Ag News
China, COVID-19 continue as major economic factors in 2021
Posted on Jan 19, 2021 at 19:00 PM
During the 2021 Economic Outlook Workshop in the American Farm Bureau Federation (AFBF) Virtual Convention, AFBF Chief Economist Dr. John Newton, AFBF Public Affairs Economist Michael Nepveux and AFBF Crop Economist Shelby Myers discussed how the 2021 U.S. crop and livestock markets will play out and major factors that will influence farm profitability this year.
According to Nepveux, the top five issues that will influence how the 2021 livestock market fares are:
1) China’s demand for protein. U.S. pork exports to China increased 45% from 575,000 metric tons (MT) in 2019 to 836,000 mts by Oct. 2020, mostly due to China’s pork herd being decimated by African Swine Fever in 2018. U.S. beef exports increased 132% from 11,000 mts in 2019 to 25,000 mts by Oct. 2020. China’s demand for quality beef is growing as its middle class expand. Australia, which has supplied a lot of China’s beef, struggled in 2020 with drought and wildfires.
2) Will COVID-19 cause future slaughter plant disruptions? Nepveux thinks most meat plants have figured out the best way to deal with COVID.
“Even though we might still see some disruptions, I don’t believe we’ll see it to the same magnitude we saw in last spring and early summer of 2020,” he said.
3) Foodservice Recovery –how away-from-home food dollars are spent. Nepveux explained that pre-COVID, U.S. food supply chains were established to channel the food supply to restaurants since prior to COVID, the majority of money spent on food in the U.S. was spent away from home. When COVID hit the U.S. in March, it took time to move the food supply back to restaurants.
4) Drought & Cost of Feed. Fifty percent of the U.S. – mostly from Texas to California – is experiencing severe to exceptional drought conditions, Nepveux said. These drought conditions could increase feeding costs for livestock producers in portions of Mid-Western and Western states where a large percentage of beef production occurs.
5) Fight over price discovery in livestock markets.
The Holcomb plant fire in Kansas in late 2019 and the COVID-19 pandemic caused meat prices to skyrocket while the price paid to farmers dropped, Nepveux said. Many producers began to demand price discovery and requiring a certain percentage of livestock to be sold through cash trade with delivery in 14 days. AFBF voting delegates adopted policy to support efforts to increase negotiated sales in fed cattle markets as a way to provide stability in markets. Delegates also called for increased transparency in livestock pricing.
The top five factors U.S. crop producers should watch in 2021 are:
- ending stock levels for the 2020 crops combined with ’21 projected crop estimates;
- China’s increase of grain imports;
- Decreased crop production in Brazil and Argentina combined with value of the U.S. dollar making our crops more competitive;
- COVID impacts on crop demand (corn/ethanol); and
- the revenue potential offered by enrolling in new sustainability programs, AFBF Economist Shelby Myers said. Lower ending stocks of corn and soybeans have pushed prices to multi-year highs. Global demand is sending prices higher.
For the first time since 2013 corn prices have reached above $4/bushel while soybeans have rose above $10.50/bushel for the first time since 2014 and continue to rise into the teens, Myers said.
USDA forecasts U.S. soybean planted acreage will jump 6% to 89 million acres in 2021 from 83 million acres in 2020 and sit at about 90 million acres through 2030. For corn, USDA expects 2021 planted acres will drop to 90 million acres and sit between 89 to 90 million acres through 2030.
U.S. wheat acreage is projected to rise 4% in 2021 from 44.3 million to 46 million acres. Myers said lower global wheat supplies could lead to higher prices. Russia recently announced an export tax on its wheat that may make the U.S. crop more attractive to global buyers.
U.S. cotton acres are projected to drop slightly this year about 6% from 13.5 million acres to 11.9 million acres despite recent increases in global purchases of cotton. The USDA projects planted cotton acreage to sit around 12.8 million through 2030.
According to AFBF’s Newton, the top five policy issues U.S. agriculture will face in 2021 are:
1) COVID-19 recovery - Specifically how long until we see mass vaccinations and a return to normality;
2) Expected decrease in ad hoc support federal government gives agriculture after the $13 billion included in the latest COVID relief package is disbursed. Since 2018 agriculture has been allocated more than $45 billion in support to offset retaliatory tariffs and the impact of COVID-19.
3) What happens with China trade negotiations & Phase 1. Newton said ag exports to China will most likely fall short of the $33/$36 billion the country agreed to buy in 2020, but exports would reach levels close to 2012’s record exports of $27 billion.
4) Need to strengthen safety net programs in 2023 farm bill: “When you look at the amount of disaster assistance and ad hoc support that has been needed for trade and Covid it’s become clear that the current safety net is not adequate enough to help farmers and ranchers,” Newton said.
5) Climate – ag having a seat at the table for policy discussions. “Climate smart agriculture is a public good so agriculture has to find a way to work with Congress and the Biden Administration and the USDA to provide the proper voluntary financial incentives [to farmers] to expand adoption of climate smart practices to make carbon sequestration a new revenue stream for ag," Newton said.
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