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Analysts have warned that the fast approaching fiscal cliff, and the uncertainty around it, are expected to drag on GDP and hit the stock market. But Gluskin Sheff’s David Rosenberg writes that the global food crisis poses a greater risk to the economic outlook than the fiscal cliff:
“A lame-duck Congress may well end up kicking the fiscal can down the road even further, but there is not much it can do about the fact that the worst drought in the U.S. in five decades has destroyed nearly 20 per cent of the country’s expected corn.
Global food price inflation is bound to severely squeeze consumer spending everywhere. The harvest for soybeans is widely expected to be the lowest in five years too.
According to the data cited in the FT, the U.S. Department of Agriculture’s estimated corn crop of 10.8 billion bushels was 2.2 billion bushels less than its July projection. The U.S. rates half of its corn crop in “poor” or “very poor” condition – the highest share since 1988. The knock-on effects are potentially huge as corn is mainly used to feed animals and produce ethanol fuel in the U.S. – domestic red meat and poultry supplies will decline next year, according to the DOA.”
Many have argued that consumer retrenchment is making the economic slowdown worse, and Rosenberg’s argument hits the nail on the head.