Corn: a follow-up

Here is an article that reinforces my concerns about the Midwestern drought this summer, and its likely effect on the world:

My favorite line: "Central banks cannot grow corn."

We discussed corn, soybeans, and drought effects on world prices. We examined emerging economies, where food is a large component of the price index. We talked about how food spending drives the political constituencies in those countries. Bottom line: the geopolitical risk premium rises as food prices consume increasing amounts of household budgets.

The biggest take-away for me was the explanation that this decline in food production is likely to be a multi-year cycle. And this is not just one in one drought-stricken region of the world. The impact of food price increases is now global. Moreover, we have run down the inventory cushions.....


A personal note: I recall conversations several years ago with the chief economist of the Central Bank of Zambia. I met with him while planning the Global Interdependence Center conference at Victoria Falls in Livingstone. A number of sub-Saharan African nations participated in that conference.

He described to me how the economy of his country was maize-based. He said, “Here I am trying to advise the governor of my central bank about what interest rate he should use for monetary policy. Half of my price index is being driven by rising corn prices.” [my emphasis]

In the U.S., rising food prices are an inconvenience. In many other parts of the world, they are a disaster.