Drought in U.S. Threatens Food Price Surge – Aug. 10

Drought in U.S. Threatens Food Price Surge

Financial markets finished higher for a fifth consecutive week today, extending the longest weekly advance since March.   However, some of the recent optimism was cooled today by a worse than expected Chinese trade report and a report from the USDA confirming that the U.S. is in the midst of the worst drought in decades.

The drought plaguing America’s Heartland sent corn prices to a record high.  The USDA announced in a report this week that they project a “massive” slump in the corn harvest.  As investors this may be concerning because fewer crops translate into higher food prices for consumers.  The United Nations released a report this week that showed world food prices jumped 6% in July.  This year’s drought has also taken its toll on other crops such as soybeans, which are essential to products such as cooking oil, margarine and peanut butter.

More immediate shocks from the drought are already being felt in the livestock business.  Large pastures that are used to feed livestock have “burnt away” this year and cattle farmers are doing all they can to keep their livestock fed.  As farmers try to avoid the higher feed costs they are sending younger cattle to the slaughter house because they cannot afford to feed them. Farmers are also accepting much lower prices for these cattle due to the increased supply.  Ben Davis of FCS Financial said, “Cattlemen are accepting $900 for cows that would have cost $1,500 a few months ago”.

Politics and Business

As the November elections near we are starting to see how politics are influencing corporate decision making. The Wall Street Journal article below discusses the impact Washington is having on business confidence. CEOs are essentially holding back on investing in new equipment, marketing, technology, acquisitions and are not hiring many new employees due to our “dysfunctional” leaders in Washington.  The market and business leaders historically have viewed political gridlock as a good thing but when there is no direction on major legislative actions such as taxes, business regulation and government spending business leaders tend to delay major financial decisions.  The economic recovery in the U.S. has been impacted by this and it is likely to continue until we get thru the elections and see what Congress does or does not do thereafter.  My editorial comment – if the political leaders on both sides were executives at a publicly traded company, shareholders would be screaming for them to be fired because they simply are not doing their job.  I think voters will remember this poor job performance as they go to vote in the various elections.

On a side note, we recently revamped our website www.pfaclientdev.brickst.com.  If you have a few minutes take a look, as always we appreciate all feedback and suggestions.

Yes that is cool air outside!  It should be a great weekend to be outside so enjoy it.

Jim