, I favour the stocks,' rather than owning the actual commodities, Mr Schatsky said. He noted that commodity prices tended to be more volatile than the shares of commodity producers.

Roy Weitz, founder of FundAlarm.com, a sardonic Web site that often criticises the investment industry, called the new single-commodity ETNs a 'distraction' for most individual investors. 'There probably aren't more than a handful of people in the world who should be trading cocoa,' he said.

The first exchange-traded fund, or ETF, to focus exclusively on agricultural commodities began trading a year and a half ago, according to Morningstar. Since then, more than US$2.5 billion has poured into this fund, the PowerShares DB Agriculture ETF, which puts equal emphasis on the prices of four crops: corn, wheat, soybeans and sugar.

Some analysts have questioned why the fund needs to be so narrow.

But Kevin Rich, the managing director at Deutsche Bank in charge of its commodity and currency ETFs, including this one, said the fund invested in those four commodities because they were among the most widely traded crops.

'Whereas in the world of equities, there's thousands of stocks you can buy, in commodities there's really only 30 you can buy, and only 10 or 15 of those have a lot of liquidity,' Mr Rich said. The fund's success has led to the creation of many ETNs with similar functions.

ETFs and ETNs both trade on exchanges but are structured differently. An exchange-traded fund is in some ways like a traditional mutual fund, but it trades throughout the day. With commodity ETFs, for example, shareholders own the underlying commodity futures.

But an ETN is a note issued by a financial company that promises, upon the note's maturity, to make a payment based on the gain or the loss in an index or a commodity, minus management fees. It is essentially unsecured debt, although the financial company does not pay interest or dividends, or guarantee the principal of the note, Paul Justice, a Morningstar analyst, said.

ETNs have some tax advantages, as long as investors hold them for more than a year, he added. In that case, any profits made from selling the shares would be taxed as long-term capital gains. But if an investor held an ETF for more than a year, only 60 per cent would be taxed as long-term gains, and the other 40 per cent would be taxed at the short-term capital gains rate.

In April, Deutsche Bank started trading four new exchange-traded notes that are essentially variations on its agricultural ETF. The DB Agriculture Long ETN reflects the price changes for the same four crops as the fund. The bank also created an ETN that doubles the returns of this note, and two others that are the inverse of the long and double-long notes.

Mr Rich of Deutsche Bank said that these investment products were all created in response to feedback from its clients, particularly financial advisers who work with individual investors or small institutional investors. 'These are building blocks for advisers to create their own diversified commodities portfolios,' he said, adding that the short and double-short notes were created for clients who thought food supplies might eventually catch up with demand.

None of the Deutsche Bank products are as narrowly focused as the new notes from Barclays. Besides the three notes tracking coffee, cocoa and sugar, Barclays also announced an ETN last month that will track cotton prices. On the same day, it announced several new notes for individual metals - like aluminium, platinum, lead and tin - as well as one to track the nascent carbon trading markets. -- NYT