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Don’t Make This Mistake Trading Higher Corn: Pro

With the spot price of corn surging, it’s hard not to be tempted to put on a slew of derivative trades.

However top commodity trader Joe Terranova warns that some trades that you'd think should work, aren't working right now.

“Usually the ferts (fertilizer stocks) are the right play,” he says.

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That is, typically, higher commodity prices drive demand for fertilizer because farmers plant more. In turn, that benefits companies such as Potash, Mosaic and Agrium.

However, Terranova says price is truth and the truth is, “the ferts have been underperforming over the past several weeks.”

After the broadcast he told us, “Given the significant move higher in commodities, ferts should be a lot higher. That’s confusing – and traders like me listen to the market. The message from the market is telling me to avoid ferts. I can't tell you why, but the message is clear to me.”

Traders Simon Baker and Stephanie Link don’t quite agree.

They’re both bullish on CF Industries but not necessarily as a beneficiary of higher commodity prices. Instead both cite lower nat gas as a catalyst for this stock.

If you’re looking for long ideas, Terranova thinks the play is lower commodities prices.

He doesn’t think high corn prices endure and points to the trend in commodities across all of 2012. "Spikes have not lasted," he reminds. "The play is long US producers who are benefiting from lower input commodity prices.”

On beneficiary may be General Mills. Chief Executive Ken Powell says he expects prices to remain stable and stands by its forecast for cost inflation of 2 to 3 percent this fiscal year, despite a recent spike in corn costs.

Posted by CNBC's Lee Brodie

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Trader disclosure: On July 11, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Simon Baker is funds long ABT; Simon Baker is funds long GE; Simon Baker is funds long HD; Simon Baker is funds long MSFT; Simon Baker is funds long NKE; Simon Baker is funds long PEP; Simon Baker is funds long CRM; Simon Baker is funds long SLB; Simon Baker is funds long XHB; Simon Baker is funds long STI; Simon Baker is funds long V; Simon Baker is funds long DIS; Simon Baker is funds long WFC; Joe Terranova is long VRTS; Joe Terranova is long MCD; Joe Terranova is long PNC; Joe Terranova is long USB; Joe Terranova is long TCBI; Joe Terranova is long SBUX; Joe Terranova is long MNST; Joe Terranova is long NKE; Joe Terranova is long AAPL; Joe Terranova is long NXPI; Joe Terranova is long WFM; Joe Terranova is long MAR; Joe Terranova is long EMC; Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long GIS; Stephanie Link is long DD; Steve Grasso is long ASTM; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long MO; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long VLO; Steve Grasso is long XLU

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