Commodity Funds:Why is everyone so intersted in Wheat, Canola and Corn

I'm sure you have heard a grain futures analyst say "the funds are buying" as a reason grain prices are moving.
I was curious and did some research on commodity funds. There are a pile of them:
Mutual funds: One mutual fund info. page had listings for 47 different commodity mutuals. A lot have appeared in the last 2 yrs. In the above chart, Blue = PIMCO Commodity Real Return Fund and Red = Oppenheimer Real Asset Fund
Pension funds; These massive pools of money hold commodity futures.
Managed money commodity pools: Basically a bunch of people with "real" money give it to a manager to trade, well not give really.
Off shore investors: I think off-shore money would be considered in managed pools. I gave them there own catagory because a good chunk of off shore money trades.
Exchange traded products:Added to the horde of cash are various Trakrs or ETFs. These trade on the exchanges as a basket of commodities. They have to hold positions to reflect that basket, so they buy futures contracts. Some products trade on commodity exchanges. So far two ETFs trade on US stock exchanges:

• Powershares DB Commodity Index Tracking Fund
• iShares GSCI Commodity Indexed Trust
  

All this money is traded in different ways. That breaks down into two basic strategies;


Passive; These funds buy and hold contracts (or positions based on some type of derivative). What they hold is based on a index or basket of commodities that is predetermined. There are three main indexes to follow. There are smaller ones and for sure ones I don't know about. The main three indexes are:

1. Jim Rogers Internataional Commodities Index
2. Goldman Sachs Commodity Index
3. Dow Jones-AIG Commodity Index

These types of funds balance and rebalance based on the basket or index they follow. Some futures contracts are monthly (oil for example) some are different periods (most grains). Most of these funds hold long positions (make money if commodities go up and are based on the idea that's the way the market will move.)

Active: Managers of active funds increase or decrease positions. Active managers may also go short (hold positions based on a commodity going down in price) or long

So what is the net effect of all this: It should be good for the market. More trading, more cash, more liquidity, those are good things. More trading stops one or two large traders moving a market to there advantage. More cash in a market speaks for itself, and more liquidity reduces risk (you can get in and out when you want). Negative effects could come from a lot of these funds getting in or out of something and creating volitile price moves.

I haven't mentioned "hedging" . Hedgers are part of the commodity market. Producers and manufactors have always tried to ensure price buying futures. But there is new money from the bio-fuel industry in the markets. Hedge funds are a different story, but they do trade in commodity markets both short and long.