Wednesday, July 25, 2012

Drought and Latin America

Both today and yesterday, NPR ran stories in the morning on my way to work about the drought in the midwestern United States, which has affected soybeans and corn in particular. That made me think of the fact that I often note the problem of Latin American economies relying on commodities, but rarely acknowledge when it works out well, at least in the short term. This drought will help Argentine farmers, who are chomping at the bit to increase corn exports. It will also help Brazilian soybean farmers, not to mention Brazilian corn farmers who are benefiting from U.S. companies needing animal feed.

The downside, of course, is that the average person in Latin America and everywhere else will see an increase in the cost of anything related to corn and soy, which are connected directly or indirectly to many different products. There was a lot of discussion about this type of issue back in 2007, when corn-based ethanol was all the rage, and it was making tortilla prices spike.

3 comments:

Otto Rock 9:10 AM  

Not sure about your 2nd paragraph there. The fungible nature of commodities means that it doesn't matter where the supply shortage originates from.

In other words and for example, doesn't matter if USA has a bumper soybean crop and Brazil's bums out (or vice versa, as in this year), if world soybean crops don't hit the expected number as a total aggregate, your classic bottle of cooking oil in Mexico will be more expensive.

Greg Weeks 10:36 AM  

The point is that corn and soybean prices are up as a result of the drought, which will then lead to higher prices for consumers everywhere.

Mariano 2:03 PM  

I have a friend who is a top executive at John Deere in Latin America and he told me he's seen a huge increase in the use of land in Brazil as a response to the drought in the US. He also believes that this will be very beneficial to Brazil, and not just in the short term -- despite the increase in prices for consumers

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