“Drought’s Grip Is Wide, Deep”- Wall Street Journal, 4 Sept 2012

Though Hurricane Isaac brought relief to one of our driest summers, the drought still has the capability of slowing our economy.

Farms have faced the brunt of repercussions, severely effecting corn and soybean crops, and increasing prices of feed for chickens, hogs and cattle. Many cattle ranchers and dairy farmers have found it cheaper to slaughter their livestock, which, in turn, affects food companies’ profit margins. According to the Department of Agriculture, food prices could climb 3% to 4% from 2012-13. Food prices rose from 2.5% to 3.5% in 2011-12.

Among other price increases is the growing cost of gasoline. Ethanol, a corn-based fuel that is mixed with gasoline, is a likely source of mounting gas prices. Gasoline prices are now around $3.78, having risen over 40 cents since July.

Regardless of the drought, farm incomes will grow 3.7% this year, to $122.2 billion. This is partly due to elevated prices of corn, soybeans and land, which are compensating for any losses. This, however, hasn’t widely stirred economic growth.

Recent rains cannot undo damages incurred, but may be able to facilitate next year’s soybean crop. Our current economic situation could worsen if moisture isn’t restored for next year’s growing season.

The question to answer: Will inflated food prices cause consumers to spend less on big ticket items, such as flat screen TVs and computers?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

October 10th, 2012

Fluid Management Systems

Copyright 2012   All rights Reserved by Fluid Management Systems, Inc.

www.fluidmanagementsystem.com     subodh@fluidmanagementsystem.com

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