The worst U.S. drought in over a half-century will have repercussions around the world, pushing food prices higher and raising questions over renewable energy policies, CME Group Chief Economist Blu Putnam said.
U.S. corn and soybean harvests are expected to shrink to multiyear lows, leaving less grain to feed livestock in countries such as China, where an expanding middle class is eating more beef, pork and poultry.
“We have a lot more global demand for corn than we used to,” Putnam said in a video interview. “Part of that’s because the middle classes in emerging markets are much, much bigger than they were 10 years ago. The net of it is that even though there are some offsets in other crops around the world, the U.S. drought is severe enough to push prices higher.”
Complicating matters is a U.S. mandate requiring increasing use of biofuels, such as corn-based ethanol, in the nation’s motor fuel supply. Those policies are now “in flux,” Putnam said. The drought “makes the whole ethanol program a different game, and now you have to analyze it on what does it do to the price of corn and food.”
Video Length: 2:10 minutes