Ag economic outlook tied to pricing, trade success
WASHINGTON — Commodity prices, COVID-19 and trade agreements are three of the top subjects shaping the farm economy outlook in 2021.
Three American Farm Bureau Federation economists presented their top topics influencing commodity prices, livestock markets and overall farm policies during a Jan. 11 presentation at the organization’s virtual convention.
“China is the big elephant in the room,” AFBF livestock economist Michael Nepveux said during the “2021 Farm Economy Outlook” workshop. Before the swine flu reduced China’s hog herds in 2018, the country accounted for half of the world’s production and consumption of pork, he added.
Since then, U.S. pork, beef and poultry exports to China not only rebounded, but also experienced significant increases in 2020. The question Nepveux posed is whether those exports will continue to increase under the new administration.
Shelby Swain Meyers, an AFBF crop marketing economist, added that China has become one of the U.S.’s top small grains importers as well. “China is returning as a demand partner for U.S. commodities,” she said.
In the corn market, Meyers noted China was 15th in imports from the United States in 2019 and climbed to 4th in 2020.
“They want livestock feed in any way that it comes,” she said.
The markets are also seeing U.S. competitors pulling back from trading. Meyers said Brazil is facing drought and soybean exports have dropped 8 percent.
Argentina has suspended its corn exports until it shores up domestic supply, she added.
Meyers also noted the potential opportunity for farmers to seize revenue derived from qualified sustainability practices, through developing credit markets.
Dr. John Newton, chief economist for AFBF, said that under the Phase One trade agreement with China, $22.5 billion in U.S. agricultural products were exported in 2020, short of the $33 billion level set in the agreement but potentially a record level once December sales are finalized.
Newton said he expects that figure to reach more than $40 billion this year.
But the unknowns regarding trade include President-elect Biden’s views on trade with China, and whether the United States will rejoin the Trans-Pacific Partnership.
Newton said that when former President Obama negotiated the TPP, it stood to boost net farm income by $4 billion.
He also noted that the majority of U.S. agricultural trade is with North America, China, Japan and South Korea.
There is limited U.S. trade presence in the European Union, Africa and South America. “Do we focus on bilateral or trilateral agreements?” Newton asked.
Nepveux discussed the “astronomical” impact of slaughter plant disruptions in the spring, which caused a 35-percent drop in production.
He said he looks for 2021 to be much smoother as “most of the plants have figured out the best way to deal with it,” but it’s still a factor to watch.
He added a recovery in the food service and restaurant industries will affect markets, adding value to more expensive cuts of meat.
The effect of drought in the Western United States could impact food costs as it is causing huge challenges for cattle producers who face increased feed costs along with parched grazing land.
“This is definitely going to be on the front of producers’ minds going forward into 2021,” Nepveux said.
Proposed federal rules on price discovery in livestock markets which could set how much purchasing is done in the cash trade versus other agreements is another issue to watch, Nepveux said.
In commodity markets, Meyers said lower ending stocks are aiding increasing prices and global demand is increasing.
Soybean acres are projected to increase next year, inching close to a 50/50 split with corn and the Conservation Reserve Program is at its lowest acrege level since 1988.
Looking ahead, Newton said agriculture and food service industries won’t turn the corner from the effects of COVID-19 until mass vaccinations are available.
Farmers were helped by over $45 billion in ad hoc support from the federal government through programs like the Coronavirus Food Assistance programs and the Market Facilitation Program.
This money helped farmers offset the effects of retaliatory tariffs and pandemic impacts.
For 2021, however, Newton said there is much less federal funding available to help farmers.
He said $13 billion recently was approved for the agricultural sector. Farmers who will benefit include row crop producers, cattlemen, contract poultry and livestock producers and dairy farmers.
Newton also called credit markets paying for certain farming practices a “front and center” issue for 2021 with the new presidential administration signaling an emphasis on dealing with climate change.
Strengthening the federal Farm Bill will also be a “huge priority” for the AFBF.
Repeated weather disasters, trade disruptions, and other events have shown farmers and analysts the current programs need changes.
“It’s become immediately clear that the current safety net is not adequate enough to help farmers,” Newton said, adding AFBF needs to communicate the importance of the Farm Bill to the new administration.