If you can't eat your commodity investment, ditch it.
That seems to be the mantra that fund managers have followed.
The surge in grain prices has defied a slump in the appeal of commodities overall to investors, with fund managers taking their most negative positioning towards the sector since the depths of the world recession.
Bank of America Merrill Lynch, in a report entitled "bonfire of the commodities" highlighted a large outflow of cash from commodity investments over the last month, fostered by a "big drop in corporate profit expectations and fading hopes for QE3", a third-round of quantitative easing in the US.
While investors have been hoping for more quantitative easing, ultra-easy economic policy, to boost US growth, the Federal Reserve has so far failed to deliver, with its chairman, Ben Bernanke, on Tuesday offering little hint of a change in tack.
"Capitulation out of commodities into 'safe assets' is visible," BofA Merrill Lynch said.
'Significantly underweight commodities'
Indeed, although levels of funds held by asset allocators in bonds and, especially, cash are high, "chief investment officers remain significantly underweight commodities", the bank said.
"The underweight of commodities is the largest since February 2009," and well below the long-term average too.
However, the exodus defies, in agricultural commodity markets, a sharp surge in prices prompted by a sharp drop in US crop production prospects, and which has been accompanied by a jump in investor interest in futures and options for most US contracts.
According to Rabobank, the net long held by non-commercial investors in US agricultural commodity futures and options has soared to more than 520,000 contracts, from 175,000 in mid-June.
Managed money, a proxy for speculators, has more than doubled its net long interest to more than 820,000 lots.
Room for long bets
This increase contrasts with smaller appetite for some energy contracts, with funds turning net short in heating oil derivatives, with net longs lower in precious metals than a month ago too.
And it has been seen as fuelling the grains rally, with the US crop scare hitting at a time when speculators had a relatively small long position in corn and a net short holding in wheat - offering considerable scope for piling on long bets, which gain when prices rise.
This pattern could yet be reflected in the broader commodities complex, BofA Merrill Lynch said, rating "long commodities, short bonds" at the top of its list of contrarian pair trades suggested by its data, based on a survey of 261 fund managers, in charge of more than $700bn.
The comments follow an idea from Societe Generale that investors might prove more willing to lay on positive bets in commodities, noting their status as investments favoured in times of elevated inflation.
"Though consumer inflation continues to ease across most regions, investors may again look to commodities for longer-term inflation protection as central banks become increasingly more concerned with growth than inflation," the bank said.
"Growth is likely to continue to be a near-term concern, which could weigh on base metal interest in particular.
"But weather issues and Iran issues may help lift agriculture and energy investor interest through the summer."