Dried Up Grain Crop Will Raise Prices For Many Goods

It's been hot and dry, and the U.S. corn crop is burning up. Judging by rising prices, wheat is not doing too well either, and soybeans have only a few weeks of grace before facing the same yield losses as corn. The world will have to adjust to this "exogenous shock."

Some examples of how this may work out, in major or minor ways, illustrate the complexity of the modern global economy.

In coming months, manufacturers and retailers of the ubiquitous sausage-like bags used to preserve whole-plant corn silage will sell more such bags than they would have without the drought. When corn is drought damaged, chopping it for whole-plant silage is often the least bad alternative. So vendors of silage-related machinery and supplies may see a good year even with a bad crop.

However, sales of all sorts of farm machinery are tanking, leading to things like Goldman Sachs' recent downgrade of John Deere stock.

Oil companies selling bunker fuel for ocean-going ships in South American grain export ports like Santa Fe, Argentina, will see increased sales, but their counterparts in New Orleans will lose business. U.S. exports will drop. South American exports will rise, and any business in either region connected to shipping will feel the consequences.

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