The drought in South America continues, with Brazil being particularly hard hit at the moment.
This site has previously highlighted research which argued that droughts will only worsen in Brazil and other areas adjacent to the Amazon rainforest, due to the ongoing slash/burn activity that is dramatically reducing the size of that rainforest. There are surly other factors involved, however, if the shrinking size of the Amazon rainforest is the driving force behind the severe drought that is now happening, then the implication is that the droughts will only intensify over time, as the farmers in Brazil continue to eat away at the edges of the Amazon.
Another implication is that there will be ongoing price pressure in a number of commodity markets, where Brazil plays a major role. Brazil is a major exporter of a number of soft commodities, such as coffee and soy beans, to name a couple. I have read that mining consumes a lot of water (like a whole real lot) — as you can tell, I am being a bit lazy on this point — so this may pose another challenge facing Brazil’s iron ore miners (Chinese buying has been causing the price of iron ore to skyrocket). Indirectly, this drought may also increase price pressure on the energy markets. Brazil relies on hydro-energy for a significant amount of its electricity needs. They now need to import large amount of LNG to offset the decreased hydro-energy production.
With the world’s central banks flooding the world with liquidity at the same time extreme weather events are playing havoc with commodity markets, we could have the ingredients for a toxic cocktail of commodity driven inflation that will add to all the other inflationary pressures (e.g. real estate prices and rent costs). It seems that the rider on the black horse — the third rider of the Apocalypse — is finally making his presence felt in the world.