How the heat wave could impact the U.S. economy

A corn crop dries up in a field near Perryton, Texas.

Jeremy Hobson: Well the trouble on the farm is likely to have implications around the world. And for that part of the story, let's bring in Nick Higgins. He's a commodity analyst at Rabobank International in London. Good morning.

Nick Higgins: Good morning.

Hobson: Well, we've heard that this drought is the worst since the 80s. How bad is it in your view?

Higgins: Look, it's terrible in fact. I mean, the U.S. is still the world's largest producer of corn. This has hit the corn complex particularly hard. Where we see global corn exports of around 100 million tons, vs. current U.S. government estimates, we think that 50 million tons has been lost from the U.S. crop.

Hobson: What are the implications on things like meat prices, because obviously corn is used to feed livestock?

Higgins: That's exactly right. We get mixed implications in the first place. First of all, the higher corn prices will suggest that people are less willing to put their cattle on feed. If it gets very bad, they'll liquidate their herd, not even bothering to finish them off ready for supermarkets and the like. So that's what I think we'll see coming next, you know -- the size of the U.S. cattle herd coming down and then that will push up prices.

Hobson: Is there anything that can be done at this point?

Higgins: Not really. Farmers are always at the mercy of the weather, so what can be done is relatively little. I mean, market forces will work and we'll see higher prices across the complex, which will I suppose stop some people from eating meat. There'll be less cattle around and probably slightly less ethanol produced as well. And that will allow the U.S. to keep exporting, probably at a slightly lower pace. And the whole sort of grains balance sheet of the world will have to re-equilibrate.

Hobson: Nick Higgins is a commodity analyst at Rabobank International. Thank you so much for talking with us.

Higgins: Cheers, thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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