Montreal, Canada

The time might be approaching for a short-term trade betting against the hysteria enveloping the agriculture complex.

Until last week, the majority of macro and quant-strategy hedge funds were heavily long the grain trade. Reports late last week in The Financial Times show a slew of traders dumping the grains as financial markets tumbled; corn, soybeans, wheat and other grains rallied sharply on Friday following a big sell-off earlier in the week.

Corn, wheat and soybean prices have surged 70% to 100% over the last 12 months following some of the worst grain harvests in decades and a boom in hedge fund and ETF buying. Government hoarding, near-disastrous droughts and climate change have all impacted crop yields.

The financial press is also long the grain complex with a deluge of editorials exclaiming the dangers of food shortages, plunging crop output and the consequential unrest spreading across North Africa, the Middle East and India.

There’s no doubting the world is outgrowing its food supply. I’m a big believer in that theory as presented by author and environmentalist, Lester R. Brown (Outgrowing the Earth, W.W. Norton & Co.). I’m also a big agriculture bull.

Global water tables are at the heart of the developing food crisis and the odds are growing that over the next several decades, we won’t have enough food supply to feed a rapidly expanding population. Nestlé Chairman, Peter Brabeck-Letmathe, cautioned about declining food production and rising population growth two years ago.

But everyone is now “long and strong” the grain trade and other soft agricultural commodities like cotton, coffee, cocoa and sugar – all in short supply or in net deficit. The scope for a massive short-term correction is growing by the day and it’s likely to be quite violent as latecomers exit the party en masse.

I would not buy the grains or other agricultural ETFs now. Better entry points lie ahead this summer or fall.

Instead, look at making a few bucks betting against the primary trend ahead of a correction.

Beneficiaries of an agriculture or crop price correction include Kellogg’s (NYSE-K), General Mills (NYSE-GIS), Kraft Foods (NYSE-KFT) and Nestle (Zurich-NESN). All four companies would probably harness a rally if food prices declined, if even temporarily. Also, at these prices, investors get at least a 3% dividend and own blue-chips trading at a discount to the S&P 500 Index.

For those with deeper speculative pockets, look at DB Agriculture Short ETN (NYSE-ADZ), currently trading at an all-time low.

When everyone is on the same side of the ship, you know what happens next. The agriculture sector is too hot.