Economy Watch: Drought Worsens, Global Food Prices Will Go Up
Food prices are expected to surge worldwide as part of a cascade of ill effects from the intense drought in the United States.
By Dees Stribling, Contributing Editor
Food prices are expected to surge worldwide as part of a cascade of ill effects from the intense drought in the United States. On the Chicago Board of Trade on Friday, corn rose to an all-time high following the release of a report by the U.S. Department of Agriculture that cut its estimate of U.S. corn production by 17 percent—roughly a sixth of the entire corp, gone since early July. The price of corn, as well as soybeans, had already risen in anticipation of the woeful report, but also dropped a little on Friday after reaching all-time highs.
“Based on conditions as of August 1, yields are expected to average 123.4 bushels per acre, down 23.8 bushels from 2011,” the Agriculture report noted. “If realized, this will be the lowest average yield since 1995. Soybean production is forecast at 2.69 billion bushels, down 12 percent from last year. If realized, the average yield will be the lowest since 2003.”
Concerned about a food crisis along the lines of the spike in prices worldwide in 2008, when commodity shortages evolved into export restrictions and hoarding in a number of countries (making things worse), the G20 and UN agriculture officials are planning a major meeting next month or in October. At issue, among other things, will be mandates in the United States, E.U. and other countries that mandate that a certain percentage of corn crops go to make biofuels.
Imports down, exports up
The Census Bureau reported late last week that U.S. exports were up in June while imports were down—a fact that might add some basis points to the next revised estimate of U.S. GDP growth for the second quarter, since imports represent a subtraction from the total (the initial estimate is a meager 1.5 percent). Exports increased to $185 billion in June from $183.3 billion in May, while imports decreased to $227.9 billion in June, from $231.4 billion in May.
The shifting import/export numbers also represent a drop in the U.S. international trade deficit, from $48 billion in May to $42.9 billion in June. One of the main drivers in the drop in imports seems to be falling prices for oil.
Other kinds of goods that the United States didn’t import as briskly in June were industrial supplies and materials, capital goods, consumer goods and foods, feeds and beverages. Increases in imports still occurred in vehicles, parts, and engines, however, perhaps reflecting the strength of the domestic auto industry. Vehicles, parts and engines also represented a large part of the increase in exports.
Another Fed president wants QE3
On Friday, another Fed president—in this case, John Williams, head of the San Francisco Federal Reserve Bank—said outright that he’s for another round of fiscal stimulus by the central bank. In an interview he called QE3 (but not using that term) “a very big step” with a high hurdle, and added that the economy has reached that hurdle.
Earlier in the week, Boston Fed chief Eric Rosengren said essentially the same thing. No word yet from Ben Bernanke on the subject, but it’s only a few more weeks until the next meeting of the FOMC.
Wall Street had mild up day on Friday, with the Dow Jones Industrial Average gaining 42.76 points, or 0.32 percent. The S&P 500 was up 0.22 percent and the Nasdaq edged up 0.07 percent.
