The speed of economic recovery will largely hinge on the availability, dissemination and reach of COVID-19 vaccines, pushing the expected burst of pent-up consumer demand into the latter half of 2021, according to a comprehensive outlook report from CoBank’s Knowledge Exchange division.
“The coming year will be a recovery year for most Americans and the businesses that make up the U.S. economy,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange. “The early part of the year should look very different than the latter, but in total, economic growth is estimated to be about 4%, following a retreat of roughly 4% in 2020.”
The CoBank 2021 outlook report examines 10 key factors that will shape agriculture and market sectors that serve rural communities throughout the U.S.
Global Economy: Uneven recovery ahead
Against all hope that COVID would fade in 2020, the pandemic will likely continue to steer the global economy in 2021. Global economic recovery was very uneven in 2020, and given the current surge in virus cases, CoBank experts believe that will remain the case in 2021. Perhaps one of the longest lingering impacts from COVID will be the mountains of debt absorbed by most governments around the world.
U.S. Economy: COVID is still the economy
A post-COVID bounce is coming to the U.S. in 2021, but it’s unlikely to happen soon, according to CoBank’s report. Much of the year’s economic trajectory will depend on fiscal policy decisions made over the next couple of months. Roughly 10 million Americans who lost their jobs early in the pandemic have yet to find work, and many are receiving some form of public support. If and how Congress chooses to fund further relief will impact the speed of economic recovery.
Monetary Policy: Less dramatic but no less critical
If there is an economic hero amid the pandemic, it is most certainly the central banks. The Federal Reserve, in particular, stabilized the global financial system within weeks of the pandemic taking hold, and it continues to provide massive amounts of economic support. The role of central bank policy in 2021 should be less dramatic but no less important.
U.S. Government: Sweeping leadership changes
As the 117th Congress begins, the political landscape is still somewhat uncertain. The Biden administration transition is proceeding, but the narrow margin of power within Congress will moderate legislation. The new cabinet will be more diverse than President Trump’s but is unlikely to shift to its leftward extreme, as indicated by the selection of former USDA Secretary Tom Vilsack to resume his role.
U.S. Farm Economy: Strong 2020 finish
Higher commodity prices and low interest rates will be an important financial buffer to net farm income in 2021. More than one-third of U.S. net farm income in 2020 came from a variety of USDA programs. Crop prices have been bolstered by robust Chinese purchases and dry growing conditions in key regions of the world. Historically low interest rates will lower borrowing costs. The value of farmland, an important source of equity for farmers and ranchers, is also expected to remain stable in 2021.
Specialty Crops: More shifts in consumer demand
The specialty crops sector will continue to adapt to historic shifts in logistics and supply chains in 2021 as the pandemic causes consumers to purchase more food at retail and less through foodservice. With thousands more restaurants expected to permanently close through the winter months as COVID-19 cases increase, growers and the supply chains will have to continue adapting to more at-home dining.
Grain, Farm Supply and Biofuels: Recovery in motion
The grain and farm supply sectors enter 2021 on reasonably firm footing supported by rising commodity prices, farmer stability, favorable domestic demand and promising exports. Farm supply cooperatives are in a positive position following a very orderly harvest, rising grain prices and decent farm liquidity. The ethanol outlook is stable but guarded. After experiencing a near 50% reduction in demand in the spring, fuel ethanol in the U.S. has recovered to about 90% of pre-COVID levels.
Animal Ag: Higher feed costs, restaurant reboot
Higher feed prices will challenge the dairy and animal protein sector’s ability to return to pre-COVID margin levels in 2021. Corn and soybean meal prices have reached multi-year highs, and the futures curves indicate rising costs in the months ahead. Domestically, the animal protein and dairy sectors will face greater uncertainty in foodservice demand.
Rural Electricity: From reactive to adaptive
The common need to pivot from being pandemic-reactive to market-adaptive requires more decisive response from U.S. power suppliers. Amplifying the call for action are shifts in policy, costs of new technology and consumer requirements.
Rural Communications: Big spending not likely
With a new administration, expect a good bit of gridlock in Washington in 2021. It’s likely that any COVID-related stimulus will focus on near-term economic needs versus investing in projects that take years to produce results.
Read the full report online at cobank.com.