Drought Hits US Economy, Raises Food Costs

Morning Business Memo:

Extreme weather will take a bite out of US economic growth. The question is how big will it be? More than half the country is in the middle of a drought, and the US Department of Agriculture is declaring a national disaster in parts of 1,000 counties and 26 drought-stricken states. A third of the nation's corn crop has been damaged by heat and drought. The government slashed its forecast for this year's harvest. Corn farmers had expected this to be a record year when they planted, sowing 96.4 million acres, the most since 1937. But after months with little or no rain and extreme heat in large portions of the Corn Belt, the USDA revised that estimate down by about 14 percent. The drought has pushed up prices for some commodities, and this will raise the cost of food for consumers.

JP Morgan Chase says its surprise trading loss grew to $4.4 billion. That's more than double the bank's original estimate. JP Morgan reports a $5 billion second quarter profit, down from $5.4 million a year ago.

For all the talk about JP Morgan, the growing scandal over the rigging of LIBOR interbank rates could be far more damaging to the industry. The Financial Times says according to Morgan Stanley estimates, 12 global banks that have been publicly linked to the scandal face as much as $22 billion in fines and damages. So far Barclays Bank is the only firm to have been hit with a big fine. But others may be implicated by regulators in the US, UK and elsewhere.

Stock market futures rose this morning after six straight days of losses. The worries are all about the three E's - the economy, earnings, and Europe. An economic slowdown and more problems in Europe could take a bite out of corporate earnings. Credit ratings agency Moody's has downgraded Italy's government bond rating two notches. As a result Italian bond yields rose this morning. The downgrade is another blow to a European economy that is flailing from the effects of austerity measures brought on by high government debt.

A new report says U.S. retail sales of video-game hardware, software and accessories fell for a seventh consecutive month. Sales declined 29 percent in June compared to the year before, says NPD Group.

Richard Davies Business Correspondent ABC NEWS Radio twitter.com/daviesabc

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