Higher Food Prices Likely As Drought Worsens

Morning Business Memo:

The price of many food products could rise later this year as much of the country is hit with the worst drought in a generation. Wholesale corn prices shot up nearly 5 percent yesterday, and soybean prices are also heading higher. Crop losses will be a blow to America's rural economy and cut farm exports. The US Agriculture Department slashed its estimate of this fall's corn crop by 12 percent - compared with last month's forecast. Officials say 38 percent of the corn crop is in poor condition because of the drought. A shortage of corn and soybeans is raising concerns about global food shortages and inflation. That said, it would be easy to overstate the impact on the national economy and American consumers, especially if the weather improves soon. It may take months for some food and meat costs to rise in supermarkets. According to a government estimate, cereals and grains accounts for just 2 percent of the US consumer price index.

Expect some political theater today when Ben Bernanke testifies before members of the Senate Banking Committee. The Federal Reserve Board chairman is set to deliver his view of slowing economic growth. Democratic Sen. Charles Schumer is expected to press Bernanke to take more steps to jolt the economy. Other Democrats may join in the chorus, while Republicans are highly skeptical about further moves. Investors are hoping Bernanke will signal another round of bond purchases is coming. The purchases seek to push down long-term interest rates and encourage more borrowing and spending. The first two rounds triggered powerful rallies in the stock market.

More dismal news on the economy arrived yesterday. The Commerce Department said retail sales fell in June for the third straight month. The International Monetary Fund shaved its estimate for global and U.S. growth for this year and next. And the IMF warned Europe's financial crisis and a potential budget crisis in the US could slow world growth even further next year.

More rumbles in the growing fuss over Libor rate fixing. Mervyn King, the governor of the Bank of England, says US authorities did not show him any evidence of rate manipulation when they raised concerns during the 2008 financial crisis. US and British regulators, including the former head of the New York Federal Reserve, Timothy Geithner, face criticism over whether they failed to act to stop rate fixing. King told a House of Commons committee today that in 2008 there were lots of concerns being raised about Libor. But no fears were voiced about big banks misreporting the rate.

The latest banking scandal involves HSBC. Senate investigators have found the global bank allowed drug traffickers, terrorists and Iranian firms to launder billions of dollars because of poor internal controls. HSBC executives ignored warnings that the bank's overseas operations were being used to launder cash, says the Senate investigation. Bank officials are expected to testify today before a Senate subcommittee. The Wall Street Journal says the nearly 400-page Senate report outlines "a regulatory culture at the bank where some officials allegedly engaged in risky behavior in pursuit of profits." Similar claims have been made about highly risky trading at other global banks.

Wall Street is cheering Yahoo's decision to appoint Google executive Marissa Mayer as its CEO. She's "product based," with an expertise in the nuts and bolts of building a successful website, say analysts. Mayer faces a huge challenge. Yahoo has been struggling for years. Mayer becomes the search and online advertising company's 5th CEO in 5 years.

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